Strategic Appli In Project Management Reflection and Discussion Forum Week 7 Reflection and Discussion Forum Week 7Assigned Readings:Chapter. 7 Managing Ri

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Reflection and Discussion Forum Week 7

Reflection and Discussion Forum Week 7Assigned Readings:Chapter. 7 Managing RiskInitial Postings: Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.Also, provide a graduate-level response to each of the following questions:

  1. You have been assigned to a project risk team of five members. Because this is the first time your organization has formally set up a risk team for a project, it is hoped that your team will develop a process that can be used on all future projects. Your first team meeting is next Monday morning. Each team member has been asked to prepare for the meeting by developing, in as much detail as possible, an outline that describes how you believe the team should proceed in handling project risks. Each team member will hand out their proposed outline at the beginning of the meeting. Your outline should include but not be limited to the following information:
    • Team objectives.
    • Process for handling risk events.
    • Team activities.
    • Team outputs.

[Your post must be substantive and demonstrate insight gained from the course material. Postings must be in the student’s own words – do not provide quotes!] [Your initial post should be at least 450+ words and in APA format (including Times New Roman with font size 12 and double spaced). Post the actual body of your paper in the discussion thread then attach a Word version of the paper for APA review] 

Chapter Seven

Managing Risk

7–1

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7–2

Where We Are Now

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2

Learning Objectives

Describe the risk management process

Understand how to identify project risks

Assess the significance of different project risks

Describe the four different responses to managing risks

Understand the role contingency plans play in risk management process

Understand opportunity management and describe the four different approaches to responding to opportunities in a project

Understand how contingency funds and time buffers are used to manage risks on a project

Recognize the need for risk management being an ongoing activity

Describe the change control process

7–3

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Chapter Outline

7.1 Risk Management Process

7.2 Step 1: Risk Identification

7.3 Step 2: Risk Assessment

7.4 Step 3: Risk Response Development

7.5 Contingency Planning

7.6 Opportunity Management

7.7 Contingency Funding and Time Buffers

7.8 Step 4: Risk Response Control

7.9 Change Control Management

7–4

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7–5

Risk Management Process

Risk

Uncertain or chance events that planning cannot overcome or control

Risk Management

An attempt to recognize and manage potential and unforeseen trouble spots that may occur when the project is implemented

What can go wrong (risk event)

How to minimize the risk event’s impact (consequences)

What can be done before an event occurs (anticipation)

What to do when an event occurs (contingency plans)

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5

7–6

The Risk Event Graph

FIGURE 7.1

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6

7–7

Risk Management’s Benefits

A proactive rather than reactive approach

Reduces surprises and negative consequences

Prepares the project manager to take advantage
of appropriate risks

Provides better control over the future

Improves chances of reaching project performance objectives within budget and on time

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7

7–8

The Risk Management Process

FIGURE 7.2

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8

7–9

Managing Risk

Step 1: Risk Identification

Generate a list of possible risks through brainstorming, problem identification and risk profiling

Use risk breakdown structure (RBS) in conjunction with work breakdown structure (WBS) to identify and analyze risks

Macro risks first, then specific events

Risk profile is a list of questions addressing additional areas of uncertainty on a project.

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9

7–10

The Risk Breakdown Structure (RBS)

FIGURE 7.3

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10

7–11

Partial Risk Profile for Product Development Project

FIGURE 7.4

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11

7–12

Managing Risk

Step 2: Risk Assessment

Scenario analysis for event probability and impact

Risk assessment form

Risk severity matrix

Failure Mode and Effects Analysis (FMEA)

Risk Value = Impact x Probability x Detection

Probability analysis

Decision trees, NPV, and PERT

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12

7–13

Defined Conditions for Impact Scales of a Risk on Major Project Objectives (Examples for negative impacts only)

FIGURE 7.5

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13

7–14

Risk Assessment Form

FIGURE 7.6

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14

7–15

Risk Severity Matrix

FIGURE 7.7

Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk Value

User Backlash Interface problems
System freezing
Hardware malfunc-tioning

Likelihood

Impact

Red zone (major risk)

Yellow zone (moderate risk)

Green zone (minor risk)

5

5

4

4

3

3

2

2

1

1

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15

7–16

Managing Risk (cont’d)

Step 3: Risk Response Development

Mitigating Risk

Reducing the likelihood an adverse event will occur

Reducing the impact of an adverse event

Avoiding Risk

Changing the project plan to eliminate the risk or condition

Transferring Risk

Paying a premium to pass the risk to another party

Requiring Build-Own-Operate-Transfer (BOOT) provisions

Accepting Risk

Making a conscious decision to accept the risk

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16

7–17

Contingency Planning

Contingency Plan

An alternative plan that will be used if a possible foreseen risk event actually occurs

A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event

Risks of Not Having a Contingency Plan

Having no plan may slow managerial response

Decisions made under pressure can be potentially dangerous and costly

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17

7–18

Risk Response Matrix

FIGURE 7.8

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18

7–19

Risk and Contingency Planning

Technical Risks

Backup strategies if chosen technology fails

Assessing whether technical uncertainties can be resolved

Schedule Risks

Use of slack increases the risk of a late project finish

Imposed duration dates (absolute project finish date)

Compression of project schedules due to a shortened project duration date

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19

7–20

Risk and Contingency Planning (cont’d)

Cost Risks

Time/cost dependency links: costs increase when problems take longer to solve than expected.

