project management risk management. outline 1.introduction 2.definition of risk 3.tolerance of risk...
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Project ManagementProject Management
Risk ManagementRisk Management
OutlineOutline1. Introduction
2. Definition of Risk
3. Tolerance of Risk
4. Definition of Risk Management
5. Certainty, Risk, and Uncertainty
6. Risk Management Process
7. Risk Planning
8. Risk Assessment
9. Risk Identification
1. Introduction
2. Definition of Risk
3. Tolerance of Risk
4. Definition of Risk Management
5. Certainty, Risk, and Uncertainty
6. Risk Management Process
7. Risk Planning
8. Risk Assessment
9. Risk Identification
OutlineOutline10. Risk Analysis
11. The Monte Carlo Process
12. Risk Handling
13. Selecting the Appropriate Response Mechanism
14. Risk Monitoring
15. Some Implementation Considerations
16. The Use of Lessons Learned
17. Dependencies between Risks
18. The Impact of Risk Handling Measures
19. Risk and Concurrent Engineering
10. Risk Analysis
11. The Monte Carlo Process
12. Risk Handling
13. Selecting the Appropriate Response Mechanism
14. Risk Monitoring
15. Some Implementation Considerations
16. The Use of Lessons Learned
17. Dependencies between Risks
18. The Impact of Risk Handling Measures
19. Risk and Concurrent Engineering
Basic ConceptBasic Concept
Risk management focuses on:Known unknownsProactive management
Risk management focuses on:Known unknownsProactive management
The alternative to proactive management is reactive management, also called crisis management. This requires significantly more resources and takes longer for problems to surface.
The alternative to proactive management is reactive management, also called crisis management. This requires significantly more resources and takes longer for problems to surface.
Basic ConceptBasic Concept
Risk ManagementRisk Management
Risk management focuses on the future
Risk and information are inversely related
Risk management focuses on the future
Risk and information are inversely related
Risk Management (CONT.)Risk Management (CONT.)
Historically, we focused our attentions on schedule and cost risk management.
Today, our primary emphasis is on technological risk management:Can we design it and build it?What is the risk of obsolescence?
Historically, we focused our attentions on schedule and cost risk management.
Today, our primary emphasis is on technological risk management:Can we design it and build it?What is the risk of obsolescence?
Definition Of Risk(1/2)Definition Of Risk(1/2)
Risk = f(Likelihood, Impact)
•Likelihood is the probability of occurrence
•Impact is the amount at stake
event
Definition of Risk(2/2)Definition of Risk(2/2)
Risk = f(Hazard, Safeguard)
Risk is a Function of its Components
Risk is a Function of its Components
Tolerance For RiskTolerance For Risk
Risk avoiderRisk neutralRisk lover
Risk avoiderRisk neutralRisk lover
Risk TypesRisk Types
Definition of Risk ManagementDefinition of Risk ManagementRisk management is the act or practice of
dealing with risk.It includes:
planning for risk,assessing risk issues,developing risk handling strategies, andmonitoring risk to determine how they have changed.
Risk management is the act or practice of dealing with risk.
It includes:planning for risk,assessing risk issues,developing risk handling strategies, andmonitoring risk to determine how they have changed.
Decision-Making CategoriesDecision-Making Categories
Complete uncertaintyRelative uncertainty (partial information)Complete certainty
Complete uncertaintyRelative uncertainty (partial information)Complete certainty
Maximin ApproachMaximax ApproachMinimax regret ApproachInsufficient Reason Approach
Developing and Using Payoff Tables
Establishing the procedure to follow
Construct thePayoff table
Decision-makingunder certainty
Decision-making under completeuncertainty
Decision-makingunder risk
Expected Monetary Value (EMV) ApproachExpected Opportunity Loss (EOL) ApproachExpected Value of Perfect Information (EVPI) Approach
Five Steps To Develop Payoff Table
List all the alternatives.List the future consequences of
each alternative.Identify the payoffs associated with
each combination.Assess the degree of certainty that
these combinations will materializeDecide on a decision criterion.
