Project Management

Quản lý Dự án
Dr. TRAN QUYNH LE
Dr. NGUYEN DUC DUY
Industrial Systems Engineering Department
Mechanical Engineering Faculty
Ho Chi Minh City University of Technology (HCMUT)–
VNUHCM
 Chapter 7
Managing Risk

2
3
 LEARNING OUTCOME

After learning this chapter you should be able to:

• Describe the risk management process.
• Understand how to identify project risks.
• Assess the significance of different project risks.
• Describe the five responses to managing risks.
• Understand the role contingency plans play in the risk management
process.
• Describe the change control process.

4
Risk Management Process

▪ Risk
• Uncertain or chance events that planning can not overcome or control.
▪ Risk Management
• A proactive attempt to recognize and manage internal events and external threats
that affect the likelihood of a project’s success.
➢ What can go wrong (risk event).
➢ How to minimize the risk event’s impact (consequences).
➢ What can be done before an event occurs (anticipation).
➢ What to do when an event occurs (contingency plans).

5
The Risk Event Graph

FIGURE 7.1

6
Risk Management’s Benefits

▪ A proactive rather than reactive approach.

▪ Reduces surprises and negative consequences.
▪ Prepares the project manager to take advantage of appropriate risks.
▪ Provides better control over the future.
▪ Improves chances of reaching project performance objectives within budget
and on time.

7
The Risk Management Process

8
Managing Risk
▪ Step 1: Risk Identification
• Generate a list of possible risks through brainstorming, problem identification and
risk profiling.
➢ Macro risks first, then specific events

The Risk
Breakdown
Structure
(RBS)

9
Managing Risk

▪ Step 2: Risk assessment

• Scenario analysis
• Risk assessment matrix
• Failure Mode and Effects Analysis (FMEA)
• Probability analysis
➢ Decision trees, NPV, and PERT
• Semiquantitative scenario analysis

10
 Managing Risk

Partial Risk Profile for

ProductDevelopment Project

11
Risk Assessment Form
Defined Conditions for Impact Scales of a Risk on Major Project Objectives
(examples for negative impacts only)

12
Risk Assessment Form

FIGURE 7.4

13
Risk Severity Matrix

14
Risk Schedules

15
Managing Risk (cont’d)

▪ Step 3: Risk Response Development

• Mitigating Risk
➢ Reducing the likelihood an adverse event will occur.
➢ Reducing impact of adverse event.
• Transferring Risk
➢ Paying a premium to pass the risk to another party.
• Avoiding Risk
➢ Changing the project plan to eliminate the risk or condition.
• Sharing Risk
➢ Allocating risk to different parties
• Retaining Risk
➢ Making a conscious decision to accept the risk.

16
Contingency Planning (Kế hoạch dự phòng)

▪ Contingency Plan
• An alternative plan that will be used if a possible foreseen risk event actually occurs.
• A plan of actions that will reduce or mitigate the negative impact
(consequences) of a risk event.
▪ Risks of Not Having a Contingency Plan
• Having no plan may slow managerial response.
• Decisions made under pressure can be potentially dangerous and costly.

17
Risk Response Matrix

FIGURE 7.7

18
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.

19
Risk and Contingency Planning (cont’d)

▪ Costs 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.

20
Opportunity Management

▪ Exploit.
• Eliminate the uncertainty associated with an opportunity to ensure that it definitely happens.
▪ Share.
• Allocating some or all of the ownership of an opportunity to another party who is best able to
capture the opportunity for the benefit of the project.
▪ Enhance.
▪ Action is taken to increase the probability and/or the positive impact of an opportunity.
▪ Escalate /ˈes.kə.leɪt/.
• Sometimes projects encounter opportunities that are outside the scope of the project or exceed
the authority of the project manager.
▪ Accept.
• Accepting an opportunity is being willing to take advantage of it if it occurs, but not taking action
to pursue it.