Price protection risks (a rise in input costs) increase if the duration of a project is increased.

Funding Risks

Changes in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.

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20

7–21

Opportunity Management

Exploit

Seeking to eliminate the uncertainty associated with an opportunity to ensure that it definitely happens

Share

Allocating some or all of the ownership of an opportunity to another party who is best able to capture the opportunity for the benefit of the project

Enhance

Taking action to increase the probability and/or the positive impact of an opportunity

Accept

Being willing to take advantage of an opportunity if it occurs, but not taking action to pursue it

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21

7–22

Contingency Funding and Time Buffers

Contingency Funds

Funds to cover project risks—identified and unknown

Size of funds reflects overall risk of a project.

Budget reserves

Are linked to the identified risks of specific work packages.

Management reserves

Are large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project.

Time Buffers

Amounts of time used to compensate for unplanned delays in the project schedule

Severe risk, merge, noncritical, and scarce resource activities

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22

7–23

Contingency Fund Estimate

TABLE 7.1

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23

7–24

Managing Risk (cont’d)

Step 4: Risk Response Control

Risk control

Execution of the risk response strategy

Monitoring of triggering events

Initiating contingency plans

Watching for new risks

Establishing a Change Management System

Monitoring, tracking, and reporting risk

Fostering an open organization environment

Repeating risk identification/assessment exercises

Assigning and documenting responsibility for managing risk

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24

7–25

Change Control Management

Sources of Change

Project scope changes

Implementation of contingency plans

Improvement changes

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25

7–26

Change Management Systems

Identify proposed changes

List expected effects of proposed changes on schedule and budget

Review, evaluate, and approve or disapprove of changes formally

Negotiate and resolve conflicts of change, condition, and cost

Communicate changes to parties affected

Assign responsibility for implementing change

Adjust master schedule and budget

Track all changes that are to be implemented

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26

7–27

The Change
Control Process

FIGURE 7.9

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27

7–28

Benefits of a Change Control System

Inconsequential changes are discouraged by the formal process.

Costs of changes are maintained in a log.

Integrity of the WBS and performance measures is maintained.

Allocation and use of budget and management reserve funds are tracked.

Responsibility for implementation is clarified.

Effect of changes is visible to all parties involved.

Implementation of change is monitored.

Scope changes will be quickly reflected in baseline and performance measures.

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28

7–29

Sample Change Request

FIGURE 7.10

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29

7–30

Change Request Log

FIGURE 7.11

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30

7–31

Key Terms

Accept risk

Avoiding risk

Budget reserve

Change management system

Contingency plan

Management reserve

Mitigating risk

Opportunity

Risk

Risk breakdown structure (RBS)

Risk profile

Risk register

Risk severity matrix

Scenario analysis

Time buffer

Transferring risk

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31

Appendix 7.1

PERT and PERT Simulation

7–32

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32

7–33

PERT—Program Evaluation Review Technique

Assumes each activity duration has a range that statistically follows a beta distribution.

Uses three time estimates for each activity: optimistic, pessimistic, and a weighted average to represent activity durations.

Knowing the weighted average and variances for each activity allows the project planner to compute the probability of meeting different project durations.

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33

7–34

Activity and Project Frequency Distributions

FIGURE A7.1

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34

7–35

Activity Time Calculations

The weighted average activity time is computed by the following formula:

(7.1)

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35

7–36

Activity Time Calculations (cont’d)

The variability in the activity time estimates is approximated by the following equations:

The standard deviation for the activity:

The standard deviation for the project:

Note the standard deviation of the activity is squared in this equation; this is also called variance. This sum includes only activities on the critical path(s) or path being reviewed.

(7.2)

(7.3)

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36

7–37

Activity Times and Variances

TABLE A7.1

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37

7–38

Probability of Completing the Project

The equation below is used to compute the “Z” value found in statistical tables (Z = number of standard deviations from the mean), which, in turn, tells the probability of completing the project in the time specified.

(7.4)

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38

7–39

Hypothetical Network

FIGURE A7.2

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39

7–40

Hypothetical Network (cont’d)

FIGURE A7.2 (cont’d)

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40

7–41

Possible Project Duration

Probability project is completed before scheduled time (TS) of 67 units

Probability project is completed by the 60th unit time period (TS)

FIGURE A7.3

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41

7–42

Z Values and Probabilities

TABLE A7.2

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42

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