Project management: Assigning Probabilities

—  Risk = Probability x Impact

—  Establish a scale that reflects the perceived likelihood

                – Probability scales are commonly used

                – Can be qualitative or quantitative

                                e.g. highly improbable, improbably, moderate, likely, highly likely

                                0-100% probability

—  Risk = Probability x Impact

—  Three factors can be used to assess impact of the risk:

                – Nature  

                – Scope

                – Timing of the risk

Risk Handling

—  Risk avoidance

               

—  Risk containment

               

—  Risk reduction and risk prevention

—  Risk mitigation

Risk Monitoring

e.g., when certain milestones are reached

—  Useful to regularly assess and update project risk exposure

Senior management should be involved in monitoring and should be aware of exposures

Listen to the project group

Risk and Contingency Planning

—  Technical Risks

¡  Backup strategies if chosen technology fails.

¡  Assessing whether technical uncertainties
can be resolved.

—  Schedule Risks

¡  Use of slack increases the risk of a late project finish.

¡  Imposed duration dates (absolute project finish date)

¡  Compression of project schedules due to a shortened project duration date.

—  Costs of Risks

¡  Time/cost dependency links: costs increase when problems take longer to solve than expected.

¡  Deciding to use the schedule to solve cash flow problems should be avoided.

¡  Price protection risks (a rise in input costs) increase if the duration of a project is increased.

—  Funding Risks

Changes in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.

Contingency Funding and Time Buffers

—  Contingency Funds

¡   

¡  Budget reserves

¡  Management reserves

—  Time Buffers

Amounts of time used to compensate for unplanned delays in the project schedule.

Managing Risk: Step 4: Risk Response Control

Design Appropriate Responses to the Risk

}  Ignore or accept the risk

}  Reduce the probability of the risk

}  Reduce or limit the consequences

}  Transfer, share or deflect the risk

}  Make contingency

}  Adapt to it

}  Oppose a change

}  Move to another environment

Unknowable Risks

—  Even when reasonable forecasts are made, analysis carried out, etc the future is unpredictable and there will still be unforeseen events:

¡  1 Inherently unknowable risks eg fire

÷  Use Business Continuity Mgt

¡  2              Time dependent risk eg cannot say what will  happen next year

—  3              progress-dependent risks eg introducing lean operations, risks will only appear after implementation

—  4              response-dependent risks: secondary risks eg responding to material shortages will leave company open to risk from unknown supplier

—  So:

—  Use formal procedures for risk identification, AND regular reviews to minimise surprises..