RiskMangagementMethodology

Developing p g and Using g Payoff y Tables
Establishing the procedure to follow Construct the Payoff table Decision-making under certainty Decision-making Decision making under complete uncertainty Decision-making under risk
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Response to risk events (conti)
• Mitigation This risk type is almost like avoidance, but in this case, you may only be able to reduce the probability of the risk or the impact to the project or its objectives. For instance, if the risk of rain would delay your project, you would add extra days into your project schedule, to “pad” it for rain days. Many times, this involves building more budget or adding more tasks to your schedule to reduce your risk. That’s why risk management is a planning l i process—by b d doing i it i up front, f you can get important i items i built b il into your schedule before they become difficult to manage. Acceptance/retention There are many risks that are so expensive, that trying to avoid, insure, or mitigate them might be as expensive as the project itself. There may be other risks where the expense is so small, and the risk can be so easily handled, it is not worthwhile making major changes h to the h project j plan l or schedule. h d l This Thi response type is i called ll d acceptance: you are willing to take the consequences of the risk were it to occur. For instance, it might be possible that you would have the flood of th century the t th that t would ld wipe i out t your project, j t and d yet t you can’t ’t get t flood fl d insurance in your city. Since you live in a very dry region, with no major floods, your team might decide to accept the risk of flooding and deal with it if it occurs occurs. Your team would do well, well though, though to create a contingency plan if flooding does occur, which is discussed next.
Tolerance For Risk
• Risk s a avoider o de • Risk neutral • Risk lover
Decision-Making Categories
• Complete uncertainty • Relative uncertainty (partial information) • Complete certainty
Types Of Risks (General)
• Business risks • Insurable (pure) risk
– Direct property damage – Indirect consequential loss – Legal liability – Personnel
Types Of Risk (PMI Method)
Risk Management
Basic i Concept p
• Risk management focuses on:
–Known unknowns –Proactive management
The alternative to proactive p management is reactive management, also called crisis management. This requires significantly more resources and takes longer for problems to surface.
FIVE STEPS TO DEVELOP PAYOFF TABLE • List all the alternatives. • List the future consequences of each alternative. • Identify the payoffs associated with each combination. • Assess the degree of certainty that these combinations will materialize • Decide on a decision criterion.
• • • • • External – unpredictable External – predictable Internal – non-technical non technical Internal – technical Legal
Risk Types at Boeing
• Financial risks • Market risks • Technical risks • Production risks
Response to risk events
• Avoidance This is a response type where you attempt to overcome the risk event by trying to stray away from or eliminate it altogether. You do something to your plan, so that the risk simply won’t won t occur. For instance, if a construction project has a risk that the dump truck won’t be delivered on time and the project could be delayed and money lost, perhaps p p y you would reduce the scope p of the p project j to eliminate the elaborate landscaping part of the project that required the dump truck. Transference Most of us understand insurance—you pay someone to protect against the risk of possible losses. Transference is the response type where you transfer the responsibility for the risk to someone else. In project management, insurance is one response using transference, but y you might g also transfer the risk by y hiring g a vendor who is more adept at the particular work itself. For instance, in a construction project, a project manager would probably subcontract with an electrical company who can do the building’s wiring. This transfers the risk of doing the work to someone else rather than the construction company hiring or training electricians themselves. Transference does not necessarily eliminate the risk—and in fact, the company who takes on the h risk i k should h ld b be i insured di itself, lf otherwise, h i your project j could ld still ill suffer great consequences if the risk occurs.