Value & Risk Management

Training Course
Trademarks

The content of the course refers to the following texts

 A Guide to the Project Management Body of Knowledge®, Project

Management Institute, Fifth Edition (also known as PMBOK® Guide, or
PMBOK®)
 The standard for Portfolio Management, Project Management Institute,
Third Edition, 2013
• Practice Standard for Project Risk Management®, Project Management Institute, 2009
 Management System Guideline – Sviluppo Progetti Industriali in Campo
Energetico e Ambientale, ENI, 23 dicembre 2011
 Professional Operating Instruction - e&p development: Project
Independent Reviews, ENI, 2013

PMI®, PMP®, CAPM® , PgMP®, PMI-ACP®, PMI-RMP® and PMBOK® Guide are registered marks of Project
Management Institute, Inc.
Learning Objectives

By the end of the training course the participant

 will understand the basic concepts of Value and Risk Management

 will understand the importance of Value and Risk Management for any
organization strategy
 will know how to manage project value
 will know how to manage project risks
 will apply the most common Risk Management techniques to company
projects
 will share experience with participants
Course Agenda

Day 1

 Introduction to Project Management

• Project Management basic definitions and features
• Introduction to PMI Project Management Institute
• Basic Project Management Bibliography
• Introduction to P.M. standard according to PMBOK® Guide
• Introduction to ENI Project Management context
 Value Management
• Introduction to Value concept
• Value concept according to PMBOK
• Introduction to Value Management
• Value Management History
• Value Management Workshops
• Project Value Management
• Value Management in ENI context
• ENI Value Management System
Course Agenda

Day 2

 Introduction to Project Risk Management

• Basic definitions
• Project Risk Management according to PMBOK
• Risk Management in ENI context
• Risk Management International Standards, Associations and
Certifications
• Risk Management International Bibliography

 Project Risk Management features

• Project Failures reduction
• A new approach to Project Risk Management
• Project Risk Management entities and variables
• Risk Management Plan: rules to manage risks
Course Agenda

Day 3

 Project Risk Management process

• Risk Identification
• Qualitative Risk Analysis
• Quantitative Risk Analysis
• Plan Risk Responses
• Control Risks
Course Appendices

Other training material

 Course Appendices
• Value Management in Portfolio Management according to PMI
• ‘Monte Carlo in-depth analysis using Oracle Primavera Risk Analysis’

 Monographs (from PDUStudy&Test © Catalogue –

©Eureka Service):
• Risk Tools 1- Risk Identification Tools – Parte 1, M. Martinati, PMP, PMI-RMP
• Risk Tools 2- Risk Identification Tools – Parte 2, M. Martinati, PMP, PMI-RMP
• Risk Decision Tree - Tecniche di quantificazione dei rischi – M. Martinati, PMP, PMI-RMP
e F. Bonfà
Course contents alignment

The course contents

 …generally refer to international Project

Management best practices
 …are aligned to PMBOK® Guide, Fifth
Edition, PMI
 …concerning ENI contextualization aligns
to Management System Guideline, Energy
and Environmental Industrial Project
Development, ENI, 2011
INTRODUCTION TO
PROJECT MANAGEMENT
Topics

 Introduction to Project Management

• Project Management basic definitions and features
• Introduction to PMI Project Management Institute
• Basic Project Management Bibliography
• Introduction to P.M. standard according to PMBOK® Guide
• Introduction to ENI Project Management context
Project Management basic definitions and features

Project

“A temporary endeavor undertaken to create a unique product,

service, or result”

 Temporary: any project has a defined duration (a start date

and a finish date); it is not recurrent
 Unique: any project creates a product (or a service or a
result) that is unique, its context is unique, … everything is
unique
Project Management basic definitions and features

Project Management

“The application of knowledge, skills, tools, and techniques to project

activities to meet the project requirements”
Project Management basic definitions and features

Common rules for all

Solve criticalities and problems

Realistic vision during
project life-cycle

Responsibility for all

on specific and clear objectives

Continuosly track project Take care of stakeholders in order to

performance and forecast satisfy their expectations
Project Management basic definitions and features

Project Triple-constraints Model

 The project success depends on its main variables

trade-off
• Scope – What to do
• Time – When
• Cost – Budget available
• Quality – Which level of quality
SCOPE

QUALITY
Introduction to PMI – Project Management Institute

PMI – Project Management Institute

 The most influent Project Management association in the

world ([Link])
 Founded in 1969
 International best-practices on P.M. first development in
1983
 More than 400.000 total members
 More than 550.000 PMP certified, 22.000 CAPM, 2.000 PMI-
RMP
 Around 3.000 PMI-ACP certified, 1.000 PMI-SP, 1.000 PgMP
 More than 4.000.000 copies of PMBOK® Guide
Introduction to PMI – Project Management Institute

PMI Professional and Practice Standards

 PMBOK ® Guide - A Guide to the Project Management Body of

Knowledge Fifth edition
• ANSI (ANSI/PMI 99-001-2000)
• IEEE standard (Institute of Electrical and Electronics Engineers)
• ANSI/ISO/IEC 17024
• Translated in 14 languages
 Extensions
• Government extension to PMBOK® Guide
• Construction extension to PMBOK® Guide
• Software extension to PMBOK® Guide
Introduction to PMI – Project Management Institute

PMI Professional e Practice Standards

 The Standard for Portfolio Management® Third Edition

 The Standard for Program Management® Third Edition
 Practice Standard for Work Breakdown Structure®
 Practice Standard for Earned Value Management®
 Practice Standard for Project Configuration Management®
 Practice Standard for Scheduling®
 Practice Standard for Risk Management®
 Project Manager Competency Development Framework®
 OPM3® Organization Project Management Maturity Model
 Basic Project Management Bibliography

Project Program Portfolio

A Guide to the Project Management The Standard for Program The Standard for Portfolio
Body of Knowledge®, Project Management, Project Management Management, Project Management
Management Institute, Fifth Edition, Institute, Third Edition, 2013 Institute, Third Edition, 2013
2013 briefly known as PMBOK® Guide
Basic Project Management Bibliography

Archibald R. D. H. Kerzner
Project Management Project Management
La gestione di progetti e programmi complessi A Systems Approach to Planning, Scheduling and Controlling
Decima edizione, 2008 – italiano Tenth edition, 2009 - inglese
Franco Angeli, Milano J. Wiley & Sons, 10° edizione 2009
Basic Project Management Bibliography

Martinati-Caccamese Martinati-Corbucci Lorenzo Di Giorgio

Professione Project Manager – Project Management Template – Project Risk Management
Guida agli esami di Standard documentali e guida PMI-RMP Risk Management
certificazione PMP® e CAPM® pratica per il project manager e per Professional exam preparation
il PMO aziendale
Seconda edizione – 2013 Prima edizione – 2012 Prima edizione - 2013
Franco Angeli, Milano Franco Angeli, Milano Lulu editore
Introduction to P.M. standard according to PMBOK® Guide

