Learning Solutions for Increased Project Performance

Welcome

This month’s topic is Risk Management and in this issue, you’ll find articles on the importance of managing risk and other risk-related topics.

Very often, risk management is a case of not practicing what we preach. According to a survey of 96 project managers and project team members taken by Action for Results, risk management is an essential discipline in project management. Nearly 90% of respondents cited the practice as either extremely important or very important to the success of their projects. However, when asked whether risk management was integrated into their overall project management approach, only 34% said that proactive risk processes were in place in their organization. Another 40% said that although risks were defined and discussed with the project team, a formal process to identify and manage all risks did not exist.

Next Month’s Topic: Project Communications

pmPractitioner is published as a service to the project management community. Each issue provides practical project management solutions and tips adapted from a variety of business publications and resources.

Essential Points of Project Risk Management

Effective risk management is an especially critical element in ensuring the maximum probability of ultimate project success. Presented here are some basics about risk and project risk management:

• Project risk is any uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective. A risk has a cause, and, if it occurs, a consequence.
• There are four generally accepted categories of risk in project environments, which are:
1. Technical, quality, performance risks (reliance on unproven technology and/or unrealistic performance goals)
2. Project management risks (poor use of project management disciplines)
3. Organizational risks (resource conflicts, incompatible goals and/or inadequate funding)
4. External risks (regulatory issues, natural disasters, etc.)
• The best approach to project risk management is a “holistic” one. Instead of limiting focus to the more traditional areas of time (schedule) and cost (budget), it pays to give equal importance to integration, scope, communications, procurement, human resources, quality and risk.
• Risks in the project environment can be negative or positive. Negative risk events (also called threats) can threaten project objectives and should be avoided. Positive risk events (also called opportunities) should be pursued to improve on those objectives.
• Risk has its origins in the uncertainty inherent in all projects. It is possible to identify known risks, then analyze them and plan for them. Unknown risks still manifest, and with these events, the best you can do to manage them is to apply sensible general contingencies.
• Risk is different from problems or issues. Risk represents uncertain events. Problems are certain events and issues are matters to be decided (often the symptom or cause of the problem).

Remember! Risk is ever-present in all projects, yet it is often one of the most overlooked elements in many projects. Deepening your understanding of risk and the tools used to manage it can only improve the chances of a successful project outcome.

Adapted from the mScholar Project Risk Management Self-Paced Course, Action for Results, Inc., 2009

Project Management Q&A

Test your project management knowledge with these questions or use them as an exercise to help prepare for your PMP certification exam.

1. The analysis technique used to determine the extent to which the uncertainty of each project element affects the objective when all other elements are held at their base values is called:

2. Your project schedule analyst presents you with the opportunity to shorten your critical path length 30% by significantly overlapping several activities currently scheduled in series. Your risk analysis should focus on:

See below for the answers.

PMI’s Risk Management Credential

For those with a particular aptitude or interest in project risk management, the Project Management Institute now offers a Risk Management Professional (PMI-RMP) credential. For details and eligibility requirements, visit PMI’s website, www.pmi.org.

Using the Project Schedule to ID Project Risks

Planning risk management should be an integral part of your overall project planning process – and risk management begins with risk identification (risk ID). 

The risk ID process is best performed as a facilitated brainstorming session with a team of knowledgeable people representing diverse opinions. Ideally, the output from such a session (or series of sessions) will be a comprehensive list of project risks and warning signs for each identified risk.

So, where do you start to look for potential risk events? Preston Smith and Guy Merritt suggest one effective way is by walking through the project schedule.

Here’s how:

1. Prepare and post a wall-sized version of the schedule.
2. Prepare a spreadsheet to capture and track risks as they are identified. Be sure to list risk owners for each identified risk.  Consider expanding the number of spreadsheet columns to track future information in the risk planning process (analyses, response planning, monitoring and control).
3. Walk through the schedule asking at every step, “What could go wrong at this point that would prevent us from achieving project success?” Note: To take full advantage of this exercise, you may wish to also ask, “What opportunities exist at this point that would result in net project gain?”
4. Capture each identified risk on a sticky note and affix it directly to the wall-mounted schedule.
5. When all risks are identified, enter them into the database.

Adapted from Proactive Risk Management, Preston G. Smith and Guy M. Merritt,  Productivity Press

Reading Room: Risk Management

Effective Opportunity Management for Projects, David Hillson, CRC Publishing, 2003

Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project, Tom Kendrick, AMACOM, 2009

Proactive Risk Management : Controlling Uncertainty in Product Development, Preston G. Smith and Guy M. Merritt, Productivity Press, 2002

Project Manager’s Spotlight on Risk Management, Kim Heldman, Jossey-Bass, 2005

Project Risk Management: Processes, Techniques and Insights, Chris Chapman and Stephen Ward, Wiley Publishers, 2003

Risk Intelligence: Learning to Manage What We Don’t Know, David Apgar, Harvard Business School Press, 2006

Answers to PM Q&A

1. (d) Sensitivity analysis
Sensitivity analysis helps to determine which risks have the most potential impact on the project.  It examines the extent to which the uncertainty of each project element affects the objective being examined while all other uncertain elements are held at their baseline values.
PMBOK Guide, Fourth Edition, p. 298

2. (c) Both a and b
Significantly overlapping schedule activities is called fast tracking. It increases project risk because activities must start before the deliverables from the preceding activity are complete, resulting in the requirement for assumptions.
You must also examine the effect that shortening the critical path by 30% has on the overall schedule, because there may be a parallel path with near-critical total float that is totally unaffected by the fast tracking.  This would result in a potentially significant increase to the project risk with only minor improvement in the ultimate project completion date.
PMBOK Guide, Fourth Edition, p. 140, 157