Risk Management (by Bill Washinski)
Risk Management in Project Management
“People hate to think about bad things happening, so they always underestimate their likelihood”. (The Big Short, 2015)
Take a moment and digest these two simple statistical sets:
TEXTING AND DRIVING
1 out of 4 accidents in the U.S. are caused by texting and driving.
Each year 421,000 people are injured in accidents caused by distracted driving. Over 330,000 accidents caused by texting and driving lead to severe injuries; accounting for 78% of distracted driving injuries.
- “It will never happen to me”
WINNING THE POWERBALL
Odds of winning the Powerball are roughly 1 in 292 million (*data scientists from Allstate)
- “It could happen”
"Tell me the difference between stupid and illegal and I'll have my wife's brother arrested." (The Big Short, 2015)
It’s not a stretch to identify with those statements being made. It happens in sales when someone goes for a cheaper product or one that can be delivered cheaper or faster but are of less quality. In fact, construction projects have among the highest rates of fraud (with a 2017 report by www.Kroll.com showing – 83% – the greatest increase in fraud incidents across all sectors.)
So why do people and project managers in general overlook Risk Management? Especially considering how easy it is to overall take a 5-step process to solve for problems?
4. Make Decision and Monitor
These are actions we do in everyday actions, whether we are conscious of it or not. However, if you walked up to a person on the street and asked them to perform a Qualitative Risk Analysis (a subjective analysis to determine the probability and impact of a risk occurring and giving it a rating of 1-10 on a standard scale) how many would resort to their natural bias (the Texting & Driving vs. Winning the Powerball example above)? How many would try and do a risk data quality assessment:
· Extent of the understanding of the risk
· Data available about the risk
· Quality of the data
· Reliability and integrity of the data
If you’re in sales, it’s important that information be conveyed quickly and easily to a customer. If you are in Project Management; it’s just as critical that it is done to be successful in your projects.
A Document in which the results of risk analysis and risk response planning are recorded. This document will help with future endeavors and understanding trends.
Categorizing Project Management Risks: Using a Risk Breakdown Structure (RBS) Organizational Chart
- External – Regulatory, Environmental, Market-Related Risks.
- Internal – Time Cost or Scope Changes, Inexperience, Poor Planning, Staffing, Materials, Equipment.
- Technical – Changes in Technology.
- Unforeseeable – Unknown (usually less than 10%).
Sources of Risk:
- Schedule: The materials may arrive earlier than planned, allowing for work package X to start 5 days earlier
- Cost: Because the materials may arrive later than planned, we may need to extend our lease on staging area at a cost of $10,000.
- Quality: The concrete may not dry as quickly due to heavy rain, delaying our successor work packages later than planned.
- Scope: We might have failed to defined scope for the network installation, which if true will add $25,000 to our work packages cost.
- Resources: Ben is the expert on overseeing the commercial projects but may be called away for work on a higher priority project. If that occurs, we will have to utilize Justin and that could change our schedule to fall behind 100 hours.
- Customer Satisfaction: There is a chance that the customer they are unhappy with X deliverable, causing a minimum 25% increase in cost/time due to rework.
Quantitative Risk Analysis
While Qualitative Risk Analysis is something that should be done on every project, Quantitative Risk Analysis should be done when it is worth the time and cost. Qualitative analysis is more subjective, while Quantitative Analysis is more detailed, objective and measures probability and impact at greater level.
- Greater prioritization of quantified risks
- Initial amount of contingency time and cost reserves required
- Realistic and achievable completion dates and project costs
Planning Risk Responses – as seen above, not all risks are inherently negative. There are threats and opportunities as well as responses for each risk.
1. Eliminate the threats before they happen
2. Make sure the opportunities happen
3. Decrease the probability or impact of threats
4. Increase the probability or impact of opportunities
- Contingency Plans (for threats that are unavoidable) – should be measurable to evaluate effectiveness
Strategies for Threats (Negative Risks)
- Avoid – Eliminate the threat by eliminating the cause (work package or person) or increasing scope
- Mitigate – Reduce the probability and making it smaller risk, removing it from among top project risks
- Transfer – Make another party responsible by purchasing insurance, warranties, etc.
- Accept – Accepting and banking on contingency plans to cover risk
- Avoid/Mitigate – High risk and high priority risks
- Transfer/Acceptance – Low priority and low impact risks
Strategies for Opportunities (Positive Risks)
- Exploit – Add work or change project to make sure opportunity occurs
- Enhance—Increasing the likelihood and positive impacts of risk
- Share – Allocate ownership to form a partnership team
- Accept – Active or passive strategy for opportunity
This is an area of risk that many of the most experienced Project Managers overlook or do enough. It is the process of implementing the risk response plans, monitoring residual risks and evaluating the risk process throughout the project.
- Risk Audits – Assessing the overall process of risk management on the project
- Trend Analysis – Performance of the project can be indication of the increasing or decreasing risk on project
- Reserve Analysis – Conducting budget review of how much reserve remains and how much might be needed
- Meetings – Communication on the status of activities
Workarounds – Due to unplanned responses to deal with the unanticipated events or problems on a project. They often arise due to being considered low likelihood or small impact, but can result in a lot of time being allocated to creating solutions
Published at pmmagazine.net with the consent of Bill Washinski