Process definition: a series of actions to achieve a result

INPUT Documents or other needed elements

TOOLS & TECHNIQUES Tools and Techniques used to transform

inputs into outputs
OUTPUT Produced documents or elements

PROCESS

Actions
Introduction to P.M. standard according to PMBOK® Guide

Project Management processes

 Some process outputs can be inputs to other processes

 The collection of the processes are linked together in a
network of processes
 According to PMBOK® a project is described as a network of
processes

Process X Process Y
Introduction to P.M. standard according to PMBOK® Guide

Project life-cycles
Initial phase Execution phase Final phase

IDEA

ANALYSIS - EVALUATION
DESIGN

CONSTRUCTION
TECHNICAL LIFE CYCLE TEST DEPLOYMENT

CLOSING
MANAGEMENT LIFE CYCLE

EXECUTING – MONITORING & CONTROLLING

PLANNING REPLANNING

INITIATING

Time
Introduction to P.M. standard according to PMBOK® Guide

Five process groups

Monitoring & Controlling
 Initiating Planning
 Planning
 Executing
Initiating Closing
 Monitoring and
Controlling
 Closing
Executing
Introduction to P.M. standard according to PMBOK® Guide

10 Knowledge Areas 5 Process Groups

Monitoring
Project INTEGRATION Management
& Controlling
Project SCOPE Management Planning

Project TIME Management

Initiating Closing
Project COST Management

Project QUALITY Management Executing

Project HUMAN RESOURCE Management

Project COMMUNICATIONS Management

Project RISK Management

Project PROCUREMENT Management 47 Processes

Project STAKEHOLDER Management
 Introduction to P.M. standard according to PMBOK® Guide

SCOPE TIME COST QUALITY HUMAN COMMUNI- RISK PROCU- STAKE-

RESOURCES CATIONS REMENT HOLDER

Plan Human Plan Plan Plan

Plan Scope Plan Schedule Plan Cost Plan Quality Identify
Resource Communications Risk Procurements
Management Management Management Management Stakeholders
Management Management Management Management
Perform Plan
Collect Define Estimate Acquire Manage Identify Conduct
Quality Stakeholder
Requirements Activities Costs Project Team Communications Risks Procurements
Assurance Management

Control Perform Control Manage

Define Sequence Determine Develop Control
Quality Qualitative Procurements Stakeholder
Scope Activities Budget Project Team Communications
Risk Analysis Engagement
Estimate Perform Control
Create Control Manage Close
Activity Quantitative Procurements Stakeholder
WBS Costs Project Team
Resources Risk Analysis Engagement

Validate Estimate
Plan
Scope Activity
Risk Responses
Durations
Monitoring & Controlling
Control Develop Planning Control
Scope Schedule Risks

Control Initiating Closing

Schedule

Executing

Direct & Manage Monitor & Perform Close

Develop Develop Project
INTEGRATION Project Control Integrated Project or
Project Charter Management Plan Project Work Change Control Phase
Execution
Introduction to P.M. standard according to PMBOK® Guide
Introduction to P.M. standard according to PMBOK® Guide
Introduction to ENI Project Management context
Introduction to ENI Project Management context
Introduction to ENI Project Management context
VALUE MANAGEMENT
Topics

 Value Management
• Introduction to Value concept
• Value concept according to PMBOK
• Introduction to Value Management
• Value Management History
• Value Management Workshops
• Project Value Management
• Value Management in ENI context
• ENI Value Management System

Appendix ‘Value Management in Portfolio Management according to PMI’

Introduction to Value Concept

Main principles of value concept

• Value has many aspects: economic, environmental, social, emotional …

• Value is composite and can be analyzed into a set of value drivers
• Value is relative to an alternative (value cannot be judged in isolation)
• Value is usually quantified in a currency, but other aspects of quantification emerge (such
as Quality Adjusted Life Years in healthcare or Carbon Footprint for green solutions)
• Value relies on information about customers, competitors, external factors, offers and
costs from both inside and outside the organization: knowledge and understanding are
mandatory
• According to a modern and general approach…

Value is what is perceived and appreciated

by key stakeholders
Value according to PMBOK

Value of Portfolio

From PMBOK (1.4.3 Project and Strategic Planning)

 Organizations manage their portfolios based on their strategic plan

 Portfolio Management goal is to maximize the value of the portfolio through careful
examination of its components
 Those components contributing the least have less value and may be excluded
 During execution, projects provide feedback on their status (status reports, lessons
learned,…) verifying if its starting value is still on and justifying its eventual reduction
Value according to PMBOK

Business Value

From PMBOK (1.6 Business Value)

 Business Value of an organization is defined as the total sum of tangible and

intangible elements of an organization

 Through the effective use of project, program and portfolio management,

organizations will possess the ability to employ processes to meet enterprise
objectives and obtain greater business value from their investments
Value according to PMBOK

Value of Project

From PMBOK (2.2 Project Stakeholders and Governance)

 … Project Governance is the alignment of the project with stakeholders needs and
objectives

 Project Governance is critical to the successful management of stakeholder

engagement and the achievements of organizational objectives

 Project Governance enables organizations to consistently manage projects and

maximize the value of project outcomes and align the projects with business
strategy…
Introduction to Value Management

Value Management

 Value Management is an approach

• oriented to Value Creation and Dissemination throughput an
organization.
• focused entirely on value adding, generating, distributing and
presenting to the key organization stakeholders
• oriented to a continuous improving, maturing and evolving journey
towards the excellence

 Value Management shifts the attention from pure

technology topics, to business focus (from ‘90s on)
Introduction to Value Management

Value Management
 Can be applied
• in any field
• in any business area
• in any type of organization
 Can be applied on any organization work entity:
• Assets
• Systems
• People
• Functions
• Processes
• Operations
• Investments
• Projects
• Programs
• Portfolios
• …
Introduction to Value Management

Value Management features in Sales

 Any organization should be organized around creation and
maintenance of value
 In some areas, like the Sales, Value Management is
mandatory for the company existence
 In Sales, Value Management strongly means both provide
value to customers, and get value from customers
 Supports the cycle of Create → Communicate → Capture →
Assess
 All of the previous are based on a foundation
of Understanding
 This approach can be conceptually extended to any other
area
Introduction to Value Management

Value Management Steps

 Value must be:

• designed
• created
• communicated
• captured (meaning capture the value for the customer)
• maintained
• improved
• optimized
through a continuous improvement approach
Introduction to Value Management

Value Management

 A generic formula for assessing Value

𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 𝒐𝒐𝒐𝒐 𝒏𝒏𝒏𝒏𝒏𝒏𝒏𝒏𝒏𝒏
𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽 =
𝑼𝑼𝑼𝑼𝑼𝑼 𝒐𝒐𝒐𝒐 𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓
 According to this formula, Value Management aim is to
• maximise performances and key stakeholders satisfaction
• with the use of minimum resources
• still achieving stated goals

 A simplified and restrictive formula could be

𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹
𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽 =
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪
Introduction to Value Management PROJECT?