Decision-Making under Certainty(1/2)
Decision-Making under Certainty(1/2)
A company wish to invest $50 M to develop a new product
Three possible demand:Strong, Even, and Low
Three ways or not to develop product A, B, and C
A company wish to invest $50 M to develop a new product
Three possible demand:Strong, Even, and Low
Three ways or not to develop product A, B, and C
Decision-Making under Certainty(2/2)
Decision-Making under Certainty(2/2)
Note: 1. Profit in MillionNote: 1. Profit in Million
2. 2. SS33 is the best regarding how market is is the best regarding how market is
Decision-Making under Risk (1/2)Decision-Making under Risk (1/2)
A company wish to invest $50 M to develop a new product
Three possible demand:Strong, Even, and Low
Three ways or not to develop product A, B, and C
Probabilities are assigned to each possible state of nature
A company wish to invest $50 M to develop a new product
Three possible demand:Strong, Even, and Low
Three ways or not to develop product A, B, and C
Probabilities are assigned to each possible state of nature
Decision-Making under Risk (2/2)Decision-Making under Risk (2/2)
Note: 1. Note: 1. EE11=56, =56, EE22=52, and =52, and EE33=66 =66
2. 2. SS33 is the best choice is the best choice
Decision-Making under Uncertainty (1/9)
Decision-Making under Uncertainty (1/9)
Uncertainty:Meaningful assignment of probabilities are not
possible
No single dominant strategyMaximax (Hurwicz)Maximin (Wald)Minimax (Savage)LaplaceDecision Tree
Uncertainty:Meaningful assignment of probabilities are not
possible
No single dominant strategyMaximax (Hurwicz)Maximin (Wald)Minimax (Savage)LaplaceDecision Tree
Decision-Making under Uncertainty (2/9)
Decision-Making under Uncertainty (2/9)
Maximax (Hurwicz)OptimisticChoose the strategy with maximum profitSuitable for large companyChoose S3 because maximum profit (100M) is S3
Maximax (Hurwicz)OptimisticChoose the strategy with maximum profitSuitable for large companyChoose S3 because maximum profit (100M) is S3
Decision-Making under Uncertainty (3/9)
Decision-Making under Uncertainty (3/9)
Maximin (Wald)Concerns how much he can afford to losePessimisticSuitable for small companyChoose S2 because maximize the minimum payoff
(50M) from 40, 50, -50
Maximin (Wald)Concerns how much he can afford to losePessimisticSuitable for small companyChoose S2 because maximize the minimum payoff
(50M) from 40, 50, -50
Decision-Making under Uncertainty (4/9)
Decision-Making under Uncertainty (4/9)
Minimax (Savage)Sore loserMinimize maximum regretSubtract all elements in each column from the
largest elementMaximum regret is the largest regret for each
strategyMinimize the maximum regretChoose S2 or S2because minimize the maximum
regret from 50, 50, 140
Minimax (Savage)Sore loserMinimize maximum regretSubtract all elements in each column from the
largest elementMaximum regret is the largest regret for each
strategyMinimize the maximum regretChoose S2 or S2because minimize the maximum
regret from 50, 50, 140
Decision-Making under Uncertainty (5/9)
Decision-Making under Uncertainty (5/9)
Decision-Making under Uncertainty (6/9)
Decision-Making under Uncertainty (6/9)
LaplaceTransform the decision making under uncertainty
into decision making under riskMake priori assumption based on Bayesian
statisticsAssuming the probability for each strategy is 1/3Choose S1 because maximize the expected value
from 60, 53.3, 43.3
LaplaceTransform the decision making under uncertainty
into decision making under riskMake priori assumption based on Bayesian
statisticsAssuming the probability for each strategy is 1/3Choose S1 because maximize the expected value
from 60, 53.3, 43.3
Decision-Making under Uncertainty (7/9)
Decision-Making under Uncertainty (7/9)
1/31/31/3
Decision-Making under Uncertainty (8/9)
Decision-Making under Uncertainty (8/9)
Decision TreeDecision Tree
Decision-Making under Uncertainty (9/9)
Decision-Making under Uncertainty (9/9)
Decision Tree ExampleDecision Tree Example
Direction of computation
Risk Management ProcessesRisk Management Processes
Risk planningRisk assessment
Risk identificationRisk analysis/quantification
Risk handlingRisk monitoring
Risk planningRisk assessment
Risk identificationRisk analysis/quantification
Risk handlingRisk monitoring
Poor Risk ManagementPoor Risk Management
Risk PlanningRisk Planning
TechnicalInabilityTechnicalInability
Customer
Expectati
ons
Customer
Expectati
ons
Actual Performance
Actual PerformancePer
form
ance
Per
form
ance
TimeTime
Risk AssessmentRisk Assessment
The problem definition stage of risk management
Identify and analyze program issues in terms of probability and consequences
The problem definition stage of risk management
Identify and analyze program issues in terms of probability and consequences
Life Cycle Risk AnalysisLife Cycle Risk Analysis
Types Of Risks (General)Types Of Risks (General)
Business risksInsurable (pure) risk
Direct property damageIndirect consequential lossLegal liabilityPersonnel
Business risksInsurable (pure) risk
Direct property damageIndirect consequential lossLegal liabilityPersonnel
Types Of Risk (PMI Method)Types Of Risk (PMI Method)
External – unpredictableExternal – predictableInternal – non-technicalInternal – technicalLegal
External – unpredictableExternal – predictableInternal – non-technicalInternal – technicalLegal
Risk Types at BoeingRisk Types at Boeing
Financial risks
Market risks
Technical risks
Production risks
Financial risks
Market risks
Technical risks
Production risks
Risk QuantificationRisk Quantification
STAGE I STAGE II GUID-ANCE
WARHEAD
COST
MANU.
