BSBPMG508A Manage Project Risk Manage Project Risk Project Risk Processes Part 2 Diploma of Project Management Qualification Code BSB51507 Unit Code BSBPMG508A

BSBPMG508A Manage Project Risk Project Risk Management Processes PMBOK Project Risk Management Processes Plan Risk Management 11.2 Identify Risks 11.3 Perform Qualitative Risk Analysis 11.4 Perform Quantitative Risk Analysis 11.5 Plan Risk Responses 11.6 Monitor and Control Risks Related processes from Project Integration Management – 4.1 Develop Project Charter 4.2 Develop Project Management Plan 4.6 Close Project PMBOK 4 th Edition

BSBPMG508A Manage Project Risk Learning Objectives – Part 2 1.Understand qualitative and quantitative risk analysis 2.Describe standard tools that can be used for risk analysis 3.Understand the use of the Risk Register and how to manage and control high priority risks 4.Understand risk management processes and how to develop risk management strategies 5.Understand how to report on risk during a project 6.Understand how to assess risk management outcomes at the end of a project

BSBPMG508A Manage Project Risk Reading – Risk Processes Part 2 Please take some time to review – PMBOK Chapters 11.1, 11.2, 11.3, 11.4, 11.5, 11.6 Risk Management Standard – AS/NZS ISO 31000:2009 Risk Management Companion- HB4360 This could take 60 to 90 minutes

BSBPMG508A Manage Project Risk 11.3 Perform Qualitative Risk Analysis Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control The process of prioritising risks by assessing and combining their probability of occurrence and the consequences of their impacts Project performance can be improved by focussing limited resources on the high priority risks Qualitative risk analysis is the most common, fastest and most cost effective means of establishing risk priorities and planning risk responses It is critical to establish definitions of the levels of probability and impact so as to reduce the influence of bias Occurs during Planning

BSBPMG508A Manage Project Risk 11.3 Perform Qualitative Risk Analysis Inputs to Qualitative Risk Analysis Draft Risk Register Risk Management Plan Project Scope Statement Organisational Process Assets - –Risk management standards –Risk management policies and procedures –Risk categories and definitions –Standard templates –Lessons learned from previous projects –Risk databases and checklists Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

BSBPMG508A Manage Project Risk 11.3 Perform Qualitative Risk Analysis Tools and techniques for qualitative risk analysis include - Risk Categorisation Risk Data Quality Assessment Risk Probability & Impact Assessment Probability & Impact Matrix Expert Judgement Risk Urgency Assessment

BSBPMG508A Manage Project Risk Probability and Impact Assessment Likelihood = Probability Consequences = Impact Qualitative Risk Analysis involves the estimation of the likelihood and consequences of each risk Quantitative Risk Analysis involves estimating the measurable impact on project objectives, specifically – Cost, Time, Scope and Quality

BSBPMG508A Manage Project Risk Basic Risk Analysis Matrix Determines - How risks are treated How closely they are monitored How quickly they must be resolved if they occur For example Risk Management Guidelines – Companion to AS 4360:2004 Medium Risk High Risk Medium Risk Low Risk Consequence Likelihood Probable Improbable MinorMajor Low Risk GreenBusiness as Usual Acceptance Medium Risk AmberHeightened Action Monitor Closely High Risk RedImmediate Action Mitigate or Avoid

BSBPMG508A Manage Project Risk Likelihood and Consequences Simple Likelihood Scale Simple Consequences Scale RatingDefinitionScale Almost CertainWill definitely occur or will occur on an annual cycle5 LikelySimilar events have been experience several times in the past 20 years4 PossibleWill occur once every 20 years3 UnlikelyOccurs from time to time2 RareOccurrence is possible but highly unlikely1 Adapted from Risk Management Guidelines – Companion to AS 4360:2004 RatingDefinitionScale SevereMost objectives cannot be met5 MajorSome important objectives cannot be met4 ModerateSome objectives impacted but may still be met 3 MinorMinor effects that can be remedied2 NegligibleAlmost no impact on objectives1

BSBPMG508A Manage Project Risk Risk Rating Matrix and Risk Urgency RatingSevereMajorModerateMinorNegligible Almost Certain Red 25 Red 20 Red 15 Amber 10 Green 5 LikelyRed 20 Red 16 Amber 12 Amber 8 Green 4 PossibleRed 15 Amber 12 Amber 9 Green 6 Green 3 UnlikelyAmber 10 Amber 8 Green 6 Green 4 Green 2 RareGreen 5 Green 4 Green 3 Green 2 Green 1 Put your likelihood and consequence ratings together and what do you get? Risk Rating = Likelihood x Consequences Risk Urgency = RED, GREEN, AMBER

BSBPMG508A Manage Project Risk Risk Categorisation – Breakdown Structure Adaptations and additions to the example in the PMBOK Adapted from PMBoK Guide – Fourth Edition

