LESSON 2 Do D Risk Management Basics 06

LESSON 2 Do. D Risk Management Basics 06 January 2014

Lesson Objectives Upon completion of this lesson, you should be able to: § § § Differentiate between a risk and an issue Identify the five key activities in the Department of Defense (Do. D) risk management process Interpret a contractor’s plan for conducting risk management activities on a project Score risks based on their likelihood of occurrence and their impact on cost, performance, and schedule Select a mitigation strategy for reducing or eliminating a risk Module 8 Lesson 2: Do. D Risk Management Basics 2

Lesson Topics This lesson will cover the following topics: § § § Risk Components Do. D Risk Management Process Risk Management Plan (RMP) Identifying Risk Levels Risk Mitigation Strategies Module 8 Lesson 2: Do. D Risk Management Basics 3

What’s In It For Me? Your ability to identify and monitor risk will help your contractors to avoid, reduce, or eliminate problems that may delay a project or cause unplanned losses to occur Module 8 Lesson 2: Do. D Risk Management Basics 4

Lesson Introduction How is Do. D risk management conducted? Module 8 Lesson 2: Do. D Risk Management Basics 5

Lesson Introduction (cont. ) Risk can be associated with all aspects of an acquisition program. Identifying, analyzing and mitigating risk is everyone’s responsibility. Module 8 Lesson 2: Do. D Risk Management Basics 6

RISK COMPONENTS Lesson Topics: 1) Risk Components 2) Do. D Risk Management Process 3) Risk Management Plan (RMP) 4) Identifying Risk Levels 5) Risk Mitigation Strategies Module 8 Lesson 2: Do. D Risk Management Basics 7

Definition of Risk “A measure of future uncertainties in achieving program goals and objectives…” Cost Schedule Performance http: //www. acq. osd. mil/se/docs/2006 -RM-Guide-4 Aug 06 -final-version. pdf Module 8 Lesson 2: Do. D Risk Management Basics 8

Components of Risk Root Cause Probability (or Likelihood) Consequence (or Effect) Yet to happen 1% - 99% Claims Injury Disputes Loss Module 8 Lesson 2: Do. D Risk Management Basics Issues are not risks! Issues have occurred. 9

Question and Answer The three components of a risk are: A. Origin, outcome, degree of severity B. Future root cause, probability, consequence C. Origin, likelihood, effect Module 8 Lesson 2: Do. D Risk Management Basics 10

Question and Answer What is the major difference between a risk and an issue? A. Risks have the potential for causing major injury or damage; issues are less harmful. B. Risks can be easily mitigated; issues are more difficult to resolve. C. Risks are yet to happen; issues have occurred. Module 8 Lesson 2: Do. D Risk Management Basics 11

DOD RISK MANAGEMENT PROCESS Lesson Topics: 1) Risk Components 2) Do. D Risk Management Process 3) Risk Management Plan (RMP) 4) Identifying Risk Levels 5) Risk Mitigation Strategies Module 8 Lesson 2: Do. D Risk Management Basics 12

Activities in the Risk Management Process Risk Identification Risk Analysis Risk Mitigation Planning Risk Mitigation Plan Implementation Risk Tracking Module 8 Lesson 2: Do. D Risk Management Basics 13

Risk Identification “What can go wrong? ” § Examine each element § Identify root causes § Begin documentation Risk Identification Module 8 Lesson 2: Do. D Risk Management Basics 14

Risk Analysis “How big is the risk? ” § Analyze each risk cause § Determine probabilities § Determine consequences § Look at risk relationships Risk Analysis Module 8 Lesson 2: Do. D Risk Management Basics 15

Risk Mitigation Planning “What will you do about it? ” § Identify, evaluate and select options § Set risks to acceptable levels Risk Mitigation Planning Module 8 Lesson 2: Do. D Risk Management Basics 16

Risk Mitigation Plan Implementation “How is the planned risk mitigation being implemented? ” § Execute the mitigation plan § Determine what changes are needed Risk Mitigation Plan Implementation Module 8 Lesson 2: Do. D Risk Management Basics 17

Risk Tracking “How are things going? ” § Monitor risk plans § Establish warning systems § Provide feedback § Review status updates Communicate risks to stakeholders Risk Tracking Module 8 Lesson 2: Do. D Risk Management Basics 18

Continuous Cycle § § Accomplished throughout the life cycle of a system Follows an organized methodology Risk Identification Risk Tracking Risk Analysis Risk Mitigation Planning Risk Mitigation Plan Implementation Module 8 Lesson 2: Do. D Risk Management Basics 19

Collaborative Risk Management Efforts Risk management may be: § Centralized – a designated risk management coordinator/ board conducts most risk management efforts § Decentralized – personnel at all levels conduct risk management as a part of normal duties Module 8 Lesson 2: Do. D Risk Management Basics 20

Question and Answer In which Risk Management activity do we analyze each root cause to determine the probability that it will occur? A. Risk Identification B. Risk Analysis C. Risk Mitigation Plan Implementation D. Risk Tracking Module 8 Lesson 2: Do. D Risk Management Basics 21