TEST
DESIGN
HIGH
MEDIUM
LOW
LEGEND
PROGRAMSUMMARY
Risk HandlingRisk Handling
Assumption (retention)AvoidanceControl (mitigation)Transfer
Assumption (retention)AvoidanceControl (mitigation)Transfer
Future RisksFuture Risks
Customer’sKnowledgeCustomer’sKnowledge
ExperiencedExperienced
InexperiencedInexperienced
SimpleSimple ComplexComplex
Contract TypeContract Type
INCREASING RISKS
How Much Risk Is Acceptable?How Much Risk Is Acceptable?
High tolerance for risk
Medium tolerance for risk
Low tolerance for risk
High tolerance for risk
Medium tolerance for risk
Low tolerance for risk
Degrees of Downstream RiskDegrees of Downstream Risk
R&DR&D
ManufacturingManufacturing
MarketingMarketing
TimeTime
Low Risk
Degrees of Downstream RiskDegrees of Downstream Risk
R&DR&D
ManufacturingManufacturing
MarketingMarketing
Information Exchange
Information Exchange
TimeTime
Moderate Risk
Degrees of Downstream RiskDegrees of Downstream Risk
R&DR&D
ManufacturingManufacturing
MarketingMarketing
TimeTime
High Risk
The Risk-Reward MatrixThe Risk-Reward Matrix
LowLow HighHigh
RewardRewardMediumMedium
RiskRisk
HighHigh
LowLow
MediumMedium
Quality
of
Resou
rces
Nee
ded
Quality
of
Resou
rces
Nee
ded
LowLowM
edium
Med
iumHighHigh
Pro
ject
Pro
cedu
ral
Doc
um
enta
tion
Pro
ject
Pro
cedu
ral
Doc
um
enta
tion
GuidelinesGuidelinesHighHigh LowLow
Tolerance for RiskTolerance for Risk
RigidPolicies/
RigidPolicies/
Procedures Procedures
AssumptionAssumption
ReductionReduction
TransferTransfer
AvoidanceAvoidance
Which Method to Use?Which Method to Use?
Prioritization of RisksPrioritization of Risks
ScheduleSchedule CostCostTechnical
Performanceor Quality
TechnicalPerformance
or Quality
First (Highest)Priority
First (Highest)Priority
Second PrioritySecond Priority
ThirdPriorityThirdPriority
Risk InterdependenciesRisk Interdependencies
Specification LimitOn Characteristic BSpecification LimitOn Characteristic B
Interacting RisksInteracting RisksP
rodu
ct F
eatu
re A
Pro
duct
Fea
ture
A
Product Feature BProduct Feature B
DesirableDesirable
UndesirableUndesirable
UndesirableUndesirable DesirableDesirable
Risk Categories at Boeing Risk Categories at Boeing
Tolerance for Risk Tolerance for Risk
Risk Control MeasuresRisk Control MeasuresIn
ten
sity
of
Con
trol
sIn
ten
sity
of
Con
trol
s
Risk IntensityRisk Intensity
StandardControlsStandardControls
HighHigh
Range of ControlsRange of Controls
LowLowLowLow
ExtremeExtreme
Investment in Risk ManagementInvestment in Risk Management
Risk ControlsRisk ControlsS
ched
ule
Len
gth
Sch
edu
le L
engt
h
Risk ControlsRisk Controls
AppropriateAppropriate
TooLongTooLong
LowLow HighHigh
Too ManyRisk Management
Filters andGates
Too ManyRisk Management
Filters andGates
NoRisk Plan
NoRisk Plan