BSBPMG508A Manage Project Risk 11.3 Perform Qualitative Risk Analysis Outputs of this process include – Risk Register Updates –Likelihood and Impacts Prioritised List of Project Risks –Risks requiring response in near term –Risks requiring additional analysis and response planning Risks grouped by categories Root cause analysis Watch lists of low priority risks Trend analysis Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

BSBPMG508A Manage Project Risk Risk ID Risk Category Risk DescriptionRisk Owner LikelihoodImpactRisk Rating Management /Mitigation Strategies Residual Likelihood Residual Impact Residual Rating StatusPriority Impact Consequences of the risk occurring Impacts on or more project objectives Includes scope, time, cost & quality Has both a number scale and definition Requires judgement and prediction More accurate if can leverage lesson learnt Inclusions in Risk Register During Analysis Adapted from PMBOK 4 th Edition Management/Mitigation Strategies Avoid – remove entirely Mitigate – reduce likelihood or impact Accept – normally for LOW risks Transfer – to another party, eg contract or outsource Likelihood Probability of the risk occurring Typically defined in a risk rating matrix Has both a number scale and definition Requires judgement and prediction More accurate if can leverage lessons learnt Risk Rating Combines Likelihood and Impact Normally multiplied together Enables overall prioritisation of risks

BSBPMG508A Manage Project Risk Risk ID Risk Category Risk DescriptionRisk Owner LikelihoodImpactRisk Rating Management /Mitigation Strategies Residual Likelihood Residual Impact Residual Rating StatusPriority Residual Rating Revised risk rating Most important for risk monitoring Inclusions in Risk Register During Analysis Adapted from PMBOK 4 th Edition Residual Likelihood Probability of risk occurring after management or mitigation actions Residual Impact Impact of risk occurring after management or mitigation actions Status Typically RED, GREEN, AMBER Priority Typically HIGH. MEDIUM. LOW

BSBPMG508A Manage Project Risk 11.4 Perform Quantitative Risk Analysis Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control The process of numerically analysing the effect of identified risks on overall project objectives Typically only applied to risks with high priority due to potential to substantially impact the project’s objectives Enables a more rigorous approach to risk decision making in the presence of uncertainly Often omitted depending on the organisation’s risk appetite and maturity of the project and risk management processes Occurs during Planning

BSBPMG508A Manage Project Risk 11.4 Perform Quantitative Risk Analysis Inputs to Perform Quantitative Risk Analysis - Draft Risk Register Risk Management Plan Cost Management Plan Schedule Management Plan Organisational Process Assets - –Risk management standards –Risk management policies and procedures –Risk categories and definitions –Standard templates –Lessons learned from previous projects –Risk databases and checklists Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

BSBPMG508A Manage Project Risk 11.4 Perform Quantitative Risk Analysis Tools and techniques for Quantitative Risk Analysis include - Interviews Sensitivity Analysis Probability Distributions Modelling & Simulation Expert Judgement Expected Monetary Value Analysis Decision Tree Diagrams

BSBPMG508A Manage Project Risk 11.4 Perform Quantitative Risk Analysis Interviews Draw on experience of experts and historical data to quantify the probability and impacts of risks on project objectives. Often Three-point data is gathered on pessimistic, likely and optimistic outcomes. Probability Distributions – Advanced technique Discrete distributions represent uncertain events such as risks. Requires high degree of statistical skill and statistical software. Sensitivity Analysis – Advanced technique Helps to determine which risks have the most potential impact on project objectives. Prioritisation undertaken in Qualitative Analysis is often sufficient.

BSBPMG508A Manage Project Risk 11.4 Perform Quantitative Risk Analysis Modelling and Simulation – Advanced techniques Uses a model to simulate the outcomes of the project, including the impact of uncertain events such as risks. Requires extensive data on past and similar projects, a high degree of statistical expertise and statistical software. Expected Monetary Value Analysis – Advanced technique Extremely advanced technique. Rarely used except for Defence and Scientific projects such as space exploration. Specifically examines the impacts on cost of uncertain events. Decision Tree Diagrams Can be use in conjunction with Modelling and Simulation and Expected Monetary Value Analysis, or can be prepared in a more informal manner. Enables analysis of different choices and paths.

