ENGR 3360U Winter 2014

Unit 10
Risk and Uncertainty
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-01

Unit 10 Project Risk Management

Change Record
2014-I-01 Initial Creation

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Unit 10 Project Risk Management

Course Outline
1.
2.

3.
4.
5.
6.
7.
8.
9.
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Engineering Economics
General Economics
1.
Microeconomics
2.
Macroeconomics
3.
Money and the Bank of
Canada
Engineering Estimation
Interest and Equivalence
Present Worth Analysis
Annual Cash Flow
Rate of Return Analysis
Picking the Best Choice
Other Choosing Techniques

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10. Uncertainty and Risk

11. Income and Depreciation
12. After-tax Cash Flows
13. Replacement Analysis
14. Inflation
15. MARR Selection
16. Public Sector Issues
17. What Engineering should know
about Accounting
18. Personal Economics for the
Engineer

Dr. J.M. Bennett, P.Eng., PMP

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Unit 10 Project Risk Management

Unit 10 Road Map

10.0 Introduction
10.1 Risk Planning
10.2 Risk Identification
10.3 Qualitative Risk Assessment
10.4 Quantitative Risk Assessment
10.5 Planning Risks
10.6 Controlling Risks
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Dilbert and Risk

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Unit 10 Project Risk Management

10.1 Introduction
Processes concerned with conducting
Risk management planning
Risk identification
Risk analysis
Risk responses
Monitoring and controlling risk

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Unit 10 Project Risk Management

Enterprise
Environmental
Organizational
Process Assets
5.2 Scope
Definition

Commercial databases

P&P, Guidelines
Lessons Learned
Scope Statement

10.1 Risk Man.

Planning

4.3 Develop
PMP

PMP

Approved Change Reqs

Risk Management Plan

10.2 Risk
identification

Approved Change Requests

Risk Register

10.3 Qual Risk

Analysis.
Risk Register Updates

4.3 Develop
PMP

Cost Management Plan

Schedule Management Plan

10.4 Quant Risk

Analysis
Risk Register Updates

10.3 Performance
Reporting
4.4 Project
Execution
4.7 Close Project

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Performance Reports
Work Performance Information
History, Calendar
OPA Updates

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10.5 Risk
Response Plan

PMP Updates

Risk Register Updates

Risk-related contractual agreements

10.6 Risk
Mon & Control

Requested Changes
PMP Updates

Dr. J.M. Bennett, P.Eng., PMP

4.6 Int Change

Control
ENGR 3360

Unit 10 Project Risk Management

Objectives of Risk Management

To increase the probability and impact of
positive events
To decrease the probability and impact of
negative events
Note: we normally concentrate on the latter
and thankfully accept the former

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Unit 10 Project Risk Management

Six Main Processes

1.
2.
3.
4.
5.
6.

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Risk Management Planning

Risk Identification
Qualitative Risk Analysis
Quantitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control

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Dr. J.M. Bennett, P.Eng., PMP

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Unit 10 Project Risk Management

Risky Quotes
1. If you know your enemy and yourself, you need not fear
the result of a hundred battles (Sun Tzu 500BCE)
2. If you do not actively attack risks, risks will actively attack
you!
3. Risk prevention is more cost-effective than risk detection.
4. The degree of risk and its causes must not be hidden
from the decision-makers.
5. If you dont ask for risk information, youre asking for
trouble.

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Dr. J.M. Bennett, P.Eng., PMP

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Unit 10 Project Risk Management

Definition of Risk
Involves at least these 2 characteristics
uncertainty
loss
Risk is the possibility of suffering loss (SEI)
Risk is the measure of probability and severity of
adverse effects (Lowrance)
Risk is the potential for realization of unwanted
negative consequences of an event (Rowe)

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Unit 10 Project Risk Management

Risk Statement
For a risk to be understandable, it must be
expressed clearly
Must include:
description of current conditions that might
lead to a loss
description of loss or consequence

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Principles of Continuous RM
Core
Defining
Sustaining

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Core Principle
Open communication
encourage free-flow of information
enable communication(formal, informal,
impromptu)
accept all views

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Unit 10 Project Risk Management

Defining Principles
Forward-looking view
Shared product vision
Global perspective

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Unit 10 Project Risk Management

Sustaining Principles
Integrated Management
Teamwork
Continuous Process

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Unit 10 Project Risk Management

Our Risk Paradigm

Control
Track

Plan

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Identify

Q&Q Analysis

Dr. J.M. Bennett, P.Eng., PMP

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Unit 10 Project Risk Management

Identify
Search for and locate risks before they
become a problem
Risk ID is a continuous process
Risk is everyones business

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Analyze (Qualitative & Quantitative)

Transform risk data to make decisions
Evaluate impact, probability, timeframe
Classify risks
Prioritize risks

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Unit 10 Project Risk Management

Plan
Build a Risk Plan
Transform risk information into decisions
and actions
Planning is continuous
Planning is forward-looking
Planning need shared product, global vision

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Track
Monitor risk indicators
Trigger mitigation action plans
Tracking is continuous
Combine risk with project tracking

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Unit 10 Project Risk Management

Control
Correct for deviations from risk mitigation
plans
Combine with project control
Keep communications open

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Above all, COMMUNICATE

Provide internal feedback on risks info
and external

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SPMP Risk Factors

Real-world risks
Technological risks
Risks due to size
People risks
Customer risks
Business risks (covered above too)

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Real-World Risks
Contract risks
Management risks
External risks (e.g.... Eastern Europe)
Acts-of-God
Black Swans (Nassim Taleb)
Grey Swans

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Unit 10 Project Risk Management

Contract Risks
Will explore in next unit ad naseum
Make sure you can deliver
NEVER promise too much:-)!!!!!

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Unit 10 Project Risk Management

Management Risks
Financial health of organization
Takeoverability of organization
Management attitude
Government inertia
Cost of capital
Cost of raw materials

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Unit 10 Project Risk Management

External Risks
Eastern Europe syndrome (i.e.... market
volatility example of a + risk)
Government intervention (equalopportunity initiatives)
GATT/FTA problems

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Acts-of-God Risks
Hurricanes, tornadoes, tidal waves etc..
Pestilence, plagues etc..
Plane crashes etc..
Earthquakes

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Unit 10 Project Risk Management

Technological Risks
Software
Hardware
New technologies
Technology failures
Technology scoops
Write-offs of legacy equipment

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Unit 10 Project Risk Management

Risks due to Size

Star-Trek syndrome (to fail boldly where...)
Size has its own problems
Application may overstretch tech platform
MULTICs example
The non-linearity of extrapolation

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Unit 10 Project Risk Management

People Risks
People volatility
People burn-out
Shrinkage of labour supply
Inappropriate skilling of people
Boring work
Union problems

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Unit 10 Project Risk Management

Customer Risks
Customer financial stability
Requirement changes
Environmental changes (only buy Mongolian;
all documentation must be in Mayan)
External interfaces changed (now we use
Linux)

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Unit 10 Project Risk Management

Business Risks
Building a product that no one wants
Building a product that no longer fits into
the FedGov strategy
Building a product that the sales force does
not understand
Losing senior management support
Losing budget
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