Supplement Risk Management 2021612 1 Basic Concept Risk
Supplement Risk Management 2021/6/12 1
Basic Concept • Risk management focuses on: – Known unknowns – Proactive management 2021/6/12 2
The alternative to proactive management is reactive management, also called crisis management. This requires significantly more resources and takes longer for problems to surface. 2021/6/12 3
Definition Of Riskevent = f(Likelihood, Impact) • Likelihood is the probability of occurrence • Impact is the amount at stake 2021/6/12 4
Risk Management • Risk management focuses on the future • Risk and information are inversely related 2021/6/12 5
Risk Management • 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 2021/6/12 6
Types Of Risks (General) • Business risks • Insurable (pure) risk – Direct property damage – Indirect consequential loss – Legal liability – Personnel 2021/6/12 7
Types Of Risk (PMI Method) • • • External – unpredictable External – predictable Internal – non-technical Internal – technical Legal 2021/6/12 8
eg. Risk Types at Boeing • Financial risks • Market risks • Technical risks • Production risks 2021/6/12 9
Risk Quantification STAGE II GUID- WARHEAD ANCE PROGRAM SUMMARY DESIGN TEST MANU. COST 2021/6/12 LEGEND HIGH MEDIUM LOW 10
Risk Handling • • Assumption (retention) Avoidance Control (mitigation) Transfer 2021/6/12 11
Risk Management • Listing of potential disasters – Major and minor – Late subcontractor deliveries, bad weather, unreasonable deadlines, equipment failure, changes in project scope • Contingency plans are described – Does not stop disasters – Softens the impact 2021/6/12 12
Risk Management 1. Risk identification 2. Risk analysis 3. Response to risk 2021/6/12 13
Breakdown into Sub-processes 1. 2. 3. 4. 5. 6. 2021/6/12 Risk management planning Risk identification Qualitative risk analysis Quantitative risk analysis Risk response planning Risk monitoring and control 14
Risk Management Planning • Like any other planning process • Must ensure that the necessary resources can be applied in a timely manner • It is a continuous process • The factors that cause uncertainty change over time 2021/6/12 15
Risk Identification and Qualitative Risk Analysis Scenario analysis • Well-known method for identifying risk Involves envisioning likely scenarios and resulting outcomes – – Failure mode and effect analysis (FMEA) • 1. 2. 3. 4. 5. 6. 2021/6/12 List ways project might fail List consequences and evaluate its severity List cause and likelihood Estimate the ability to detect each failure Calculate the risk priority number Sort the potential failures by their risk priority number 16
Quantitative Risk Analysis • State outcomes as probability distribution and use distributions to evaluate the desirability of certain decisions • Objective is to illustrate the risk profile of the outcomes • Risk profiles are one factor to consider in making the decision • Techniques for analysis include: – Expected value – Simulation 2021/6/12 17
Risk Response Planning • Deciding on which risks to prepare for and which to ignore • Main preparation is a risk response plan • Risk response plan includes contingency plans and logic charts detailing what to do – Contingency plan is a backup for some emergency or unplanned event (“plan B”) – Logic chart shows the flow of activities once a backup plan is initiated 2021/6/12 18
Failure Mode and Effect Analysis (FMEA) q. List ways project might fail q. Evaluate severity (S) of each failure q. Estimate likelihood (L) of each failure occurring q. Estimate ability to detect each failure (D) q. Calculate Risk Priority Number (RPN) q. Sort potential failures by their RPNs 2021/6/12 19
Table 3 -6 (4 -5) FMEA for New Product Development Project at Pharmaceutical Company Failure S • Not effective 8 • Not safe 8 • Drug interacts with other drugs 6 • Beat to market 7 • Can’t produce 6 2021/6/12 L 6 4 D 5 5 RPN 240 160 3 3 4 8 2 4 144 42 96 20
Risk Monitoring and Control • Monitoring and control are tasks for the parent organization – As well as the project • Must keep records for future projects • Also must continue to search for new risks 2021/6/12 21
Risk Problem-Solving 2021/6/12 22
Idea Generation: Brainstorming 2021/6/12 23
Future Risks Inexperienced Customer’s Knowledge Experienced Simple Complex Contract Type 2021/6/12 24
Future Risks Inexperienced S K S I N I S Customer’s Knowledge Experienced R G A E R C N I Simple Complex Contract Type 2021/6/12 25
How Much Risk Is Acceptable? • High tolerance for risk • Medium tolerance for risk • Low tolerance for risk 2021/6/12 26
Degrees of Downstream Risk Low Risk R&D Manufacturing Marketing 2021/6/12 Time 27
Degrees of Downstream Risk Moderate Risk Information Exchange R&D Manufacturing Marketing 2021/6/12 Time 28
Degrees of Downstream Risk High Risk R&D Manufacturing Marketing 2021/6/12 Time 29
Prioritization of Risks Schedule Cost Technical Performance or Quality First (Highest) Priority Second Priority Third Priority 2021/6/12 30
Risk Controls Schedule Length Too Long Appropriate 2021/6/12 No Risk Plan Too Many Risk Management Filters and Gates Low High Risk Controls 31
Risk Control Measures Range of Controls Intensity of Controls Extreme Standard Controls Low 2021/6/12 Risk Intensity High 32
Which Method to Use? Project Procedural Documentation Rigid Policies/ Procedures Avoidance Transfer Reduction Assumption Guidelines High Low Tolerance for Risk 2021/6/12 33
The Risk-Reward Matrix High Medium Low H h ig so Qu ur al ce ity s N of ee de d Risk um i ed 2021/6/12 Medium Reward High Re Low w Lo M 34
Interacting Risks Product Feature A Desirable Specification Limit On Characteristic B Undesirable 2021/6/12 Product Feature B Desirable 35
Risk Planning Poor Risk Management s n o i Performance t a t c e p x E r e Technical Inability m o t s Cu e l Actua c n a m r Perfo Time 2021/6/12 36
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