Value Management – a possible definition

According to this approach, Value Management is

a style of management dedicated in particular to

 motivating people,
 developing skills
 promoting synergies and innovations,
with the aim of
 maximizing performance and
 satisfying key stakeholders
Introduction to Value Management

Value Management Pros and Cons

Pros
• Value Management often results in improved performance, appearance
and simplification
• Payoff many times its cost

Cons
• Not always popular
• Not appreciated because of its real cost (experts…)
• Traditional savings seems having the same effect
• Often seen by designers, managers, project managers, asset or system
owners as a threat to their credibility
Value Management History

Value Management History

 Value Management has its foundation in the manufacturing industry of North

America
 Evolved in the late 1940s when shortages of strategic materials forced
manufacturers to consider alternatives to designed components performing
specified functions
 It was soon discovered that many of the alternatives provided equal or better
performance at a reduced cost
 In 1954 this led to a formal programme of design review by the US Department
of Defense Bureau of Ships and was termed Value Engineering.
 Value engineering in the UK was formalised in 1966 by the Value Engineering
Association (from 1972 IVM - Institute of Value Management).
Value Management History

Value Management History

 In 1996 President Clinton signed public Law 104-106, which requires, among
other things, that all federal projects be the subject of value engineering
studies with the aim of improving performance, reliability, quality, safety and
life-cycle costs.
 In 2001 the New South Wales Government of Australia mandated the use of
value management for all projects in excess of A$5m.
 In the UK there is no mandated requirement for value management, but the
government has issued guidance on the incorporation of value management in
the project management of public sector construction projects
 There are many active Value Management associations internationally
Value Management History

Value Management History

 According to the British Standard EN 12973 (April 2000) Value Management is a

style of management particularly designed to motivate people, develop skills
and promote synergies and innovation with the aim of maximising the overall
performance of any organization and industry
 Value Management in construction is generally considered to be applicable to
the total project and defined as the process of making explicit the functional
benefits of a project
 Benefits must be appraised against a value system determined by the client
Value Management Workshops

Value Management: how to do?

 Value Management is carried out via workshops

 Any workshop aim is to obtain optimum value for every Euro spent in the
selected areas
 Any workshop requires the involvement of external experts and the
participation of Project Team members, selected according to the issues
being addressed
 The number and duration of workshops depend on the type of event, project
and issues to be addressed
 A typical workshop is composed by four phases:
• 1. Information
• 2. Speculation
• 3. Analysis
• 4. Development
Value Management Workshops

Value Management workshop approach

 Team oriented workshop

 Team represented by designers, implementers and users and anybody is
knowledgeable of the subject
 Needs
• people with creativity and imagination
• people with estimating capability
• a willingness to find solutions
• a focus on project objectives and functionalities
• to choose areas likely to yield the most benefits
• orchestration by an experienced and cost-oriented Value Management
facilitator
Value Management Workshops

Value Management Workshop phase

1 2 3 4 Implemen-
Pre-event
Infor-mation Specula-tion Analysis Proposal tation

• Define scope & • Understand • Brainstor-ming • Determine • Develop • Obtain

objective project and develop relative costs proposal on commitment to
• Select team • Determine alternatives of alternatives best implement best
members stakeholder • Choose the alternatives alternative (go/no
• Identify and needs best alternative • Highlight pros go decision)
involve experts • Define costs, and cons, • Implement &
• Share areas of impacts, measure savings
objectives opportuni-ties recommendati • Gather lessons
• Schedule and functions ons learned and
activities communicate
Value Management Workshops

Value Management Workshop

1. Information

 Objectives:
• Provide an information base or "cost model"
• Select areas for detailed study
 Questions
• What is it?
• What does it do?
• What does it cost?
• What is its value? (Do we really need it?)
• What would do the same job?
• At what alternative cost?
Value Management Workshops

Value Management Workshop

2. Speculation

 Objectives: generate alternatives for meeting requirements

 Question: What else will meet the required function(s)?

 Techniques
• Creative thinking process (e.g. Brainstorming, Nominal Group, Delphi )
• Interviews and structured meetings
Value Management Workshops

Value Management Workshop

3. Analysis

 Objectives: evaluate and select best cost saving alternatives

 Questions
• What will each alternative cost?
• Will the alternatives meet the essential functions?
• Which propositions have the greatest cost savings?

 Techniques
• Weighted constraints evaluation
• Idea ratings
• Life cycle costing
Value Management Workshops

Value Management Workshop

4. Proposal

 Objectives: Present best alternatives to the decision maker(s)

 Questions
• What is the best way to present the proposals?
• And the most convincing?
 Techniques
• Narrative reports
• Schematic displays
• Graphic illustrations
• Video clips of similar installations
• Initiative sheet
• Initiative Register
Value Management Workshops

Value Management Workshop

4. Proposal form
Value Reviews Proposal
Raised by Department
Date raised
Title
Brief Description

Area affected Offshore Onshore General

Discipline Construction Civil Process Electrical
Logistic Mechanical Material Engineering
Operations Pipeline Project
Program Procurement Quality
Detailed desciption

Annexes
Pros and Cons

Potential Benefits (high level estimate of saving Capex/Opex/Time…)

Cost to implement (high level estimate of costs Capex/Opex/Time/Resources…)

Project Value Management

Project Value Management

Project Value Management is a structured approach to

defining what value means to the organisation and the
project. It is a framework that allows needs, problems or
opportunities to be defined and then enables review of
whether the initial project objective can be improved to
determine the optimal approach and solution

(APM Body of Knowledge, 5th edition, section 2.3)

Project Value Management

Project Value Management principles

Project Value Management approach is based on four key

principles:
• a continuous awareness of value for the project, establishing
measures or estimates of value, monitoring and controlling them,
• a focus on project objectives and targets before seeking
solutions,
• a focus on the purpose of the project and on the functions of the
product, providing the key to maximise innovation and outcomes
• the earliest Value Management starts in the project life-cycle the
best is its return
Project Value Management

Project Value Management application

 Can be used in Strategic Planning phases, such as

 planning organizational change
 developing a partnering agreement
 looking for new markets…
 Can be used in Portfolio & Program Management, such as
 Go/NoGo decision when an opportunity arises (or Bid/NoBid decision)
 New Projects Selection
 Portfolio projects prioritization
 Project interruption or cancellation due to reducted capacity planning
 Project prioritization and sequencing in Program Management
 Can be used in Project Management during many decisions
 Technical decisions
 Make or buy decisions
 Suppliers choosing decisions
 Risk response decisions
 Defect repair decisions
 Cost reduction decisions…
Project Value Management

Project Management

Portfolio
Management Value Engineering
Program
StakeholderMana
Management
gement
Project
Expert
Judgment Value Management Performance
Control

Lessons
Learned 𝐏𝐏𝐏𝐏𝐏𝐏𝐏𝐏𝐏𝐏𝐏𝐏𝐏𝐏 𝐕𝐕𝐕𝐕𝐕𝐕𝐕𝐕𝐕𝐕
Risk Management
Knowledge
Base
Quality
Assurance &
Bench- Sustainabilit
Ethics Control
marking y
Project Value Management

Value Management versus Value Engineering

Some confusion has been generated among Value Management and Value Engineering
concepts, usually…

 Value Management is strategic and mainly focused on organizations, ensuring that

strategic objectives are satisfied while satisfying interests and objectives key stakeholders

