Lessons in Project Management - 4 - Risk Management

International Project Management
Prof. Dr. Frank Habermann
Lecture 4 –
Identifying and Handling Project Risks

© Becota GmbH | www.becota.com | 2010
 Which kinds of risk would you take?
 What actually is a risk?
 The process of risk management
– Identifying
– Prioritizing
– Responding
 When does risk management have to happen?
Content

© Becota | www.becota.com | 2010
No risk, no fun?
http://www.hosae.ch/blog/wp-content/uploads/2009/08/Desktop-Hintergrund.bmp

Would you take the …
Picture source: http://monkeysjumping.com/wealthy-baker/

Would you climb a montain?
Picture source: http://www.vorsorgefachmann.info/images/risiko.png

Would you ride a motorbike?

Would you dive with a shark?
Picture source: National Geographic, Photo by David Doubilet

Would you tease an alligator?
Picture source; pix.motivatedphotos.com/2009/4/9/

Would you jump?
Picture source: http://farm4.static.flickr.com/3306/3298473550_a9fa13ea33_o.jpg

With our without risk management?
Without With
Picture source: adapted from www.mattwardman.com/blog/
Gerald preferred the latter!

what
actually is
a
risk?

What is a risk?
Picture source: www.iamthewitness.com/books/img/Benjamin.Franklin.jpg
“The only thing certain
in life is death and taxes”
(Benjamin Franklin)

What is a project risk?
 Life is riskful!
Illness
Accidents
Crime
Loss
etc.
R
R
R
LIFE

 Business is riskful!
-> it‘s just a special
part of life with
particular risks
R
R
R
R
R
LIFE
BUSINESS

 Business projects are riskful!
R
R
R
R
R
R R
LIFE
BUSINESS PROJECT

 Business projects are riskful!
Projects have to cope
with general risks (of life
and business) as well as
with project-specific risks
R
R
R
R
R
R R
LIFE
BUSINESS
exogenous
project risks
endogenous
project risks
PROJECT

and what
is project
risk
management
?

Mastering the „what happens next“ machine
Source: www.youtube.com/watch?v=cog2a3YeDMM

Project risk management is
systematically dealing with project risks
Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg

find likely events
and their potential impacts
IDENTIFY

find likely events
analyze probability of events
and severity of potential damage
IDENTIFY
PRIORITIZE

find likely events
analyze probability of events
and severity of potential damage
develope scenario /action plans
establish reserves and monitor
IDENTIFY
PRIORITIZE
RESPOND

We differentiate two major types of risks
IDENTIFY
PRIORITIZE
RESPOND

 KNOWN-UNKNOWNS
– Something we know EXISTS but we
don‘t know when it will happen and
how severe the consequences will be
IDENTIFY
PRIORITIZE
RESPOND

 KNOWN-UNKNOWNS
– Something we know EXISTS but we
don‘t know when it will happen and
how severe the consequences will be
 UNKNOWN-UNKNOWNS
– Something which has NEVER HAPPENED
before and thus cannot be anticipated,
neither qualitatively nor quantitatively
IDENTIFY
PRIORITIZE
RESPOND

What are the sources of risks?
IDENTIFY
PRIORITIZE
RESPOND
Remember lecture#2: project stakeholders, team and environment
Remember lecture#3: scoping and contracting
Remember endogenous and exogenous risks

IDENTIFY
PRIORITIZE
RESPOND
Initial checklist for risk management:
- Do you know all major stakeholders?
- Particularly, do you know your customer(s)?
- Have you organized senior management support?
- Are there significant conflicts you are aware of?
- Are all requirements and goals clearly defined?
- Is the project scope realistic and managable?
- Do you have a clear contract undersigned?
- Are all agreed resources in place?

IDENTIFY
PRIORITIZE
RESPOND
Initial checklist for risk management:
- Do you know all major stakeholders?
- Particularly, do you know your customer(s)?
- Have you organized senior management support?
- Are there significant conflicts you are aware of?
- Are all requirements and goals clearly defined?
- Is the project scope realistic and managable?
- Do you have a clear contract undersigned?
- Are all agreed resources in place?
As long as you answer with a single „no“ or „not sure“,
you better not start the project!

