1. Managing Risk
Chapter 7

2. Objectives
Risk Management
Probability of completion
Change Management

3. Risk Management
A proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a project’s success.
Risk event.
Consequences.
Anticipation.
Contingency plans.
Risk event – what can go wrong
ID consequences – how to minimize the impact of event
Anticipation plan - what can be done before an event occurs
Contingency Plans – what to do when an event occurs

4. Risk Event

5. Risk Process

6. ( ) St. Adolf’s Hospital te = 2 = Probabilistic Time Estimates MeanG
Finish D E H B J K
Start
te =
a + 4m + b 6
Mean
2 =
( )
b – a 6 2
Variance
Often referred to as the PERT technique, the use of probabilistic time estimates allows for additional analysis of the project network.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. 75

7. St. Adolf’s Hospital Critical Path Start Finish C 10 G 35 E 24 I 15 F B 9 D H 40 J 4 K 6 A 12
Finish
Start
Critical Path 69

8. St. Adolf’s Hospital Time Estimates (wk) Activity Statistics
Optimistic Likely Pessimistic Expected Variance
Activity (a) (m) (b) Time (te ) (2 )
Time Estimates (wk) Activity Statistics A B C D E F G H I J
K 5 6 7
This table shows all the expected task times and variances for use in the probabilistic calculations.
Example 8.6 79

9. St. Adolf’s Hospital Activity B Most Optimistic Likely Pessimistic
Probabilistic Time Estimates A F I C G
Finish D E H B J K
Start
Activity B
Most
Optimistic Likely Pessimistic
(a) (m) (b)
7 8 15
Often referred to as the PERT technique, the use of probabilistic time estimates allows for additional analysis of the project network.
Example 8.6 75

10. ( ) St. Adolf’s Hospital te = 6 2 = Activity B Most
Optimistic Likely Pessimistic
(a) (m) (b)
7 8 15 A F I C G
Finish D E H B J K
Start
te =
7 + 4(8) + 15
2 =
( )
15 - 7 6 2
Example 8.6 77

11. St. Adolf’s Hospital Ts – TE 2 =  (variances of activities) 2
Probabilities
Critical Path = B - D - H - J - K
T = 72 days TE = 69 days
2 =  (variances of activities)
z =
Ts – TE
2
This slide advances automatically.
2 = = 11.89
z =
72 – 69
11.89 83

12. St. Adolf’s Hospital Project duration (weeks) 69 72
Probability of meeting the schedule is
Length of critical path
Normal distribution: Mean = 69 weeks;
 = 3.45 weeks
Probability of exceeding 72 weeks is
Here Figure 18.9 is overlaid to illustrate the current analysis. 86

13. Any Questions?