 Value Engineering is technically focused on the components of the final product and is
commonly defined as an approach to provide a product with the necessary functions at the
lowest cost and at a specified quality

 Lately a school of thought prefers

to considerate Value Engineering
as a technical part of Value
Management
Project Value Management

Project Value Management in early stage

The earliest Value Management starts in the project life-cycle the best is its return

 Project understanding is in the early project stage

 Technical and management errors made in the early stage are stronger
 Uncertainties are bigger in the early stage
 Negative risks (threats) are higher in early stage
 Positive risks (opportunities) are higher in early stage
 Possibility to influence stakeholders is higher in the early stage
 Analysis of alternatives in design has stronger effetcs in the early stages
 Most of the project cost is committed in the early stage (Concept/design phases)
 The cost of changes is lower in the first project stages
Project Value Management

Project Value Management in earlier stages

Impact of Process Design on Plant Costs

Project Value Management

Project Value Management in earlier stages

Errors and Cost of Changes over time

Value Management in ENI context
Value Management in ENI context

ENI reference principles

 Value Creation and Maximization

 Effectiveness and efficiency
 Sustainability
 Integrity
 Market Orientation
 Exploitation of synergies
 Continuous Improvement
 Traceability
 Segregation of duties
 Conflict of Interests
 Orientation to common reference model
 Anti-corruption leadership
 …
Value Management in ENI context
Value Management in ENI context
Value Management in ENI context
Value Management in ENI context
Value Management in ENI context

Value
achievement

Value creation
Value Management in ENI context

ENI concept of value relies on the relationship between:

 the satisfaction of different needs
 and the resources used to achieve them

 Value increases
• if the satisfaction of needs (e.g. revenue, know how, image, etc.) increases
and / or
• if the resources used (e.g. people, costs, environmental, etc.) are optimised

 Value Management aim is to maximise the overall asset value:

• Maximising the asset revenues
• Optimising the full potential use of resources
• Minimising environmental impact and people risk exposure
Value Management in ENI context

According to ENI, Value Management…

 includes actions taken by the project team and development functions to

promote focus on maximizing value both on individual project and on
project portfolio
 is a style of management, aimed at
 motivating and developing skills,
 promoting synergies and innovation,
 meeting the needs of resources used,
 using and improving already used management methods and tools
ENI Value Management System

ENI Value Management System

Risk Management System

RMS
ENI Value Management System

ENI Value Management System

 Main characteristics
• Value is defined as optimum balance between diverging elements: risks
vs. rewards, stakeholder satisfaction vs. resources utilization,…
• Identifies methodologies in order to first build value and then assure
value as the project progresses

 Benefits
• Establishes a value approach and business perspective in managing
projects
• Project Value is built from the early phases when uncertainties, threats,
opportunities and chance to influence the project are the greatest
• Project Value is maintained (or even improved) through the entire project
lifecycle
ENI Value Management System

ENI Value Management System - Workshops

 Value Management is organizationally focused on the compilation or audit of

some initial brief (often known as strategic brief and project brief) during
some workshops
 Workshops are structured meeting usually led by an independent, skilled and
qualified value management facilitator
 Keys to workshops success are
 the identification and definition of the project
 the involvement of relevant stakeholders
 Members of the workshop team
 a strategic briefing team should be composed by senior staff from the organization
and the client, and other key stakeholders,
 a project briefing team should be composed of operational staff from the client
organization, primary stakeholders and key users.
ENI Value Management System

ENI Value Management System

Workshops - Activities
 Pre-workshop activities for the facilitator in order to plan the agenda for an
efficient and effective workshop
 interviews with prospective stakeholder
 analysis of relevant documents held by the client
 customer feedback questionnaires
 focus groups ….
 Primary stages of the workshop
 issues analysis - opening technique to make explicit project issues
 function analysis - a diagramming technique displaying the mission of the project and
its subsidiary/supporting functions in a needs/wants hierarchy;
 project value system - criteria to measure the project success
 options appraisal - identifying options for the project mission and undertaking
preliminary judgment on them;
 action planning - next stage scheduling
ENI Value Management System

ENI Value Management System

Workshops - Deliverables

 Deliverables from a strategic value management workshop

 the mission of the project
 the issues surrounding the project
 the project value system to measure project success
 the options and their evaluation
 an action plan
 Deliverables from the project planning value management workshop
(assuming a previous strategic study)
 a refined list of issues focusing on the project
 the functional requirements of the project and its components
 a review of the project value system
 technical options generated
 an action plan to develop selected technical options with an implementation strategy
ENI Value Management System

ENI Value Management System - Assurance Checks

 Assurance Checks (ACs) are a sort of audits aimed at

ensuring that the project maintains or improves its value
 They are performed through structured, independent
reviews of project activities and deliverables
 Assurance Checks challenge the project team
• to identify weaknesses and shortcomings
• to deliver in accordance with project objectives, rules, requirements
and best practices,
• and making specific recommendations for improvements
ENI Value Management System

ENI Value Management System - Assurance Checks

Four types:
 Assurance Reviews (AR): independent reviews examining all aspects of a project
 Project Technical Reviews (PTR): independent intermediate and multidisciplinary
technical reviews
 Peer Reviews (PR): independent reviews examining specific mono-disciplinary project
activities or work steps to assure appropriate quality
 Peer Assists (PA): events in which internal/external experts suggest improvements
and verify work in progress.

 AR are mandatory and shall be performed before a gate, a Final Investment Decision
(FID - moment when a project receives authorization to proceed to the execution
phase)
 PTR, PR, PA can be planned, recommended during AR or required on demand
ENI Value Management process
ENI Value Management - Assurance Checks
ENI Value Management process

AR Workflow
ENI Value Management process

PTR Workflow
The Value concept according to PMBOK

Value Management in Portfolio Management according to PMI

More information in
Appendix ‘Value Management in Portfolio Management
according to PMI’
INTRODUCTION TO
PROJECT RISK MANAGEMENT
Topics

 Introduction to Project Risk Management

• Basic definitions
• Project Risk Management according to PMBOK
• Risk Management in ENI context
• Risk Management International Standards, Associations and
Certifications
• Risk Management International Bibliography
Project Risk Management according to PMBOK Guide

Risk Management
 Manage risks means identify, analyze, evaluate risks and
respond to them in order to fight negative risks and their
consequences and to favour positive risks and their benefits.
 Risks must be controlled during evolution

Risk Management objectives

 Anticipate problems and trying to solve them
 Decrease probability or effects of negative events risk
 Foresee positive events to favour in advance in order to get
advantages
 Increase the probabilities and/or the impact of positive events
 Never be unprepared
Introduction to Project Risk Management

Basic Definitions
Project Risk
“An uncertain event or condition that, if occurs, has a positive or
negative effect on one or more of the project objectives”

Project Risk Management

“Project Risk Management includes the processes concerned with
conducting risk management planning, identification, analysis,
responses and monitoring and control on a project”
(PMBOK® Guide, Glossary)

Project Risk Management objectives

 Facilitate positive events probability of occurrence in order to get or
improve benefits
 Reduce negative events probability of occurrence in order to avoid
or reduce negative effects
Introduction to Project Risk Management

Why Project Risk Management?