Question and Answer Communicating risks to stakeholders is an essential element in the Risk Management process. It is associated with this activity: A. B. C. D. Risk Identification Risk Analysis Risk Mitigation Planning Risk Tracking Module 8 Lesson 2: Do. D Risk Management Basics 22

Question and Answer Asking “What can go wrong” is a technique used for: A. B. C. D. Risk Identification Risk Analysis Risk Mitigation Planning Risk Tracking Module 8 Lesson 2: Do. D Risk Management Basics 23

Question and Answer The program management office analyzed 53 risks that can potentially impact an acquisition project from meeting its objectives. With so many risks, how can the team effectively monitor them all? A. Manage only one risk at a time B. Establish an early warning management indicator system C. They can’t monitor them all Module 8 Lesson 2: Do. D Risk Management Basics 24

RISK MANAGEMENT PLAN (RMP) Lesson Topics: 1) Risk Components 2) Do. D Risk Management Process 3) Risk Management Plan (RMP) 4) Identifying Risk Levels 5) Risk Mitigation Strategies Module 8 Lesson 2: Do. D Risk Management Basics 25

Risk Management Plan (RMP) Describes how risk management activities will be structured and performed Includes: § Goals and objectives § Roles and responsibilities § Process to be followed Module 8 Lesson 2: Do. D Risk Management Basics 26

Job Aid: Risk Management Plan Refer to Module 8, Lesson 2, Job Aid 1 CMM 100_M 8_L 2_JA 1_Risk_Management_Plan_Template. docx Module 8 Lesson 2: Do. D Risk Management Basics 27

RMP: Painting the Road Ahead § § Explains the approach for capturing and managing root causes Structured enough to provide good guidance Module 8 Lesson 2: Do. D Risk Management Basics 28

Contractor’s Responsibility Risk Management Guide for Do. D Acquisition, section 8. 6. 6: § Contractors supporting Do. D Program Managers: – Develop an internal risk management program – Conduct risk identification and analysis – Develop appropriate risk mitigation strategies All of these are documented inside a Risk Management Plan Module 8 Lesson 2: Do. D Risk Management Basics 29

Question and Answer The purpose of the Risk Management Plan is to: A. Authorize the contractor to act when risks occur. B. Describe how risk management activities will be structured and performed. C. Explain how risks will be eliminated or controlled. Module 8 Lesson 2: Do. D Risk Management Basics 30

Question and Answer As a practical and valued document, a contractor’s Risk Management Plan should always include these three sections: Objectives, Responsibilities, and ____. A. B. C. D. Appendix Introduction Processes Risk Matrix Module 8 Lesson 2: Do. D Risk Management Basics 31

IDENTIFYING RISK LEVELS Lesson Topics: 1) Risk Components 2) Do. D Risk Management Process 3) Risk Management Plan (RMP) 4) Identifying Risk Levels 5) Risk Mitigation Strategies Module 8 Lesson 2: Do. D Risk Management Basics 32

Identifying Risk Levels Future Root Cause Probability (or Likelihood) Consequence (or Effect) Quantifying risk focuses our time and effort on the most important risks Module 8 Lesson 2: Do. D Risk Management Basics 33

Risk Reporting Matrix Likelihood 5 4 3 2 1 1 2 3 4 5 Consequence Module 8 Lesson 2: Do. D Risk Management Basics 34

Levels of Likelihood Level Likelihood Probability of Occurrence 5 Near Certainty ~90% 4 Highly Likely ~70% 3 Likely ~50% 2 Low Likelihood ~30% 1 Not Likely ~10% Module 8 Lesson 2: Do. D Risk Management Basics 35

Levels and Types of Consequences Level 1 2 Technical Performance/Life Cycle Sustainment Schedule Cost Minimal or no consequence to technical performance. Minimal or no impact Minor reduction in technical performance or supportability; can be tolerated with little or no impact on program. Able to meet key dates Budget increase or unit production cost increase (<1% if Budget) 3 Moderate reduction in technical Minor schedule slip; performance or supportability with limited able to meet key impact on program objectives. milestones with no schedule float Budget increase or unit production cost increase (<5% if Budget) 4 Significant degradation in technical performance or major shortfall in supportability; may jeopardize program success. Program critical path affected Budget increase or unit production cost increase (<10% if Budget) Cannot meet key program milestones Exceeds Acquisition Program Budget (APB) threshold 36 (>10% if Budget) Severe gradation in technical performance; cannot meet Key Performance (KPP) 5 Module 8 Lesson 2: Do. D Parameter Risk Management Basics or key technical/supportability threshold; will

Reporting a Risk using the Risk Matrix 5 Likelihood List 1. Risk Title 2. Causal factor 3. Mitigation Approach 4 S 3 2 1 1 2 3 4 5 Consequence Module 8 Lesson 2: Do. D Risk Management Basics 37

