Successful project management 6th edition gido solutions manual

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CHAPTER 8: Managing Risk

Chapter Concepts ..................................................................................................................................... 2 Learning Outcomes .................................................................................................................................. 2 Project Management Knowledge Areas from PMBOK® Guide ............................................................... 2 Teaching Strategies .................................................................................................................................. 2 Lecture Notes ........................................................................................................................................... 3 1. Real-World Project Management Examples ..................................................................................... 3 Vignette A: Critical Risks for Underground Rail ................................................................................ 3 Vignette B: Wrestling with the Grand Challenges of IT ..................................................................... 3 2. Identify Risks ..................................................................................................................................... 4 3. Assess Risks ..................................................................................................................................... 4 4. Plan Risk Responses ........................................................................................................................ 5 5. Control Risks ..................................................................................................................................... 5 6. Managing Risks for Information Systems Development ................................................................... 5 A. An IS Example: Internet Applications Development for ABC Office Designs (Continued) ........... 5 7. Critical Success Factors.................................................................................................................... 6 8. Summary ........................................................................................................................................... 6 Questions .............................................................................................................................................. 6 Internet Exercises ................................................................................................................................. 7 Case Study #1 A Not-For-Profit Medical Research Center .................................................................. 7 Answers to Case Questions .............................................................................................................. 7 Group Activity .................................................................................................................................... 7 Case Study #2 The Wedding ................................................................................................................ 7 Answers to Case Questions .............................................................................................................. 7 Group Activity .................................................................................................................................... 8 Case Study #3 Student Fund-Raising Project ...................................................................................... 8 Answers to Case Questions .............................................................................................................. 8 Group Activity .................................................................................................................................... 8 Optional Supplemental Activities .......................................................................................................... 8

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CHAPTER 8: MANAGING RISK

Chapter Concepts As mentioned in Chapter 1, one attribute of a project is that it involves a degree of uncertainty. Such uncertainty can impact the outcome of a project. Risk is an uncertain event that, if it occurs, can jeopardize accomplishing the project objective. Risk management involves identifying, assessing, and responding to project risks in order to minimize the likelihood of occurrence and/or potential impact of adverse events on the accomplishment of the project objective. Addressing risks proactively will increase the chances of accomplishing the project objective. Waiting for unfavorable events to occur and then reacting to them can result in panic and costly responses. Managing risk includes taking action to prevent or minimize the likelihood of occurrence or the impact of such unfavorable events.

Some level of risk planning should be done during the initiating phase of the project life cycle to make sure, for example, that a contractor understands the risks involved with bidding on a proposed project.

With knowledge of potential risks, the contractor can include contingency or management reserve amounts in the bid price. On the other hand, if the risks seem too great, the contractor may decide to not bid on a proposed project, as discussed in the decision to develop a proposal section in Chapter 3.

Subsequently, more detailed risk planning should be done during the planning phase of a project.

A project manager cannot be risk averse. She must accept that risk is a part of project management and has to address it head-on. Furthermore, the project manager needs to set the tone for encouraging open and timely discussion of risks among the project team.

Based upon this chapter, students will become familiar with •

Identifying risks and their potential impact

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Assessing the likelihood of occurrence and degree of impact of risks

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Risk response planning

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Controlling risks

Learning Outcomes After studying this chapter, the learner should be able to: •

Discuss what is involved in managing risks

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Identify and categorize risks

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Assess and prioritize risks

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Prepare a risk response plan

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Develop a risk assessment matrix

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Control risks

Project Management Knowledge Areas from PMBOK® Guide Concepts in this chapter support the following Project Management Knowledge Areas of A Guide to the Project Management Body of Knowledge (PMBOK® Guide): •

Project Risk Management

Teaching Strategies 1. The two vignettes reinforce the necessity of identifying, assessing, and managing risks in projects. The first vignette communicates that indirect risks must be managed as well as risks related to the work being performed on a project. The second vignette examines how global technology must be managed to help avoid problems when risks such as Hurricane Sandy, the earthquakes and tsunami in Japan, and cyber security attacks take place and potentially could cause problems for the financial system.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 8: MANAGING RISK

2. Risk assessment should be completed for every project. Have students identify risks associated with an activity of their choice, such as a concert that will occur in the area or their weekend plans. Ask them to evaluate the degree of impact and the likelihood of occurrence.

Have other students offer techniques for managing the risk.

3. Have students examine a project that has recently appeared in the news and identify the risks that have caused (or might cause) the project to be delayed or to fail. Ask them to suggest how those risks might be mitigated.

4. The risks for the IS example are listed. Have students examine how to mitigate the risks suggested for software development projects.