 Project Risk Management helps the Project Manager and the project
team to reduce project uncertainties due to
• project context and environment (social, environmental, political,
market,…)
• work to be executed and the product to be fulfilled (Scope)
• constraints about expected dates (Time)
• operating organization and needed resources (Resources)
• project stakeholders and their expectations (Stakeholder)
• final product/service requested quality (Quality)
• project financial and economical problems (Cost)
• project procurement and suppliers (Procurement)
• project communications and information management (Communications)
• …
Introduction to Project Risk Management
Enterprise Risk Management

A shared and collaborative risk

management through all the

Enterprise Risk Management

organization levels
Project Risk Management according to PMBOK Guide
Project Risk Management according to PMBOK Guide

Project Risk Management processes

 Plan Risk Management: defines rules to manage project, developing a

project risk management Plan
 Identify Risks: Identifies project risk describing them with accuracy
 Perform Qualitative Risk Analysis: executes a qualitative risk analysis
classifying risk in order of importance and defining priorities
 Perform Quantitative Risk Analysis: measures the effect of risk on the
entire project
 Plan Risk Responses: responds to risk and reduces their probability of
occurrence, negative effect of threats and facilitates the occurrence of
opportunities and related benefits
 Control Risks: controls the state of risk, the effectiveness of response
actions, corrects actions to improve
Project Risk Management according to PMBOK Guide

Non è possibile visualizzare l'immagine.

Risk Management in ENI context
Risk Management in ENI context
Risk Management International Standards

Main international Risk Management standard

 AIRMIC, ALARM, IRM, 2002. UK Risk Management standard

 [Link]. II, 2004. Published by the Committee of Sponsoring Organizations of the
Treadway Commission (USA): principles and components of corporate Risk
Management
 AS/NZS 4360:2004. Australia/New Zealand Risk Management standard
 ISO 31000:2009 - “Risk Management. Principles and guidelines”
 ISO 31010:2009 - “Risk Management Techniques”
 ISO Guide 73:2009 - Vocabulary, 2009. Risk Management english vocalbulary
 UNI ISO 11230:2007 – “Risk Management. Vocabolario”, Italy
 UNI ISO 31000:2010 – Italian version
 Risk Management International Standards
UNI ISO 31000: 2010 Risk Management principles, structure and process

Mandato e Impegno Definire il contesto

a)Crea valore
b)Parte integrante dei
processi
c) Parte del processo
decisionale Progettazione della Valutazione del rischio
d)Tratta esplicitamente struttura di
l’incertezza riferimento per
e)Sistematico, gestire il rischio

COMUNICAZIONE E CONSULTAZIONE
Identificazione del
strutturato e rischio

MONITORAGGIO E RIESAME
tempestivo
f) Basato sulle migliori
informazioni Miglioramento
disponibili Attuare la Analisi del rischio
continuo della
g)Su misura gestione del
struttura di
h)Tiene conto dei rischio
riferimento
fattori umani e
culturali Ponderazione del
i) Trasparente e rischio
inclusivo
j) Dinamico interattivo,
reattivo al
cambiamento Monitoraggio e
k)Favorisce il riesame della struttura
miglioramento di riferimento Trattamento del
continuo e il rischio
consolidamento
dell’organizza-zione
PRINCIPI STRUTTRA DI RIFERIEMNTO PROCESSO
Risk Management International Standards
Risk Management International Associations
Risk Management International Certifications
Risk Management International Certifications

PMI-RMP® certification
 Role: identifies and evaluates risks, mitigates
threats and exploit opportunities
minacce e capitalizza le opportunità
 Requirements for exam eligibility
• non graduated: 4500 hours experience
and 40 hours training in Project Risk
Management
• graduated: 3500 hours experience and
30 hours training in Project Risk
Management
 Exam: 170 questions in 3.5 hours
 Cost: $ 520
 Certification maintenance: 30 PDU in Project
Risk Management in 3 years
Risk Management International Bibliography

Practice Standard for Project Risk management

Project Management Institute, 2009

Project Risk Management

PMI-RMP Risk Management Professional – Exam Guide,
Lorenzo Di Giorgio, 2013

Identifying and Managing Project Risk: Essential Tools

for Failure-Proofing Your Project, Second Edition
by Tom Kendrick
AMACOM, Feb 2009.
Risk Management International Bibliography

Practical Project Risk Management

The ATOM Methodology
David Hillson and Peter Simon, Management Concepts, 2012

Managing Risk in Projects

David Hillson, Gower, 2009

Understanding and Managing Risk Attitude

David Hillson and Ruth Murray-Webster, Gower, 2008
PROJECT RISK MANAGEMENT
FEATURES
Topics

 Project Risk Management features

• Project failures reduction
• A new approach to Project Risk Management
• Project Risk Management entities and variables
• Risk Management Plan: rules to manage risks
Project Failures Reduction

Project Failure Causes

Three macro-causes of project failures:

 Projects are impossible to fulfill
 Projects are overconstrained
 Projects have a poor Strategic Planning
• Poor Project Selection
• Non-Realistic Capability Planning
• Inadequate project financing
• Too many projects in competition for few resources
 Projects have a poor Project Management:
• Poor Scope definition
• Poor Time estimating
• Poor Resource allocation
• Poor Risk Management
• …
Project Failures Reduction

Strong care to Project Scope definition

 Risk reduction on a project starts whith the initial definition of

Project Scope (deliverables and related functional and technical
requirements)
 Critical decision: who will be involved and when in the definition,
performing and management of deliverables?
 A complete and correct deliverables definition is needed
 … together with a shared process to build (and a formal
acceptance of) Statement of Work, Scope Statement and WBS
 … and an early and correct responsibility assignment (OBS, RAM,
RACI)
Project Failures Reduction

Strong care to duration estimating

 Estimate level
• Project level (Rough-order-of-magnitude Estimation)
• WP level
• Activity level

 Way to estimate
• Deterministic estimates
• Range of values (min-max)
• Probabilistic estimates (probability distribution)
Project Failures Reduction

Strong care to duration estimating

 Duration estimating is strongly conditioned by

• personal experience
• propension to estimate
• extreme optimism or pessimism
• details in scope definition (Scope Statement and WBS)
• use of historical informations
• use of rules or techniques to estimate
• …

 The use of schedule planning techniques reduces errors in project duration

estimating
 Main techniques:
• PDM – Precedence Diagramming Method
• CPM – Critical Path Method
Project Failures Reduction

Strong care to task sequencing

Legenda
PDM – Precedence Diagramming Method task

milestone

dependancy
Project Failures Reduction

Strong care to task criticity

Legenda
Critical task
CPM – Critical Path Method

Non critical task

Project Failures Reduction

Strong care to interproject dependancies

• Dependancies coming from other projects can cause schedule risks

• On those risks the Project Manager has few visibility and power
• The use of interrelated project networks can help (a Program Management
topic)

