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Business Project Management – Chapter 7

Murphy’s Law and Corollary
7.1. Risk Management Process
• X: Anything that can go wrong, will go wrong
• Y: It will go wrong at the worst possible time
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).
Risk event
Risk event
The X graph
– The probability of a X is greatest in the concept, planning and early execution phases of the project
– The cost impact of a X dramatically rises nearer the end of the execution phase and peaks during delivery
Potential risk
The early stages of the project represent the period when the opportunity for minimizing the impact or for working around a X is the greatest
Risk management
Benefits of X
• Proactive vs. reactive approach.
• Reduces surprises and negative consequences.
• Prepares team to take advantage of appropriate risks.
• Provides better control over the future.
• Improves chances of completing project within budget and on time.
Risk Identification, Risk Assessment, Risk Response Development, Risk Response Control
Risk Management
Step 1: I
Step 2: A
Step 3: RD
Step 4: RC
Step 1: Risk Identification
Generate a X of possible risks through brainstorming, problem identification and risk profiling.
• Don’t focus on events, rather look at event(s) that could produce consequences
• Example: Risk – Failing to meet schedule; should be events like poor estimates, bad weather, shipping delays, etc.
Risk Breakdown Structure
Step 1: Risk Identification
– X
• Macro risks first, then specific events
• Reduces the chance a risk will be missed
Risk profile
Step 1: Risk Identification
– X
– List of questions specifically designed to address known areas of risk
Scenario analysis
Step 2: Risk Assessment
– X
• probability risk will occur
• impact if risk does occur
• Figure 7.5 shows an example of a table listing impacts by objective area (Cost, Time, Scope, Quality)
• Figure 7.6 is a partial example of one type of documentation of the risk scenario analysis (a risk assessment form)
Risk Assessment
Step 2: X
– X matrix
• Major (red); Moderate (yellow); Minor (green) risks
– Failure Mode and Effects Analysis (FMEA)
• Probability x Impact x Detection = Risk Value
– Probability analysis
• Decision trees, NPV, and PERT
-Semi-quantitative scenario analysis
• FMEA: Impact 1 x Probability 5 x Detection 5 = Impact 5 x Probability 5 x Detection 1!
Mitigating risk
Step 3: Risk Response Development
– X:
• Reducing the likelihood a risk event will occur – example: testing
• Reducing impact of risk event – example: preplanning alternatives
Avoiding risk
Step 3: Risk Response Development
– X:
• Changing the project plan to eliminate the risk or condition
Transferring Risk
Step 3: Risk Response Development
– X:
• Paying a premium to pass the risk to another party (e.g., insurance)
• Requiring Build-Own-Operate-Transfer (BOOT) provisions
Retaining Risk
Step 3: Risk Response Development
– X:
• Making a conscious decision to accept the risk
Contingency plans
Step 3: Risk Response Development
– 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 and Contingency
Step 3: Risk Response Development
X and Y Plans
• Technical risks
• Cost risks (Price changes)
• Funding risks (Funding supply)
• Schedule risks (Funds set aside to expedite or “crash” the project to get it back on track)
Step 3: Risk Response Development
X management:
– X: an event that can have a positive impact (positive risk)
– Four different types of response to an X
• Exploit
• Share
• Enhance
• Accept
Contingency Funds
Step 3: Risk Response Development
• Budget Reserves (risk is identified): at work package or deliverable level
• Management Reserves (risk is unknown): at the project level
Time Buffers
Step 3: Risk Response Development
X – time added to uncertain activities
• Activities with severe risks
• Merge activities prone to delay
• Non-critical activities that may create a new critical path
• Activities that require scarce resources
Risk register and Risk control
Step 4: Risk Response Control
– X:
Details all identified risks, including descriptions, category, probability of occurring, responses, contiguity plans, owners and current status
– Y involves:
• Execute the risk response strategy, triggering events, initiating contingency plans, watching for new risks
Management system
Change Control Management
Change X
1. Identify proposed changes.
2. List expected effects on schedule and budget.
3. Review, evaluate, and approve or disapprove changes formally.
4. Negotiate and resolve conflicts of change, condition, and cost.
5. Communicate changes to parties affected.
6. Assign responsibility for implementing change.
7. Adjust master schedule and budget.
8. Track all changes that are to be implemented
Benefits of a X management system
1. Inconsequential Xs are discouraged
by the formal process.
2. Costs of Xs 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.

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