Risk and Procurement These slides have been added to the standard MRU PM Cert materials and are made available to students who have attended my class. Robin Hornby Tempest Management 1

RISK EVENT CAUSE IMPACT % Triggers Factors A Structure to Understand Risk 2Robin Hornby Tempest Management

Risk of Failure – Two Aspects 1. Failure to attain benefits n The link between benefit and project is not 100% n The degree of benefit is not precisely known n The benefit can be undermined by unforeseen events 2. Failure to deliver n Project is cancelled n Scope is inadequate n Schedule and/or cost over-run n Delivery is undermined by unforeseen events 3Robin Hornby Tempest Management

So – how risky is your project? ► Project risk is really the degree to which the corporation (sponsor) accepts uncertainties 4Robin Hornby Tempest Management

Risk Analysis Worksheet image Focused on risk ranking and mitigation... 5Robin Hornby Tempest Management

Statistical View of Risk Low Risk ProjectHigh Risk Project Probability Estimate Probability Estimate (small std deviation)(large std deviation) 6Robin Hornby Tempest Management

Qualifying Estimates to deal with Risk Confidence factors Plus/minus a percent Estimate range Target plus contingency.. and the old stand-by – variable scope! 7Robin Hornby Tempest Management

AVOID, TRANSFER,ACCEPT Risk Analysis One-Page Summary Identify risk factors Assess impact - severity Rank risks Assess impact - probability Assess residual risk and assign contingency Mitigate next ranking risk Mitigate very high risk iterate MITIGATE 8Robin Hornby Tempest Management

Risk Statement “Template” “Because of, may occur during causing to ” 9Robin Hornby Tempest Management

Examples of FP Variations Fixed Price with shared cost savings. E.g. Costs are set at $10K, profit at $1K, so lump sum (max) is $11K. Share of cost saving is set at 50/50. Contract ends with: Costs = $9000 Share = $500 Profit =$1000 Total$10,500 10Robin Hornby Tempest Management

Examples of FP Variations FP plus incentive. E.g. lump sum is $11K. Each day saved on the schedule = $100. Contract ends with: Lump sum = $11, days early = $2000 Total = $13,000 11Robin Hornby Tempest Management

Examples of TM Variations Time and Material plus penalty. E.g. std rate is 100/hr. Estimate for the work is 100 hrs. When costs reach $10K, rate reduces to $50/hr. 12Robin Hornby Tempest Management

Example of Using an Evaluation Matrix Where to have lunch How to get to work How to travel to Edmonton For simple evaluations, it is possible use a simple set of higher level criteria. E.g. C cost E ease B benefit 13Robin Hornby Tempest Management

The Evaluation Matrix (showing 4 variants) A wins B wins A wins B wins 14Robin Hornby Tempest Management

Early Warnings- Some ideas Missed milestones More effort than planned Constant scope changes Overdue approvals Overtime Resource changes Performance problems Technical problems Documentation or methods issues 15Robin Hornby Tempest Management