Lesson 13: Risk management
- 00:05 - Risk. That’s what I’m going to discuss here
- 00:10 - What do you do if you leave your house and the sky seems to be getting a bit darker?
- 00:16 - You take an umbrella. Why do you do that?
- 00:20 - Well, because there’s a chance of rain, and if it does rain
- 00:23 - It will have an impact on your clothes because they’re going to get wet and maybe you’ll get the flu and so on
- 00:29 - So, this is actually risk management and it can be automatic for us. Well, most of us
- 00:36 - Once I was travelling in Thailand and I got a motorbike taxi
- 00:41 - And the driver of the motorbike had a great safety device
- 00:48 - He would play a video of the Buddha while he was driving me on the back
- 00:54 - I was not convinced, but he was
- 00:58 - So, this was his way of risk management for his job and maybe it works for him
- 01:05 - I’m not going to try it myself
- 01:08 - Another example, let’s say, we have an owner of a building, that’s just 10 apartments
- 01:14 - So, what would he do from a risk management point of view?
- 01:18 - Well, of course he will get fire insurance because that’s a legal requirement, so you have to do it
- 01:23 - He may install smoke detectors. He may install fire extinguishers
- 01:29 - So, why again would he do with this?
- 01:32 - Well, because some of these steps are easy to do
- 01:36 - You don’t want your name coming up in the paper and bad reputation that you’re a bad landlord
- 01:42 - You’ve got peace of mind. You want to make sure that you’re okay with the law as well
- 01:46 - In case something does happen and you can sleep better at night as well. Okay?
- 01:51 - So, this is an example of good risk management
- 01:54 - Now let’s look at another one where we have a construction site
- 02:00 - So, let’s say we have a large construction site and in each large construction site
- 02:05 - Accidents will happen. They just happen. So, then what?
- 02:09 - Well, you can provide or take steps to provide first-aid training and first-aid equipment
- 02:16 - Or a kit or a room where people can go, and so on, but then it’s noticed
- 02:21 - Well, it’s seen, it’s known, yeah, that the site is really big and it’s very remote
- 02:27 - And it will take a long time for a doctor to get there or an ambulance to get there
- 02:32 - So, then you say, okay, well, we should have a nurse on site all the time, okay?
- 02:37 - And that will make it easier and that gives you some contingency or you’re planning in some contingency from a risk point of view
- 02:46 - Now, why do we do risk management?
- 02:50 - Well, by anticipating risk actually, the project can save a lot of time and money
- 02:56 - Let me give another example. Suppose if you are organising a big event for 800 people
- 03:04 - And you notice there’s a risk that the keynote speaker
- 03:07 - The main one at the start of the day, will not be able to make it
- 03:11 - So, imagine only taking action on this at 9 o’clock in the morning of the event
- 03:17 - That will be far too late. So, we don’t want to do that
- 03:21 - So what would you do in case you had this kind of a risk or you noticed this?
- 03:26 - Well, maybe you can ask the person to arrive a day earlier. That will be a good idea, okay, so there’ll be no flight issues
- 03:34 - Or identify a backup speaker just in case, a good one
- 03:38 - Or even replace the speaker with another speaker who doesn’t have to fly in at that time
- 03:46 - So, risk management really helps increase the chances of project success
- 03:51 - Doesn’t guarantee it, it just helps increase the chances of project success and that’s why we do it
- 03:58 - Now let me give you the definition of what PRINCE2 actually says a risk is
- 04:03 - So, a risk is an uncertain event or set of events that should it occur
- 04:10 - Will have an effect on the project objectives, so will have an impact on the project
- 04:16 - Now the project objectives we have already discussed
- 04:19 - Those are those benefits, cost, quality, sustainability
- 04:23 - So, if something does happen we ask then, well, what effect will this have on the benefits of the project
- 04:28 - The costs of the project, the quality of the outputs of the project. That’s how to perceive this, okay?
- 04:34 - So, we’re always trying to safeguard these project variables against a risk
- 04:40 - Now how do we measure risk? Sometimes it’s nice to give a value to something
- 04:47 - Well, there are two things, basic things we can consider
- 04:50 - The likelihood or probability of the risk happening, so we are asking
- 04:54 - Okay, what percentage of chance do you think this will happen?
- 04:59 - And then we can say, okay, well, if it does happen, then what is the impact on the project?
- 05:05 - So, let’s say we use likelihood and cost in an example
- 05:08 - So, the likelihood of a risk happening, let’s say, is 33%
- 05:13 - The impact on the project, if it does happen, is going to be €6000, let’s say
- 05:19 - So, we then multiply the likelihood by the cost and we give it a figure of €2000
- 05:26 - Okay. That’s just a quick example. There may also …
- 05:30 - The same risk can have an impact, of course, on other project variables as well
- 05:35 - So, here I’m just focusing on the cost impact
- 05:39 - Now, how does a project normally do risk management?
