Risk Management Quiz (PM #2)

most large capital investment projects…

come in late and over budget

What % of mergers and acquisitions fail?

70-90%

How many cognitive biases

24

Optimism Bias

you overestimate the likelihood of positive outcomes

Anchoring

the first thing you judge influences your judgement of all that follows

Dunning-Kruger Effect

the more you know, the less confident you’re likely to be

Outside view

select a reference class, assess distribution of outcomes, intuitive reduction, assess reliability of your prediction, correct the intuitive estimate

Purpose

manage any uncertain event or condition that might affect your project

Goal

identify, quantify, and address before they become threats

2 main buckets of risks

known unknowns, unknowns unknowns

Known Unkowns

• identified potential problems

• what and when

Unknown Unknowns

• arrive unexpectedly

• don’t see coming

Business Risk

selecting the right project

Project risk

meeting critical stakeholder objectives

Risk Management Benefits

• help project meet objectives

• more efficient with $, T, people

• proactive vs reactive

• improve morale

• increase shareholder satisfaction

• provide competitive edge

Where does risk management fall on product life cycle?

Define

System Approach

1. identify risks

2. analyze and prioritize

3. develop risk management plan

4. establish reserve fund

5. ongoing risk management

quandrant analysis

manage any uncertain event or condition that might affect your project = lots of data (qual and quant)

Avoid

don’t do or use lower risk option

Mitigate

work hard at de-risking

Transfer

shift to another party

Description Framework

condition + cause

What are some other places to find risk?

• interview with stakeholders

• history/experience

• WBS

• critical path

• external factors, competitors, trends

• outside view

What are some keys to success in Enterprise Risk Management

• info flow across

• no barrons

• focus on big risks

• org structure, design, and open culture

• broad goals around risks facing the beat, solving problems

• quick decisions and take action

Risk Profile

• develop categories of risk

• list questions that probe at a possible weakness

• add new categories and questions over time

Risk Managment Summary

• framework, soft skills and culture

• murphy’s law attitude

• leverage others, utilize an ongoing system approach

• non PM strained employees may struggle

• value of experimenting vs value of derisk

Expected Value of Risk

Probability x Impact

Risk Response Strategies

1. accept the risk

2. avoid the risk

3. contingency plans

4. transfer the risk

5. mitigate the risk

Contingency funds or reserve funds

set aside money for when things go wrong

How to produce budget

1. identify all risks

2. est additional cost of executing contingency plan

3. sum the EV of contingency for each of these risks

4. no good guy or bad guy

Contingency reserves

account for identified risks, known unknowns

Management reserve

account for unknown unknowns

Continous Risk Management

• monitor known risk with risk register

• check for new risks

• repeat major risk identification activities

• new risk are identified, prepare response plans, checking contingency plans sufficiency

• some risks don’t materialize