Lecture Notes 1. Real-World Project Management Examples Vignette A: Critical Risks for Underground Rail The underground rail construction of Singapore is filled with risks related to the complex ground structure and a number of risks that are not related to the project activities. The indirect risks must be managed.

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Singapore’s Mass Rapid Transit system operates five lines and is adding an additional three fully underground lines by 2020. o Unpredictable ground conditions leading to ground settlement control issues is one of the risks the international joint ventures teams is facing. o Too great a project for a single civil engineering firm, this large-scale project garnered the collaboration of firms from a number of countries to create a multifaceted team that matches the complexity of the project and adds additional management risks.

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Even though the partnerships reduced some of the potential risk associated with the lack of regional knowledge and awareness of customs, communication problems related to social and cultural misunderstandings still plague the project progress. o Risks related to differences in management styles, procurement methods, and expectations are catalysts for project failure. o Leading risks identified by the joint venture teams included accounting profit and loss disagreements, financial distress, lack of competence, over-interference by parent companies of the contractors, and work allocation disagreements. o Some risks that were not associated with the actual work being completed to construct the underground rail. Risks such as policy changes in a contractor’s parent company, exchange rate fluctuations, language barriers, social and cultural customs differences, labor and equipment import restrictions, governmental cash flow issues, and technology transfer disputes all cause delays, conflict, and failure to complete tasks within the project.

These risks and those directly related to the work being completed must be managed in order for the underground rail project to be completed by its projected 2020 date. Every risk raises the probability that the underground rail will not be operational when expected. The completion of the construction of the underground rail is dependent upon managing risk.

Vignette B: Wrestling with the Grand Challenges of IT Catherine Bessant is a non-It person in charge of IT. Her management skills are beneficial to reduce the risks of IT projects.

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One generally doesn’t think of the author Shakespeare when thinking about project management. Catherine Bessant, Bank of America’s Global Technology and Operations Executive, does. Bessant says, “Shakespeare’s lessons, every one of them, are timeless lessons.” Her goal is to build systems that are elastic and foundationally strong yet nimble

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CHAPTER 8: MANAGING RISK

enough to last for 30 years and through the challenges of hurricanes, tsunamis, earthquakes, cyber attacks, and other risks. o Attention to risk management and mitigation decisions is an even greater challenge when the team is more than 100,000 employees and contractors who handle all the technology and operations for the financial services giant. o Technology continues to be advancing rapidly and regulatory requirements are ever changing. o Bessant’s team must maintain the robustness in their systems necessary to withstand every potential devastating event that puts Bank of America’s customers at risk of not achieving their business objectives.

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The unification has worked to simplify processes for risk mitigation through a series of boot camps to intensely focus on creating risk management strategies. o The first boot camp reduced risks and increased understanding of operational risks for the capabilities of the technology operations. o Controls were examined process-by-process during the second boot camp to analyze the procedures for any risks. o During the third boot camp, the project team identified specific issues, including business continuity and cyber security, and ways to mitigate risks.

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Tests such as Hurricane Sandy, the earthquakes and tsunami in Japan, and cyber security attacks have shown the developed risk mitigation strategy has performed extraordinarily.

The Global Technology and Operations team of Bank of America wrestled the challenges in their risk management and mitigation plan. They reversed the negative potential effects of the challenges and escaped the serious consequences of the events and incidents, which might have caused the customers to fall. You, too, can be successful controlling risks through management and mitigation plans.

2. Identify Risks •

A risk is an uncertain event that, if it occurs, can jeopardize accomplishing the project objective.

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Risk identification includes determining which risks may adversely affect the project objective and what the impact of each risk might be if it occurs.

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Sometimes a sponsor identifies major risks in the project charter when the project is authorized.

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A common approach to identifying the sources of risks is brainstorming.

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The risks should be those that are somewhat likely to occur and/or can have a significant negative impact on accomplishing the project objective.

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Establishing risk categories may help to identify and evaluate risks. Some categories are technical, schedule, cost, human resources, external, or sponsor/customer.

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Historical information from past projects is another source that can be helpful in identifying possible risks.

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The project team can progressively elaborate on and identify new risks, as well as the estimated impacts of previously identified risks, as more information is known or becomes clear.

3. Assess Risks •

Risk assessment includes determining the likelihood that the risk event will occur and the degree of impact the event will have on the project objective.

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Risks can then be prioritized based on their likelihood of occurrence and degree of impact.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 8: MANAGING RISK

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Risks on the critical path should be given higher priority, because if they occur, they will have a greater impact on the schedule than will activities on a path that has a large positive value of total slack.

