Project Risk Assessment Worked Example1. © PMIS Consulting Limited: all rights reserved
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Objective of this presentation:
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The purpose of this presentation is to provide a 10 minute storyboard type walkthrough of how to assess a group of risks on a project, for the purpose of decision making
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which is easy to follow and understand
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What it is not designed to do
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It is not designed to give you guidance on:
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Risk identification
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Or
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The management of risk
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Those are dealt with in separate presentations
Project Risk Assessment: Worked Example
pmis-consulting.com 2. © PMIS Consulting Limited: all rights reserved
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This presentation assumes you and your team have identified a series of risks, and now you need to assess them, and use this process and the information it produces to help you make decisions, such as:
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Which risks require action
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How to use Assessment to help prioritise actions
Project Risk Assessment: Worked Example
pmis-consulting.com
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
3 level schema: (Low = 1, Med = 2, High = 3) also 5 level schema. 3. © PMIS Consulting Limited: all rights reserved
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It examines and assesses both the probability of occurrence of each risk, together with the impact of each risk if it occurs.
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Using common values (e.g. H/M/L) (or thresholds) can provide each risk a score, allowing a comparative analysis of risks across a whole project.
Project Risk Assessment: Worked Example
pmis-consulting.com
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
3 level schema: (Low = 1, Med = 2, High = 3) also 5 level schema. 4. © PMIS Consulting Limited: all rights reserved
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Before we can assess the risks we must:
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Decide if we are going to assess just overall impact or assess impact on cost, schedule and performance (of our end product, aka Technical) separately
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If we are doing the latter, we must define values for L/M/H for each of these, e.g. for schedule
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E.g. L=<1 week, M=< 1 month, and H=>1 month
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Then we do the same for cost etc.
Project Risk Assessment: Worked Example
pmis-consulting.com
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
So, what do we have to do?
3 level schema:
(Low = 1, Med = 2, High = 3)
also 5 level schema. 5. © PMIS Consulting Limited: all rights reserved
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N.B: Impact Values
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Despite it seeming logical, percentages do not work for cost impact – actual ‘threshold’ values must be agreed per project, sometimes even with the key stakeholders
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For probabilities, people often start out with percentages way to high for probability, e.g. high > 80% - this is far too high - a probability of greater than 1 in 2 (50%) chance of occurring is a high risk item
Project Risk Assessment: Worked Example
pmis-consulting.com
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
Tips on Impact Values / Ranges
3 level schema: (Low = 1, Med = 2, High = 3) also 5 level schema. 6. © PMIS Consulting Limited: all rights reserved
Example Thresholds:
pmis-consulting.com
Impact
1
2
3
4
5
Very Low
Low
Moderate
High
Very High
Objective
Time
Thresholds
Less than 1 week
Up to 2 weeks
Up to 4 weeks
5-10 weeks
11 weeks and above
Cost
Thresholds
$ up to 100K (in 000s)
$ up to 200K
(in 000s)
$ up to 500K
(in 000s)
$ up to 1M
$ >1M
Quality
No safety issues, C, O, M deficiencies approved by project team
No safety issues, C, O, M deficiencies require District management approval
Quality may be made acceptable through mitigation or agreement (i.e. Fact Sheet)
Quality does not meet one or all of the following Safety, C, O, & M
Probability of occurrence
1-9 %
10-19%
20-39%
40-59%
60-99% 7. © PMIS Consulting Limited: all rights reserved
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Risk Score
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When we go through the assessment of individual risks and allocate them a value for probability and impact, we can translate this at the same time into a risk score, e.g.:
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Low = 1
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Med = 2
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High = 3
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Therefore:
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H/H = 3 * 3 =9
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H/L = 3 * 1 = 3, etc.
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If we use C/S & T impact values, we multiply their average by the probability
Project Risk Assessment: Worked Example
pmis-consulting.com
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
Producing the risk ‘score’
3 level schema: (Low = 1, Med = 2, High = 3) also 5 level schema. 8. © PMIS Consulting Limited: all rights reserved
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Risk Score
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The risk score is useful, but must never be used on its own as an absolute driver of the need for actions etc. following assessment – in other words it is simply wrong to write a process that says ‘accept’ all risks with a risk score less than ….. this is taking process driven management far to far and will result in important risks being ignored
Project Risk Assessment: Worked Example
pmis-consulting.com
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
How not to use the risk ‘score’
3 level schema:
(Low = 1, Med = 2, High = 3)
also 5 level schema. 9. © PMIS Consulting Limited: all rights reserved
•
Risk Score
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Developing the risk score itself should be a team task – no one person can do this.
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Developing the score allows the team to better understand risk, which is a challenging task in itself
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This then allows much better informed, structured and successful decision making and actions to follow this phase of the overall project risk management process
Project Risk Assessment: Worked Example
pmis-consulting.com
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
How to use the risk ‘score’
3 level schema:
(Low = 1, Med = 2, High = 3)
also 5 level schema. 10. © PMIS Consulting Limited: all rights reserved
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Thank you !
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Please click on the link below for more information or training on this topic.
Thank you
http://pmis-consulting.com/articles/project-risk-management/
H
M
L
Probability
20%
40%
Impact
H
M
L
1
9
4
3 level schema: (Low = 1, Med = 2, High = 3) also 5 level schema.