All fields of expertise are sources of risks
IDENTIFY
PRIORITIZE
RESPOND
Management
risks
Social
risks
Domain-specific
risks
Environmental
risks
RISK
PROFILE

All fields of expertise are sources of risks
IDENTIFY
PRIORITIZE
RESPOND
Management
risks
Social
risks
Domain-specific
risks
Environmental
risks
RISK
PROFILE
Budget
Schedule
Org. Structure
Methods & Tools
etc.
Team
Motivation
Communication
Trust
etc.
Region
Industry
Technology
Standards
etc.
Culture
Politics
Economy
Corporation
etc.

 Distributed teams
 Various languages
 Different measures
 Different technical standards
 Reliability of infrastructure (technology, transport, etc.)
 Ethnical and religious differences
 Social violence and instability
 Prejudice and nationalism
 Different business practices and rules
 Different feeling for time and punctuality
 Different attitude towards risk in general
 Divergent competency profiles and certificates
 Government involvement and control
 Legal basis (multiple national laws)
 Different currencies, levies, and taxes
 Intellectual property rights
 Corruption
 Environmental safety
 Climate
Sources of risks which are
immanent to international projects
IDENTIFY
PRIORITIZE
RESPOND

Methods for identifying risks
IDENTIFY
PRIORITIZE
RESPOND

IDENTIFY
PRIORITIZE
RESPOND
THINK (ALONE)
Look for risk sources
Identify crucial stakeholders
Develop risk categories / profiles
Prepare interviews

Example risk profile questions
Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 102

IDENTIFY
PRIORITIZE
RESPOND
THINK (ALONE)
INTERVIEW OTHERS (1:1)
Q
A
Consult the key stakeholders
Verify relevance /completeness
Identify further interviewees
Summarize results

IDENTIFY
PRIORITIZE
RESPOND
THINK (ALONE)
INTERVIEW OTHERS (1:1)
Q
A
ORGANIZE WORKSHOPS
Connect people
Discuss multiple perspectives
Identify individual risk events
Find a common understanding

Now that you‘ve spotted a risk – how dangerous is it?
IDENTIFY
PRIORITIZE
RESPOND

Now that you‘ve spotted a risk – how dangerous is it?
IDENTIFY
PRIORITIZE
RESPOND
Picture source: www.dirjournal.com

The IPRA* matrix for analyzing risks
IDENTIFY
PRIORITIZE
RESPOND
Probability
(likelyhood of
occurence of the event)
Impact
(severity of
the damage)
low risk
high risk
*IPRA = International Project Risk Assessment

The IPRA matrix for analyzing risks
IDENTIFY
PRIORITIZE
RESPOND
Probability
(likelyhood of
Impact
(severity of
the damage)
You can work
with a scaled
approach (here
3 categories)!
low
medium
high
low medium high

The IPRA matrix for analyzing risks
IDENTIFY
PRIORITIZE
RESPOND
Probability
(likelyhood of
Impact
(severity of
the damage)
1 3 5
3 9 15
5 15 25
You can even
apply weights
and quantify
risks
low
medium
high
low medium high

Example risk analysis
Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 106
IDENTIFY
PRIORITIZE
RESPOND

Now that you know the risk … what will you do?
IDENTIFY
PRIORITIZE
RESPOND

Now that you know the risk … what will you do?
IDENTIFY
PRIORITIZE
RESPOND
Picture source: http://i.dailymail.co.uk/i/pix/2010/01/07/

Your attitude determines your action
IDENTIFY
PRIORITIZE
RESPOND
Whatever I do,
I will always
survive!
Picture sources: www.beaconmultimedia.com/images

IDENTIFY
PRIORITIZE
RESPOND
Whatever I do,
I will always
survive!
Whatever I do,
This project
will kill us!
Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/

thinking in
worst-scenarios
ignoring chances
neither efficient
nor effective
thinking in
best-scenarios
ignoring risks
naive and/or
irresponsible
IDENTIFY
PRIORITIZE
RESPOND
too optimistic too pessimistic

thinking in
worst-scenarios
ignoring chances
neither efficient
nor effective
thinking in
best-scenarios
ignoring risks
naive and/or
irresponsible
IDENTIFY
PRIORITIZE
RESPOND
too optimistic too pessimistic
be
REALISTIC
CONFIDENT
MEASURED