A
C

B
Project Failures Reduction

Strong care to task existance probability

 Deterministic systems doesn’t manage task existance probability

 Probabilitic systems do!
 Example: 4 tasks
A – fulfillment of deliverable X
B – test on deliverable X
C – corrections on deliverable X
D – distribution of deliverable X
 Historical data shows a 60% probability activity C exist
 Related network could be:

60% probability A B C D

40% probability A B D
Project Failures Reduction

Strong care to anticipate problems on resources and economics

 Uncertainity in having resources available when needed

(Overload Analysis)
 Insufficient funds when needed (Cash-Flow Analysis)
 Lack of a clear assignment of responsibility (RAM –
Responsibility Assignment Matrix, RACI)
Project Failures Reduction

Strong care to anticipate problems on resources

Overload Analysis
 Project Failures Reduction
Strong care to anticipate problems on fundings
Cash-Flow analysis Duration Outcome Income

A 7 wks 100 50+150

B 4 wks 150

C 4 wks 200 200

D 4 wks 100 300

Total Income
700 Margin=150
Total Outcome
550
Finacial
Income/Outcome

availability

Financial
requirements

T Start T Finish
Time
Project Failures Reduction

Strong care to anticipate problems on responsibility

RAM – Responsibility Assignment Matrix
Example
Project Failures Reduction

Strong care to anticipate problems on responsibility

RACI Matrix

Example

People Stevens Reds Smith Adams Lukas

Tasks
Project Management A/R C C I I
Feasibility C R A C
Design C A R I I
Construction C I A R
Testing C R A I

Legenda: R=responsible A=accountable C=consulted I=informed

A new approach to Project Risk Management

Traditional approach to Project Risk Management

 Care on negative risks only

 Care on highly risky project only
 Negative or positive events are faced only when they occur (reactive
approach)
 Rarely managers know in advance…
• Projects overall risk
• Project success probability
 Rarely Project Managers know in advance…
• Project threats and the most dangerous ones
• Project opportunities and the most favourable ones
• How to respond both to threats and opportunities (and relative costs)
• Contingency Reserve to manage threats should they occur
• Management Reserve to manage unexpected accidents
A new approach to Project Risk Management
A new approach to Project Risk Management

 Leave the old passive and reactive approach and

adopt a proactive approach
Plan
 Improve risk governance
 Oversee risks through a complete Risk
Management process Identify
 Adopt an integrated risk management approach
to scope, time, cost, resource, quality,
Analyze
procurement and any other Project Management
variable
 Establish rules Develop risk response
 Define responsibilities

Control
A new approach to Project Risk Management

Establish rules and procedures to manage project

Plan risks

Identify and describe risks

Identify

Analyse risks and evaluate probability, impact

Analyze and other factors

Develop risk Define and plan actions to respond to risks

response
Monitor risks
Control Execute and control risk response and
improve them
A new approach to Project Risk Management

Plan

Identify

Analyze Re-plan

Develop risk response

Control
Risk Management entities and variables

Risk Perception

Risk Perception of a person or organization is identified by

 Risk Appetite: the level of uncertainty considered to be acceptable when
connected to a reward
 Risk Attitude: behaviour adopted against a risky situation (Risk Seeker,
Risk Averse, Risk Tolerant, Risk Neutral)

In order to evaluate risk appetite and risk attitude:

 Risk Tolerance: level, quantity or dimension of a risk a person or an
organization can tolerate
 Risk Threshold: measure of the maximum value of uncertainty or impact
a person can accept about a risk (below it the risk will be accepted, above
it the risk won’t be accepted)
Risk Management entities and variables

Risk Attitude

 Risk Seeker: always looking for opportunities, can be too

much optimistic, often not considering negative
consequences
 Risk Averse: not feeling good in front of uncertainties; don’t
like risks
 Risk Tolerant: tolerating uncertainties and dangers; often
ignore them or pretend to ignore them (ostrich effect)
 Risk Neutral: not ignoring uncertainties, identifying positive
and negative risks, objectively evaluating probability and
effects
Risk Management entities and variables

Project Managers Risk Attitude

 Most of the Project Managers are classified as Risk Tolerant,

mainly because few time and effort is normally dedicated to
risk management
 Only few are Risk Seeker and look for risky solution even if
they already have valid solutions
 Others are Risk Averse, conservative and even cynical: as
soon as there’s a small uncertainty, they stop and do not risk
 The objective should be becoming Risk Neutral, leveraging
the past experience and embracing Project Risk Management
Risk Management entities and variables

Risk Sensitivity

Risk sensitivity is evaluated concerning individual risk

approach
 Refuse: just refuse either threats and opportunities
 Accept: know threats or opportunities, without doing anything to contrast or favour it
 Face: know threats or opportunities, facing them without a previous preparation
 Manage: know threats or opportunities, evaluating them, trying to mitigate or foster
them, preparing to face them and finally facing them

Risk sensitivity approach depends on:

 Subjective factors: role, responsability, experience, age, character,…
 Cultural factors: personal, enterprisal, market, country, religion, habits…
 Risk Management entities and variables
Risk Typologies

 Pure Risks
Represent only threats
• fire
• accident
• failure
• damages
• legal consequences
• …

 Business Risks
Represent either threats and opportunities
• exchange rates fluctuation
• technical innovations
• prices variation
• political changes
• …
Risk Management entities and variables

Risk Categories

 Natural: floods, hurricanes, earthquakes,…

 Financial: discount rate, inflation,…
 Economical: price variation, contract renewal,…
 Commercial: price competition, time to market conditions
…
 Technical: new technology impact, damages to facilities,…
 Human: injuries, skill recruitment, turn-over, diseases,…
 Political: regulatory changes, government change,
administrative, fiscal, country, …
Risk Management entities and variables

Risk Origin

 Internal risks
Originated from inside the project/organization
• Commercial (new market, obsolete product proposition...)
• Technical (new technical solutions,…)
• Human(turnover, resource overload…)
• …
 External risks
Originated externally to the project/organization (rarely fully
controllable by Project Manager and rarely predictable)
• Natural (floods, earthquakes..)
• Economical (discount rate variation,..)
• Political (regulatory changes, administrative changes…)
• …
Risk Management entities and variables
Source of risks

 Product/service requirements
• Insufficiently defined and detailed
• High probability of changing
• …
 Product/service features
• Innovative/unkown technology required
• Unknown or untrusted suppliers
• …
 Contractual terms
• Payments related to uncertain work progresses
• No price revision clause
• Difficulty with the on-site transport
• …
 Incomplete project definition
• Missing WBS / PBS elements
• Undefined Work Package (WP)
• …
Risk Management entities and variables
Source of risks

 Cost / Budget estimate

• Instability in materials price
• Contract renewal
• Local contracts
• …
 Duration estimate
• Availability of facilities on site
• Availability of skilled people
• Weather conditions
• …
 Project team composition
• Improper skills availability
• High turn-over
• …
 Ambiguity in responsibility assignment
• Missing or poor roles definition
• Non formalized responsibilities (missing RAM)
• …
Risk Management entities and variables

Type of impact

 Direct Impact
• Penalties
• Loss of funding
• Resource missing
• …
 Indirect impact
• Loss of image
• Loss of reputation
• …
Risk Management entities and variables