21
Contingency Funding and Time Buffers

▪ Contingency Funds
• Funds to cover project risks—identified and unknown.
➢ Size of funds reflects overall risk of a project
• Budget reserves
➢ Are linked to the identified risks of specific work packages.
• Management reserves
➢ Are large funds to be used to cover major unforeseen risks (e.g., change in project
scope) of the total project.
▪ Time Buffers
• Amounts of time used to compensate for unplanned delays in the project
schedule.

22
Contingency Fund Estimate

23
Managing Risk (cont’d)

▪ Step 4: Risk Response Control

• Risk control
➢ Execution of the risk response strategy
➢ Monitoring of triggering events
➢ Initiating contingency plans
➢ Watching for new risks
• Establishing a Change Management System
➢ Monitoring, tracking, and reporting risk
➢ Fostering an open organization environment
➢ Repeating risk identification/assessment exercises
➢ Assigning and documenting responsibility for managing risk

24
Change Management Control

▪ Sources of Change
• Project scope changes
• Implementation of contingency plans
• Improvement changes

25
Change Management Control

▪ The Change Control Process

• Identify proposed changes.
• List expected effects of proposed changes on schedule and budget.
• Review, evaluate, and approve or disapprove of changes formally.
• Negotiate and resolve conflicts of change, condition, and cost.
• Communicate changes to parties affected.
• Assign responsibility for implementing change.
• Adjust master schedule and budget.
• Track all changes that are to be implemented

26
The Change Control Process

27
Benefits of a Change Control System

1. Inconsequential changes are discouraged by the formal process.

2. Costs of changes are maintained in a log.
3. Integrity of the WBS and performance measures is maintained.
4. Allocation and use of budget and management reserve funds are tracked.
5. Responsibility for implementation is clarified.
6. Effect of changes is visible to all parties involved.
7. Implementation of change is monitored.
8. Scope changes will be quickly reflected in baseline and performance
measures.

28
Change Request Form

29
Change Request Log

30
Key Terms

▪ Avoiding risk
▪ Budget reserve
▪ Change management system
▪ Contingency plan
▪ Management reserve
▪ Mitigating risk
▪ Risk
▪ Risk profile
▪ Risk severity matrix
▪ Scenario analysis
▪ Sharing risk
▪ Time Buffer
▪ Transferring risk

31
PERT and PERT Simulation

32
PERT—PROGRAM EVALUATION REVIEW TECHNIQUE

▪ Assumes each activity duration has a range that statistically follows a beta
distribution.
▪ PERT uses three time estimates for each activity: optimistic, pessimistic, and
a weighted average to represent activity durations.
• Knowing the weighted average and variances for each activity allows the project
planner to compute the probability of meeting different project durations.

33
Activity and Project Frequency Distributions

FIGURE A7.1

34
Activity Time Calculations

The weighted average activity time is computed by the following formula:

35
Activity Time Calculations (cont’d)
The variability in the activity time estimates is approximated by the
following equations:
The standard deviation for the activity:

The standard deviation for the project:

Note the standard deviation of the activity is squared in this equation;

this is also called variance. This sum includes only activities on the
critical path(s) or path being reviewed.

36
Activity Times and Variances

37
Probability of Completing the Project

The equation below is used to compute the “Z” value found in statistical tables (Z =
number of standard deviations from the mean), which, in turn, tells the probability of
completing the project in the time specified.

38
Hypothetical Network

39
Hypothetical Network (cont’d)

40
Possible Project Duration

41
Z Values

42
 Reading:
Risk management using a Bayesian belief
network

43
Risk management using a Bayesian belief network

Bayesian Network for Wetgrass Example

44
Risk management using a Bayesian belief network

45
Risk management using a Bayesian belief network

46
Risk management using a Bayesian belief network

47
Risk management using a Bayesian belief network

48
Risk management using a Bayesian belief network

49
Risk management using a Bayesian belief network

50
This Page Intentionally Left Blank

51