Identifying and Managing Project Risks

Top 10 Mistakes Made in Managing Project Risks

Top Ten Mistakes Made in Managing g g Project j Risks Joe Lukas, PMP, PM, CCE

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Presentation Objectives • Are you making any of the common errors in risk management? • This talk will cover the top ten mistakes Project Managers make in dealing with project risks • This presentation will also discuss how to avoid these mistakes, along with effective risk techniques that should be used on projects

©Joe Lukas-March 19 & 20, 2012

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Top 10 Risk Mistakes 1. Not considering opportunities – just threats 2 C 2. Confusing f i risk i k causes, risk i k events t & iimpacts t 3. Using checklists and not ‘scanning the horizon’ for other risks 4. Understating risk impacts, and not scaling the impacts based on project drivers 5. Not using 100% probability during planning

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Top 10 Risk Mistakes 6. Not considering sensitivity with Risk Analysis 7 Calling 7. C lli risk i k response planning l i ‘‘mitigation’ iti ti ’ 8. Not considering contingency plans when doing risk response planning g specific p p project j team members 9. Not making responsible for specific risk events 10. Not making risk management an on-going process ©Joe Lukas-March 19 & 20, 2012

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Mistake #1 Not Considering Opportunities – Just Threats • Risk Management is the process of identifying, analyzing, and responding to all project risks • Risks typically related to highly “chancy” or hazardous activities, but need to consider the probability and impacts with a goal to:  maximize for positive events  minimize for adverse events RISK = OPPORTUNITIES & THREATS ©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Mistake #1 Not Considering Opportunities – Just Threats • Client example of risk management procedure b i used being d tto manage projects j t

©Joe Lukas-March 19 & 20, 2012

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Examples of Opportunities • Special pricing offered by a supplier • Competitive market conditions for a specific service • Sudden availability of a key resource for a short time period due to their project being postponed • Availability of some needed equipment (such as servers or desktop computers) from another company downsizing their operations • Availability of an government investment tax credit for work done before a specified date ©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Mistake #2 Confusing risk causes, risk events & impacts • Common error during risk identification: failing to distinguish among the causes of risk, genuine risk events, and the impacts of risks • Result:  Dilutes the value of the risk process  Introduces distractions at early stages  Can obscure genuine risks

©Joe Lukas-March 19 & 20, 2012

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Causes-Risk Events-Impacts • Causes: Definite events or sets of circumstances that exist in the project or its environment and which give rise to uncertainty • Examples:  Doing a project in a developing country  Using unproven technology  Lacking skilled personnel

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Causes-Risk Events-Impacts • Risk Events: Uncertain activities that, if they occur,, will effect the project p j objectives. j • Examples:  Exchange rate fluctuations  Contractor delivery  Client expectations misunderstood

©Joe Lukas-March 19 & 20, 2012

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Causes-Risk Events-Impacts • Impacts: Unplanned variations from project objectives (positive or negative) which are a result of risks occurring. • Examples:  Milestone date missed  Budget under-run  Failure to meet performance target

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Causes-Risk Events-Impacts • Risks events have one unique dimension: uncertainty (described as “probability” or “ “likelihood” ” off occurrence”) ”) • Need to maintain a clear separation between Causes, Risk Events, and Impacts Format: (1) Due to , < i k event> could ld occur, resulting in (1)

Project Risks, Identifying Causes, Risks and Effects, Dave Hillson, PMP, PM Network, September, 2000

©Joe Lukas-March 19 & 20, 2012

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Identified Risk Example Due to , l could occur, resulting in

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Identified Risk Example Due to , could occur, resulting in

©Joe Lukas-March 19 & 20, 2012

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Identified Risk Example Due to , materials could occur, resulting in

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Identified Risks Example IMPACT CAUSE Need to purchase equipment from foreign supplier

RISK EVENT Exchange E h rate fluctuation



Doing a project in a foreign country

Equipment held up in customs

 

Lack of skilled equipment mechanics

Problems installing hi-tech manufacturing equipment

 

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©Joe Lukas-March 19 & 20, 2012

Identified Risks Example: IMPACT CAUSE

RISK EVENT

Sharing senior software Work overload programmer Occurs between two projects





Using new software technology

 



Unanticipated  integration errors

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Risk Identification Tools Risk Causes

Causes 1 4

Category = Legal Risks

a lawsuit against the Department of Health and/or the Homeowners Association

Impacts Cost

Time Quality

5

P = 20%

I = 10

RF = 2.0

1. 2 2. 3. 4. 5. 6. 7.

Function

Keep Risk Causes on separate sheet

Use Post-It notes set-up as shown to capture and analyze risks ©Joe Lukas-March 19 & 20, 2012

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Mistake #3 Using checklists and not ‘scanning the horizon’ for other risks • Checklists – listings of risk events typically encountered on a specific type of project, but the team doesn’t consider what’s not on the list!

• Use Brainstorming – free flow of ideas used to generate a listing of other potential risk events that may occur ©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Mistake #4 Understating risk impacts, and not scaling the impacts based on project drivers • Four possible consequences to any risk event:  Cost  Schedule  Functionality  Quality

• Need to look at largest impact in the four areas ©Joe Lukas-March 19 & 20, 2012

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Prioritize the Project Drivers

Time

Scope:

Cost

Needs and Expectations of Stakeholders

Quality

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Sample Project Impact Scale Impact Value

Cost

Schedule

10

5% variance

5% variance

8

4% variance

4% variance

6

3% variance

3% variance

4

2% variance

2% variance

2

1% variance

1% variance

Functionality Major Issue

Quality Major Issue

Medium Issue Medium Issue Minor Issue

Minor Issue

Very Small Issue -

Very Small Issue -

Need to consider relative importance of project impacts (are all impacts weighted equal?) 23

©Joe Lukas-March 19 & 20, 2012

Weighted Project Impact Scale Impact Value

Cost

Schedule

Functionality

10

Very high Impact High Impact

-

Major Issue

8 6

-

4

Medium Impact Low Impact

2

-

Medium Impact Low Impact

0

-

-

Major Issue

Medium Issue Medium Issue

Major Impact

Minor Issue

Minor Issue

Very Small Issue -

Very Small Issue -

-

-

©Joe Lukas-March 19 & 20, 2012

March 19 & 20, 2012

Quality

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Joseph A. Lukas PMP, PE, CCE

Top 10 Mistakes Made in Managing Project Risks Mistake #5 Not using 100% probability during planning

Probability Description 1.0 Certain to occur (100%) 0.9 Almost certain to occur (>90%) 0.7 Highly likely (>70%) 0.5 Likely (>50%) Low likelihood (