Main variables to assess risks

 Probability of occurrence
 Impact

 Expected Time
 Event frequency
Risk Management Plan: rules to manage risks

Risk Management Plan

 A document showing rules, procedures, template… to manage project risks

 Includes
• Management strategies: company policies, purposes, objectives, processes
• Roles and responsibilities to be assigned for risk management (Chart of
Responsibility)
• Metrics to evaluate risks and response effectiveness
• Information management system to produce, gather, review risk information
and to manage documentation concerning risks
• Template and models to manage risks
• Methods and techniques to identify risks, to qualitative and quantitative
analyse risks, to categorize risks, to manage reserves, to monitor risks, …
• Resources allocation to Project Risk Management processes
• …
Risk Management Plan: rules to manage risks

Chart of Responsibility example

Process Management Project Manager Risk Manager Team Risk owner

Risk M. Planning A R I I

Risk Identification I A R C C

Qualitative Risk Analysis I A R C C

Quantitative Risk Analysis A R C C

Risk Response Planning I C A C R

Risk Monitoring & Control I C A I R

RACI – Responsible, Accountable, Consulted, Informed

 Risk Management Plan: rules to manage risks

Risk Categories
 Administrative Procedures  Currency  Procurements difficoulties
 Approval  Documentation  Suppliers
 Assumptions  Ethics  New methodology
 Resources availability  Accelerations  New procedures
 Technology  Experience  Priority
 Communication methods  Environment  Policy
 Internal organization  Deadlines  Poor planning
 Client Organization  Economic constraints  Competition with other projects
 Competency  Geographic constraints  Resistance to change
 Competition  Language  Poor Project management
 Software  Copyright  Stakeholder
 Hardware  Law  Turnover
 Conflict of interests  Logistic  Guarantees
 Contracts  Market  Weather conditions
 Cultural differences  Integration  Delinquency
 Client requirements  Motivation  Unrealistic budget and schedule
 Final user  Negotiation  …
Risk Management Plan: rules to manage risks

Rules to evaluate risk impact

 Metrics to qualitatively evaluate risk impact over the project

 Risk impact should be evaluated on project objectives
(scope, schedule, cost, quality, …)
 Risk impact scale formalization
Risk Management Plan: rules to manage risks

Risk Impact Scale (example)

Negative risk impact scale on project objectives - Example

Quality
value Null Very weak Weak Medium Strong Very strong
Related
0 1 3 6 8 10
value
Overrun Overrun Overrun Overrun Overrun
Cost No budget overrun
< 0,2% < 0,5% < 2% < 4% > 4%

Time No delay Delay < 0,5% Delay < 1% Delay < 3% Delay < 5% Delay > 5%

<1% of concerned < 2% of concerned <5% of concerned <15% of concerned >15% of concerned
Scope No scope variation
WP WP WP WP WP

Final quality partially Very poor final

No quality Irrelevant Low quality Poor final quality
Quality reduction quality reduction reduction
reduced
likely unacceptable
quality, product
(approval needed) surely unacceptable
Risk Management Plan: rules to manage risks

Rules to evaluate occurrence probability

 Need to formalize a risk probability of occurrence scale based

on previous experience
 A more than 80% probability of risk occurrence is often
considered to be a certain event and should be treated as a
project constraint
 Risk probability scale formalization
Risk Management Plan: rules to manage risks

Risk Probability scale

Qualitative value Value Description

Almost certain 9 Risk occurrence probability> 80%

Very high 7 Risk occurrence probability between 60% and 80%

High 5 Risk occurrence probability between 40% and 60%

Medium 3 Risk occurrence probability between 20% and 40%

Low 1 Risk occurrence probability between 2% and 20%

Risk Management Plan: rules to manage risks

Risk Score

 Risk Score allows to

• evaluate identiffied risks
• rank risks
• prioritize risks

𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 = 𝑽𝑽𝑽𝑽𝑽𝑽(𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑) 𝒙𝒙 𝑽𝑽𝑽𝑽𝑽𝑽(𝒊𝒊𝒊𝒊𝒊𝒊𝒊𝒊𝒊𝒊𝒊𝒊)

 After risk evaluation, the Probability-Impact Matrix can be

used to pass through the other steps of Risk Management
Risk Management Plan: rules to manage risks

Probability/Impact Matrix

 Probability/Impact matrix defines the intervention rules for

each risk according to its score
IMPACT
Level Action
1 2 4 6 8 10
 AP chromatic
9 9
table
18 36
can54be used
72 90
Top Execute quantitative
analysis and respond
R
O High Execute quantitative
B 7 7 14 28 42 56 70 analysis and respond only if
A EMV* > 10K
B 5 5 10 20 30 40 50 Medium Eecute quantitative
I analysis and respond only if
L EMV* > 20K
I 3 3 6 12 18 24 30
T Low Just record and monitor
Y
1 1 2 4 6 8 10
* EMV - Expected Monetary Value
PROJECT RISK MANAGEMENT
PROCESS
Topics

 Project Risk Management process

• Risk Identification
• Qualitative Risk Analysis
• Quantitative Risk Analysis
• Plan Risk Responses
• Control Risks
Risk Identification

Risk Identification

 Identify the largest possible number of risks (both threats and

opportunities)
 Categorize identified risks
 Describe risks through
• Code
• Category
• Cause(s) – what could cause the risk
• Event – the risk event itself
• Effect(s) – what could happen as a consequence of the event
• Timing – when the risk could happen

 A Risk Register containing those information (and many other

infos) must be set
Risk Identification

Risk
Code Description
Category Cause(s) Event Effect(s) Timing

Client could require a more During Planning

Bad previous relationship frequent project control (first 2 months)
Client The client could not trust
Thr 1 between our Team leader
relationship our Team leader
and the client referent From 2% to 3% more money for During project
P.M. activities execution

Strategic project XYZ could

start End of project 2 months delay
Internal Those resources could not Between march
Thr 2
competition 3 of our strategic resources be available for our project and july
could be requested Penalty 1 million €

Project site is close to the

Machines could get rusted
river Between July and
Thr 3 Weather Site could be flooded
The project will be executed More money to buy new ones October
through the rainy season (200K €)
A new software release with
We could use new We could have a 5% of SW
Opp 1 Software functionalities we need could After april
software platform development cost reduction
be ready
We could sell our know how
The project force us to adopt We could acquire a new After the end of
Opp 2 Technology and increase the enterprise
a new technology know-how the project
incomes
Risk Identification

Risk Identification actors

 Accurately choose who will be involved in risk identification

 Some questions
• Technicians only?
• Any company executive?
• Shall we invite the client referent?
• Shall we invite suppliers?
• Any other stakeholder?
Risk Identification
Risk Identification tools and techniques

 Documentation review
 Checklist
 Techniques of data gathering
• Brainstorming
• Delphi
• Nominal Group
• Expert interviews
• SWOT Analysis
 Diagram techniques
• Cause/effect diagram
• Network techniques
• Influence diagram
• Affinity diagram
 Risk Identification
Documentation review