TO BE KEPT IN MIND:
Sometimes financial interests are
stronger than honest risk assessment,
particularly in politics, i.e.
big money determines action, e.g.
- Genetic research
- Nuclear energy
- Global warming, etc.
In other cases people are guided by
strong social, cultural and other values, e.g.
- Daily routines and work habits
- Equal rights for men and women, etc.
… and what determines our attitude?
IDENTIFY
PRIORITIZE
RESPOND

Major strategies of responding to risk
Picture source: http://wilderdom.com/images/RiskPeanuts2.jpg

Five major response strategies
1- Accept
IDENTIFY
PRIORITIZE
RESPOND
Understand the risk but take no preparations
React, if it occurs (if costs are small, solve the problem)
Alternatively, just live with the damage
Applicable only for minor risks!
http://www.onlinemalerei.de/scherbenhaufen3.jpg

2- Exclude
IDENTIFY
PRIORITIZE
RESPOND
Avoid major risks by excluding those from your project
Hand the riskful task over to another project
Has to happen in the scoping phase
Down-scaling a project has limitations!
http://www.allseasonstentrental.com/fence.jpg

Discussion:
What are the limits of down-scaling your project?
Picture source: http://wilderdom.com/images/RiskNotTakingRisksCartoon.jpg
„We‘ve considered every potential risk except
the risk of avoiding all risks“

3- Transfer
IDENTIFY
PRIORITIZE
RESPOND
Externalize responsibility for potential damages by
purchasing insurance, external consultants/experts, etc.
Hiring externals has it‘s own risks (legal stuff, liability, etc.)
Transferring risks is expensive!
http://pmstudent.com/wp-content/uploads/hand-over-keys.jpg

4- Prepare alternative action
IDENTIFY
PRIORITIZE
RESPOND
Consider alternative courses and remedy
Have a plan B for important risks (contingency plan)
Install project buffer (extra time and money)
Continuously monitor the project‘s main risks!
Picture source: http://picture.funnycorner.net/funny-pictures/5179/In-case-of-fire.jpg

5- Mitigate
IDENTIFY
PRIORITIZE
RESPOND
Any feasible action to minimize or eliminate the risk,
intensively involving all available technological,
human and organizational resources
Reasonable for highly critical solutions!
Picture source: http://desktopwallpaper-s.com/wallpapers/19/Rain_Umbrellas.jpg

When
does
risk management
have to happen?

Risk management takes place during the entire projectRISKMANAGEMENTEFFORT
TIME
Pre-Project Main Project

TIME
Kick-off Plan approved
Testing/Piloting
completed
3 crucial situations
(points of no return …
-> or „expensive“ return)

TIME
Kick-off
Testing/Piloting
completed
Plan approved

TIME
Kick-off
Testing/Piloting
completed
continuous project risk management
extra
effort
(planning)
extra
effort
(releasing)
extra
effort
(shaping
the
business
case)
Plan approved

Why do we spend these extra efforts?
COST/EFFORT
TIME
Crucial decision
(„point of no return“)
effort put in
risk management
Cost of changes /
corrections

Estimating means forecasting
the project future (time & money)
„Projects are unique –
uniqueness means
entering unknown fields“
Questions you should ask yourself:
 Do you, as the project manager, know all the
team members?
 Have you worked with them before?
 Do they know each other and have they
worked together before?
 Which project risks have you identified and to which
extent do these risks impact your estimates regarding
project time and resources?

Over the time estimating becomes easier …
TIME
KNOWLDGE GAINED

TIME
KNOWLDGE GAINED
ballpark
figures

TIME
KNOWLDGE GAINEDRFI/RFP
figures
ballpark
figures

TIME
KNOWLDGE GAINED
Planning
details
ballpark
figures
RFI/RFP
figures

Finally, even risk management is riskful…
Picture source: http://wilderdom.com/images/RiskSharpEdgesSign.jpg

… but your project is your baby …
and timely precautions are better than late therapies
Picture source: www.siloah.de/siloah/content/kliniken_und_institute/frauenklinik/

Thank you very much!
presentation by
Frank Habermann
founder of Becota and Professor of Business
http://de.linkedin.com/in/frankhabermann/en

If you have enjoyed this presentation,
please let us know!
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Lessons in Project Management - 4 - Risk Management

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