Job Aid: Do. D Risk Reporting Matrix § § Refer to Module 8, Lesson 2, Job Aid 2 CMM 100_M 8_L 2_JA 2_Risk_Reporting_Matrix. docx https: //acc. dau. mil/docs/plt/se/riskmatrix/dod_risk_ matrix. htm Module 8 Lesson 2: Do. D Risk Management Basics 38

Question and Answer Which tool allows for analysis of a risk on two axes: the likelihood that the risk will occur and the consequence of the risk? A. B. C. D. Risk Approach Chart Risk Reporting Matrix Risk Register Risk Urgency Guide Module 8 Lesson 2: Do. D Risk Management Basics 39

Question and Answer Why should risks be quantified? A. To determine how often the risks will occur on a project B. To determine which risks affect cost and which risks affect a project’s schedule C. To focus on the most important risks to a project Module 8 Lesson 2: Do. D Risk Management Basics 40

Question and Answer When reporting a risk with the Risk Matrix, what three items should be included with the graphic? A. Risk Issue, Cause, Effect B. Risk Identification Number, Summary of Analysis, Mitigation Plan C. Risk Level, Matrix, Response D. Risk Title, Causal Factor, Mitigation Approach Module 8 Lesson 2: Do. D Risk Management Basics 41

Exercise: Risk Management Practitioner Small Group Exercise § § § Find a partner or work in a trio Refer to Module 8, Lesson 2, Exercise 1 CMM 100_M 8_L 2_E 1_Exercise_FINAL. docx Read directions on: Identifying and Analyzing a Risk Complete the activity; be prepared to share your responses Time allowed: 20 minutes Module 8 Lesson 2: Do. D Risk Management Basics 42

RISK MITIGATION STRATEGIES Lesson Topics: 1) Risk Components 2) Do. D Risk Management Process 3) Risk Management Plan (RMP) 4) Identifying Risk Levels 5) Risk Mitigation Strategies Module 8 Lesson 2: Do. D Risk Management Basics 43

Common Risk Mitigation Strategies § § Approaches we make to deal with identified risks Four types: – – Controlling Avoiding Assuming Transferring Module 8 Lesson 2: Do. D Risk Management Basics 44

Controlling the Risk § § Reduce the probability of occurrence Reduce the impact on unacceptable risks Methods to control risk: • Incorporate redundancy • Use stable/experienced suppliers • Simplify processes Module 8 Lesson 2: Do. D Risk Management Basics 45

Avoiding the Risk § § Completely eliminate the possibility of the risk occurring Options: – Design around the risk – Abandon the project – Change the materials Module 8 Lesson 2: Do. D Risk Management Basics 46

Assuming the Risk § § § Accept the risk Severity of the risk is low No mitigation efforts occur Module 8 Lesson 2: Do. D Risk Management Basics 47

Transferring the Risk § § Reallocate risk to another part of the system Redistribute risk to someone else My Risk Module 8 Lesson 2: Do. D Risk Management Basics No, now it’s your Risk 48

Question and Answer Harris has been conducting quality inspections at a contractor’s plant. A root cause was identified early in the contract but the firm chose to accept the level of risk without mitigating a response. What risk strategy did the firm use? A. B. C. D. Controlling Avoiding Assuming Transferring Module 8 Lesson 2: Do. D Risk Management Basics 49

Question and Answer Which risk strategy completely eliminates the root cause or the consequence? A. B. C. D. Controlling Avoiding Assuming Transferring Module 8 Lesson 2: Do. D Risk Management Basics 50

Question and Answer Jesse has been evaluating a contractor’s request for a price adjustment. The contracting officer asked the supplier to take on a risk that just materialized. Which type of risk strategy is the contracting officer using? A. B. C. D. Controlling Avoiding Assuming Transferring Module 8 Lesson 2: Do. D Risk Management Basics 51

Question and Answer Tanya’s team is developing a new laser range finder (LRF) for the Apache helicopter. The design includes redundancy from the last LRF model to reduce the probability of the technology failing. What risk strategy is being used? A. B. C. D. Controlling Avoiding Assuming Transferring Module 8 Lesson 2: Do. D Risk Management Basics 52

Question and Answer Mike is the project manager for an internal Defense Contract Management Agency (DCMA) project. His team has identified three risks that have a very low probability of occurring. Which type of risk strategy is appropriate to use in this situation? A. B. C. D. Controlling Avoiding Assuming Transferring Module 8 Lesson 2: Do. D Risk Management Basics 53

Summary Having completed this lesson, you should now be able to: § § § Differentiate between a risk and an issue Identify the five key activities in the Do. D Risk Management Process Interpret a contractor’s plan for conducting risk management activities on a project Score risks based on their likelihood of occurrence and their impact on cost, performance, and schedule Select a mitigation strategy for reducing or eliminating a risk Module 8 Lesson 2: Do. D Risk Management Basics 54

Summary (cont. ) Your ability to manage risk will help you avoid, reduce, or eliminate problems that may delay a project or cause unplanned losses to occur. Module 8 Lesson 2: Do. D Risk Management Basics 55