- 05:44 - Well, actually risk management is ongoing because risk can appear at any time
- 05:49 - At the start of the project, we are identifying risks, risks are raised by project stakeholders during the project
- 05:58 - And it’s up to the Project Manager then to collect these risks into one place and to evaluate them
- 06:05 - So, look at the likelihood or the probability of the risk happening, and then the impact on the project
- 06:11 - Once that’s done and you have a full or a good idea of what the risk is and the impact
- 06:16 - Then and only then should you think about, okay, well, how to best respond to that risk
- 06:23 - And the most common responses are to reduce the likelihood of the risk happening
- 06:28 - Or to reduce the impact if the risk does happen
- 06:32 - Is that it? Not exactly
- 06:36 - The project must continue to reevaluate risks always
- 06:40 - So, risk probability can change and potential impacts can change as well, the value of those impacts
- 06:47 - So, it’s a good idea to continually reevaluate the risks as well
- 06:53 - Now, can we give a risk value to the whole project?
- 06:57 - Up to now I’ve mentioned we could actually give a risk value to some risks or to most risks
- 07:02 - Yes, it’s possible and sometimes this is done
- 07:07 - So, for example, a project can give a value to all of the risks one by one
- 07:12 - And then what we do then is we can add these amounts together and then we come up with a total for the whole project
- 07:20 - So, why would we need to do this? You know, what’s the value?
- 07:23 - Well, sometimes in the portfolio level and the higher level
- 07:26 - They like to have a balanced overview of all projects which are happening
- 07:30 - So, they can say, well, okay, 10% of the projects, of our investments can be high risk, but no more
- 07:37 - So, it’s good to know then if maybe we have 20% of high-risk projects
- 07:41 - So they’ll say, okay, stop that, and bring a lower risk project in
- 07:45 - So, that’s why we actually do it. Okay
- 07:49 - Now can a project stop due to risk, a high level of risk?
- 07:54 - Well, I’ve actually just kind of answered that already in my last comment. Yes, it can
- 08:00 - So, if at the start of the project, there’s a 10% chance. Let me give you an idea
- 08:05 - So, let’s say we’re doing a new investment and we expect to get a big grant from the government
- 08:11 - And there’s a 10% chance that the grant will not come through, but we have to start it anyway
- 08:16 - And then after two months, we can now see that there’s a 60% chance
- 08:21 - That we’re not going to get that funding from the local government. So, the risk is up
- 08:25 - So we can decide, okay, it doesn’t make any more sense anymore, so we should stop the project here
- 08:33 - Now let’s look at the risk timeline of when we consider risk or what do we do about risk during the project
- 08:40 - So, at the very beginning of the project, of course, the Project Manager will have a high level overview
- 08:45 - And they will note down some risks in their personal log file. Okay?
- 08:50 - But during the planning of the project, that’s where they go into a lot more detail
- 08:55 - So, they will adopt an agreement document which describes how to follow up on risk during a project
- 09:02 - And then they will start to collect risks from the different stakeholders and put these into a register file
- 09:09 - Guess what the name of the register file is? A Risk Register
- 09:14 - And then they will facilitate meetings to evaluate the risk
- 09:18 - So, they will invite the appropriate people into that meeting to help come up with suggestions on how to respond to these risks
- 09:26 - Good. So, there are lots of workshops or meetings depending on the amount of risk in a project in order to do that
- 09:32 - And then during the project, the Project Manager will continue to monitor risks, but they get help
- 09:39 - So, who do they get help from? Well, for each risk that they recognise
- 09:43 - They should actually recognise what PRINCE2 calls a Risk Owner
- 09:47 - So, it’s someone who keeps an eye on that risk for the Project Manager
- 09:52 - So, the Project Manager should not be looking at all of the risk
- 09:56 - Because probably they don’t have access to the correct information
- 10:00 - So, it’s good to identify people who will be able to see that much earlier than the Project Manager. Okay?
- 10:08 - So, that’s why we have Risk Owners
- 10:11 - And what would happen then if the Project Manager identified a huge risk? A big risk
- 10:19 - Well, then they will write a report on it and this report will be given to the Project Board
- 10:23 - And then they decide what to do with it, okay? That’s the best way to deal with that
- 10:29 - So, some last comments here. Risk management is really ongoing
- 10:34 - It should be a really daily task for the Project Manager to keep an eye on
- 10:41 - And it’s important to note as well that risk management is really about the Project Manager being proactive in the project
- 10:50 - And we can now see that having a good line of communication between the
- 10:55 - Project Manager and the Risk Owners really helps as well to keep an eye on the risk
- 11:01 - And to monitor those risks on a project because if the Project Manager does not work with Risk Owners
- 11:07 - They will have just too much work to do, too much administration to do
- 11:11 - So, it’s good to work with Risk Owners. That’s it for Risk
Quiz
- What is an uncertain event or set of events that, should it occur, will affect the project?
- Can a risk positively impact a project, or does a risk have to be negative?
- Can excellent risk management ensure project success?
- Which document is a guideline on how risk management should be done during the project?
- when are new risks likely to be captured during a project?
- Which document is mainly used to capture risks?
- Can a project be stopped due to a high level of risk?
- Risk
- A risk can have either a positive or negative impact on the project.
- No, there can be lots of reasons why projects do not succeed. Good risk management helps to increase the chances of project success.
- Risk management approach
- Risks can be captured at any time during a project and added to the “risk register.”
- Risk register
- Yes, i.e., At the start of the project, there was a 10% chance that government funding would not be provided. During the 2nd stage, it jumped to 80%, so the project should be stopped.
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