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Figure 8.1 depicts a risk assessment matrix, a tool for assessing and managing risks.

4. Plan Risk Responses •

A risk response plan is a defined set of actions to prevent or reduce the likelihood of occurrence or the impact of a risk, or to implement if the risk event occurs.

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Risk response planning means developing an action plan to reduce the likelihood of occurrence or potential impact of each risk, establishing a trigger point for when to implement the actions to address each risk, and assigning responsibility to specific individuals for implementing each response plan.

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A risk response plan can be to avoid the risk, to mitigate the risk, or to accept the risk.

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Project prices and budgets should include a contingency or management reserve to pay additional costs associated with implementing response plans.

5. Control Risks •

Risk control includes implementing risk response plans and monitoring risks. Risk response plans should be implemented as appropriate when their trigger point is reached.

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Risk monitoring includes regularly reviewing the risk assessment matrix throughout the project.

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Regularly review and evaluate all risks to determine whether there are any changes to the likelihood or potential impact of any of the risks.

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Project meetings are a good forum for regularly reviewing, updating, and addressing risks.

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Track and document which risks actually occurred and their impact.

6. Managing Risks for Information Systems Development •

Risks for information systems (IS) development are inherent in all aspects of an IS project.

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The risks can be categorized into seven types: technological risk, human risk, usability risk, project team risk, project risk, organizational risk, and strategic and political risk.

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These categories help explain the risks associated with developing systems that accept data inputs, process those inputs, and produce information for users.

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Chapters 4, 5, 6, and 7 provided foundation information about the definition, scheduling, resources, and costs associated with IS development projects.

A. An IS Example: Internet Applications Development for ABC Office Designs (Continued) •

Beth wants to prepare for potential risks in the project so the team can take care of them early and not jeopardize the delivery date for the system.

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Beth planned for the team to determine the impact of the risk, the likelihood of occurrence, the degree of impact if it does occur, the action trigger that will serve as a warning flag for the risk, who is responsible for the risk, and the response plan to avoid, mitigate, or accept the risk.

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Beth reviewed the lessons learned from other projects again, to make sure the project team discussed the risks from the other projects.

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Figure 8.2 depicts the Risk Assessment Matrix for Web-based Reporting System Project.

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CHAPTER 8: MANAGING RISK

7. Critical Success Factors •

Identify risks and their potential impacts before the project starts.

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Include the project team or experts in assessing risks.

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Assign high priority to managing risks that have a high likelihood of occurrence and a high potential impact on the project outcome.

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Develop response plans for addressing high priority risks.

8. Summary •

Risk is an uncertain event that, if it occurs, can jeopardize accomplishing the project objective.

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Risk management includes identification, assessment, control, and response to project risks in order to minimize the likelihood of occurrence and/or the potential impact of adverse events on the accomplishment of the project objective.

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Risk identification includes determining which risks may adversely affect the project objective and estimating what the potential impacts of each risk might be if they occur.

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Assessing each risk means determining the likelihood that the risk event will occur and the degree of impact it will have on the project objective, and then prioritizing the risks.

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A risk response plan is a defined set of actions to prevent or reduce the likelihood of occurrence or the impact of a risk, or to implement if the risk event occurs.

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Regularly review and evaluate all risks to determine whether there are any changes to the likelihood or potential impact of any of the risks, or whether any new risks have been identified.

Questions 1. Describe what needs to be done to manage risk on a project. When should this be done?

How can a risk assessment matrix help in this process?

To manage risk on a project, the team needs to identify and assess risks to determine their impact and likelihood. Identification and assessment of risk occurs throughout the project. Project team meetings are good times to review risks and the risk management plan. The risk assessment matrix helps the process by organizing the identified risks and assessing the risks' impact, likelihood, degree of impact, the action trigger for the risk, who is responsible, and the response plan.

2. From your experience working on projects, list and categorize three risks. Was the response plan for those projects adequate to mitigate these risks? How would you respond to these risks now?

Risk categories could include technical, schedule, cost, human resources, external, or sponsor/customer and other categories. Answers should include an evaluation of the response plan for the risks and how the risk could have been mitigated if they were not adequately addressed. Students should also define a trigger point and a risk response plan for the risks.

3. What risks for a project have the highest priority? Does the priority for a risk change as the project progresses?

Risks that have the highest priority are those on the critical path and those that have high degree of impact and high likelihood of occurrence. Yes, the priority of a risk can increase or decrease in priority as the project progresses due to the evolving project environment.

4. How does project risk change as a project progresses? What changes are made to the risk assessment matrix as the changes occur?