BSBPMG508A Manage Project Risk 11.4 Perform Quantitative Risk Analysis Outputs of this process include – Risk Register Updates –Probabilistic analysis of the project –Probability of achieving cost and time objectives –Prioritised list of quantified risks –Trends in risk analysis results Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

BSBPMG508A Manage Project Risk 11.5 Plan Risk Responses Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control The process of developing options and actions to reduce the threat and impacts of risks It includes the identification and assignment of one person to be the Risk Owner, as well as the selection of the best management or mitigation actions Planned risk responses must be appropriate to the significance of the risk and cost effective Can also be applied to the maximisation of the benefits from any identified possible opportunities (less common) Occurs during Planning

BSBPMG508A Manage Project Risk 11.5 Plan Risk Responses Inputs to Plan Risk Responses Risk Register Risk Management Plan Tools and techniques to Plan Risk Responses include - Adapted from PMBOK 4 th Edition 1.Avoid 2.Transfer 3.Mitigate 4.Accept Negative Risks or Threats 1.Exploit 2.Share 3.Enhance 4.Accept Positive Risks or Opportunities

BSBPMG508A Manage Project Risk 11.5 Plan Risk Responses Avoid Changing the Project Management Plan to eliminate the risk entirely Transfer Shifting some or all of the ownership of a threat to third party and thus also transferring the negative impact. Mitigate Undertaking risk responses that in some way reduce either the likelihood or impact of the risk. Accept Passive acceptance requires no specific risk response action apart from standard risk monitoring and reporting procedures.

BSBPMG508A Manage Project Risk 11.5 Plan Risk Responses Outputs of this process include – Risk Register Updates –Risk Owners Assigned –Mitigation/Management Strategies defined and documented –Residual Risk Ratings Risk Action Plans - for specific high priority risks Risk Related Contract Decisions Project Management Plan Updates –Schedule management plan –Cost management plan –Quality management plan –Procurement management plan –Human resource management plan –Work Breakdown Structure –Schedule Baseline –Cost Baseline Assumptions Log Updates Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

BSBPMG508A Manage Project Risk 11.6 Monitor and Control Risks Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control The process of implementing risk response plans, tracking residual risks, identifying new risks, and evaluating risk management effectiveness Risk Action Plans are included in the project lifecycle and managed by this process Can include activities such as choosing alternative strategies, executing a contingency or fallback plan, and modifying the project management plan accordingly The Risk Owner reports periodically to the Project Manager on the effectiveness of the Risk Action Plans and responses Occurs during Planning

BSBPMG508A Manage Project Risk 11.6 Monitor and Control Risks Inputs to Monitor and Control Risk Risk Register Risk Action Plans Project Management Plan Work Performance Information –Deliverable status –Schedule progress –Costs incurred Performance Reports Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

BSBPMG508A Manage Project Risk 11.6 Monitor and Control Risks Tools and techniques to Monitor and Control Risks include - Risk Audits Technical Performance Measurement Risk Re-assessment Variance & Trend Analysis Status Meetings Reserve Analysis Status Reports

BSBPMG508A Manage Project Risk 11.6 Monitor and Control Risks Risk Re-assessment Risk monitoring and control activities often result in the identification of new risks, re-assessment of current risks and the closing of risks that no longer apply. Re-assessment sessions need to be scheduled regularly and risk registers, status reports and risk action plans updated as a result. Risk Audits Examine and document the effectiveness of risk responses. Often combined with Risk Re-assessment activities. Variance and Trend Analysis Compares the planned results of risk responses and action plans to the actual outcomes. Often combined with Risk Re-assessment activities.

BSBPMG508A Manage Project Risk 11.6 Monitor and Control Risks Technical Performance Measurement – Advanced technique Measures the performance of technical accomplishments or deliverables. Can only be performed if quantifiable measures of technical performance are defined in the Project Management and Risk Management Plans. Reserve Analysis Compares the amount of risk reserves or contingency that remain at any point in time to determine if it is adequate or can be adjusted up or down based on the performance of risk management activities. Status Meetings Project Risk Management and a review of the Risk Register should be on the agenda for all Project Status Meetings. Status Reports Risk ratings and trends should be included in Project Status Reports for the high priority risks.

BSBPMG508A Manage Project Risk 11.6 Monitor and Control Risks Outputs of this process include – Risk Register Updates –Risk Re-assessments –Risk Audits –Risk reviews –Risk Action Plans Risk Management Plan Updates –Revised templates –Risk Breakdown Structure –Lessons learned from risk management activities Change Requests – Corrective and Preventative Actions Project Management Plan Updates Project Document Updates Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

BSBPMG508A Manage Project Risk Risk Responses 1.Take some time to reflect on some typical project risks that you have encountered and think about the Likelihood and Impact of these risks. 2.Determine the Risk Rating and then the Residual Risk rating taking into account the risk response actions that you identified. 3.Consider why Quantitative Risk Analysis is seldom undertaken. Have you ever experienced it’s application on a project? 4.Then go to the Forum on Risk Analysis and load up your examples. Contribute to the examples provided by other students by identifying additional risk response actions that could be employed. 5.Also comment on the questions posed about Quantitative Risk Analysis Research PracticeComment

BSBPMG508A Manage Project Risk Next Steps Please proceed to Tests & Tasks and take the Project Risk Quiz and the Project Risk Knowledge Test Be sure that you have participated in the Forums. Best of Luck! These are all due during Weeks 17 and 18 in the Course Delivery Schedule