As the project progresses, some initial risks may no longer be a factor and other risks may be identified that need to be addressed. The risk assessment matrix is adjusted to update the © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 8: MANAGING RISK

likelihood of occurrence, the degree or impact, the action trigger, the responsibility, and the response plan.

Internet Exercises Assign the Internet Exercises to your students as homework or complete them together in a computer lab.

The search for "project risk management" results in a number of sites that define project risk management and offers tools and suggestions for how to perform project risk management. Have students compare the tools in the websites with the risk assessment matrix presented in the chapter.

The website for the Software Program Managers Network identifies proven industry and government software best practices and contains a number of resources to convey the best practices to managers of large-scale software-intensive acquisition programs. The 16 critical success factors are categorized into project integrity, construction integrity, and product stability and integrity. The “lesson learned” section of the site has lists of lessons learned by experienced project managers to help managers of new projects avoid the mistakes and pitfalls experienced by their predecessors. The web links page is an alphabetical listing of resources to help in project management of the large-scale software-intensive projects.

Case Study #1 A Not-For-Profit Medical Research Center This case has continued through Chapters 4 to 8. Each chapter has questions to reinforce the concepts presented. This is an open-ended case study. The students have the opportunity to be very creative on this one. Encourage that creativity.

Answers to Case Questions Answers will vary from student to student for each question.

1. Identify at least four risks that could jeopardize the project.

The four risks could include risks that are related to the technical, schedule, cost, human resources, external, or sponsor/customer aspects, or other identified categories, of the project.

2. Create a risk assessment matrix including a response plan for each of the risks.

The risk assessment matrix includes the likelihood of occurrence, the degree or impact, the action trigger, the responsibility, and the response plan for each of the four risks.

Group Activity Divide the course participants into the same groups as for the previous chapter’s group activity and answer the questions listed above.

Case Study #2 The Wedding This case has continued through Chapters 4 to 8. Each chapter has questions to reinforce the concepts presented. This is an open-ended case study. The students have the opportunity to be very creative on this one. Encourage that creativity.

Answers to Case Questions Answers will vary from student to student for each question.

1. Identify at least four risks that could jeopardize the wedding.

The four risks could include risks that are related to the technical, schedule, cost, human resources, external, or sponsor/customer aspects, or other identified categories, of the wedding.

2. Create a risk assessment matrix including a response plan for each of the risks.

The risk assessment matrix includes the likelihood of occurrence, the degree or impact, the action trigger, the responsibility, and the response plan for each of the four risks. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 8: MANAGING RISK

Group Activity Divide the course participants into the same groups as for the previous chapter’s group activity and answer the questions listed above.

Case Study #3 Student Fund-Raising Project This case study describes a project by students to help raise funds for upgrading the pediatric intensive care unit at the local hospital. A team of 15 representatives from the fraternities and sororities raised concerns and formed a planning committee to develop a plan.

Answers to Case Questions Answers will vary from student to student for each question.

1. What would you recommend for the next possible steps?

A baseline plan needs to be established—identifying the objective, defining specific activities, establishing time estimates and a budget, and determining how the project can be accomplished.

The students must identify all risks associated with the project, assess these, and create a response plan including a contingency plan. Finally the subdivided tasks must be executed and the progress should be tracked and controlled.

2. Identify three potential projects to raise funds for the hospital pediatric intensive care unit.

Answers will vary from student to student. Projects should include a description of the activity, the amount of funds to be raised, and the amount of resources necessary to raise the funds.

3. Select one of the three projects and identify four risks that could jeopardize the success of the project.

Answers will vary from student to student. The four risks could be related to the technical, schedule, cost, human resources, external, or sponsor/customer aspects, or other identified categories, of the project.

4. Develop a response plan for how each of the four risks can be either avoided or mitigated.

Response plan can be to avoid, to mitigate, or to accept the risk. Responses should include a description of how the risk will be avoided, mitigated, or accepted and who is the person responsible for the risk.

Group Activity Divide the course participants into teams of three or four. Have them: •

Brainstorm a list of eight possible projects to raise funds for the hospital.

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Agree on one of the eight projects.

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For the selected project, identify six risks that could jeopardize the success of the project.

• Develop a response plan for how each of the six risks can be either avoided or mitigated.

Have each team select a spokesperson to present their responses to the entire class.

Optional Supplemental Activities 1. Ask students to read the real-world vignettes.

2. Have them read the chapter and answer all the Reinforce Your Learning questions and the questions at the end of the chapter.

3. Ask students to contact an author of the materials on the SPMN website and present what they learned from the author.

4. Let students research the lessons learned or any of the articles on the SPMN website and then present their findings to the class.

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