 Available documentation useful for project risks identification

is reviewed through a single or group approach
 Project documentation includes
• Contract
• SOW – Statement of Work
• Project Management Plan produced until now (Project Charter,
Business Plan, Requirements documentation, WBS, OBS, RAM,
Schedule Plan, Cost Plan, Procurement Plan, …)
 Appliable laws and regulatories
 Historical documentation
• Lessons Learned
• Historical Information
• Organization Knowledge Base
• articles …
Risk Identification

Checklist

 Based on questionnaires or sentences concerning project

features
 Questions are submitted to people involved, in order to
facilitate risk identification
 Features
• values: based on enterprisal history and experience; speed up the
process
• faults: do not favour creativeness
Risk Identification

Brainstorming

 A session in which any participant must feel free to express his/her ideas
about project risks
 No one has to condition/influence other participant ideas
 A facilitator must
• avoid any comment on the identified risks
• push people to express ideas
Risk Identification

Delphi

 Expert Judgement and anonymous technique

 An appointee identifies the team of experts using internal and external
expert resources
 Each expert doesn’t know who the other experts are
 Appointee sends the project detail documents to experts
 Each expert individually draws up a list of the risks and related opinions
 Answers are gathered by the appointee
 Appointee verifies the consensus level
 In case there is a low level of consensus the appointee sends a complete
list to every expert asking to review his own opinions considering the
answers of the others
 After some feedback the list of risk is fullfilled
Risk Identification

Nominal Group

 An appointee (usually internal) decides people participating

and give them any available project documentation
 Each participant individually fulfills a risk list
 Appointee gathers identified risks on a unique document
 A full risk list is then provided to any participant
 Each participant estimates and comments identified risks
 The final complete list of commented and evaluated risks are
discussed all together in a face to face meeting
 The final project risk list is then produced
Risk Identification

Interviews

 An appointee prepares the basis of an interview with the

purpose of identifying project threats and opportunities
 The appointee interviews Project Managers expert in
previous similar projects and/or experts in the field of project
application
 Before each interview the appointee explains the project
features, providing project WBS and final product/service
requirements
 The apointee, after an analysis of the answers, fulfills the
project risk list
Risk Identification

SWOT Analysis

 SWOT: Strenght, Weakness, Opportunities, Threats

 Composed by a collegial four analysis phases:
• Analysis of points of strenght (how do we feel strong about the
project)
• Analysis of points of weakness (how do we feel weak about the
project)
• Opportunities identification starting from strenghts
• Threats identification starting from weaknesses
 The list of project risks is then produced
Risk Identification

Cause-effect diagram

 Also known as Fishbone diagram or Ishikawa diagram

 The appointee first identifies negative effects causing project
failure
 Then any participant is asked to identify what could cause
those negative effects and to fill the diagram
 Then the appointee identifies the most frequent causes for
each negative effect
 The process can be executed in an individual or collegial
approach
 Risk Identification
Cause-effect diagram

Cause 2 Cause 1
Effect
causing
project
failure
Cause 3
Cause n

Example
Low skilled team
Low availability
of funds
Delay
in
delivering
High degree
of technical Adequate technology
innovation unavailable
 Risk Identification
Network techniques

 Useful to identify project schedule and resources overload

criticalities
 A project network identifies project activities and their
sequentiality
 Using project network with a deterministic method (as the
CPM) Project Manager highlights the important event of the
project (i.e. milestones, bottlenecks,…) and the critical
activities and resources to facilitate the project schedule
management
 Using probabilistic methods (models and simulations) Project
Manager gets useful results about the probability to reach
the project schedule and cost objectives (useful in the
quantification phase)
Risk Identification

Influence diagram

 Used to identify the relations

R7
and dependance among some risks
R8
Occurrence
R1
R3 AND Occurrence and
Occurrence R5
R9 impact
OR
Impact R6
R4
R2

Examples:
• If R1 does not happen, then R4 can not happen
• R9 is influenced by R7: if R7 happen, occurrence probability of R9 will be incresased from 10% to 30%
• R9 is also positively influenced by R5 and R2: if one of the two happens, then the R9 risk impact will be
50% reduced
• R3 is only influenced if both R6 and R8 occur: in this case R3 will double either impact and occurrence
probability
Risk Identification

Affinity diagram

 Generally used to gather ideas, opinions and problems

and work on them
 Useful when
• a chaotic situation occurs
• a breakdown of expressed concepts is necessary
• too many risks/ideas have been collected

Post-it method
Risk Identification

Risk Identification Tools deep overview

 An exhausting overview of Risk identification tools can be explored on the

monographs:
 Risk Tools 1- Risk Identification Tools – Part 1, M. Martinati, PMP, PMI-RMP
 Risk Tools 2- Risk Identification Tools – Part 2, M. Martinati, PMP, PMI-RMP

 Both monographs belongs to Eureka Service’s PDUStudy&Test© Catalogue

 PDUStudy&Test is a web service which helps PMI certified to get PDU for PMP,
PMI-RMP, PgMP, PfMP, PMI-ACP certification
 More information on PDUStudy&Test
[Link]/site/ita/[Link]
Qualitative Risk Analysis

Qualitative Risk Analysis

 Define the range of each identified risk consequences

 Use the impact scale and the probability scale as reference to
evaluate risks
 Elaborate an initial risk ranking
 Execute a first selection of the project risks
 Main steps
1. Risks occurrence probability and impact are evaluated
2. Risk Score is calculated
3. Risk prioritization is evaluated
4. High impact risks are highlighted
5. Risks to be quantitative analyzed are identified
Qualitative Risk Analysis

Example
Probability Prob. Impact Imp. Risk
Code Risks Level Value Level Value
Risk Value
Priority
Market does not respond to
R1 High 5 Medium 4 20 C
the product
Malfunctions due to poor
R2 Very high 7 Strong 6 42 B
SW knowledge
Very
R3 Removal of key resource Very high 7 8 56 A
strong
R4 Computer failure Medium 3 low 2 6 E
Almost
R5 Increase fuel price 9 low 2 18 D
certain
Qualitative Risk Analysis

Use of Risk Probability/Matrix

Example
IMPACT Level Action
1 2 4 6 8 10 Top Execute quantitative analysis
and respond
P 9 R5
Medium Execute quantitative analysis
R High and respond only if EMV* >
O 10K
7 R2 R3
B
Medium Low Execute quantitative analysis
A and respond only if EMV* >
B 5 R1
20K
I
Low Just record and monitor
L 3 R4
I
T * EMV - Expected Monetary Value
y 1
 Qualitative Risk Analysis

Example
Probability Prob. Impact Imp. Risk
Code Risks Level Value Level Value
Risk Value
Priority
Market does not respond to
R1 High 5 Medium 4 20 C
the product
Malfunctions due to poor
R2 Very high 7 Strong 6 42 B
SW knowledge
Very
R3 Removal of key resource Very high 7 8 56 A
strong
R4 Computer failure Medium 3 low 2 6 E
Almost
R5 Increase fuel price 9 low 2 18 D
certain

Level Action
Top Execute quantitative analysis and respond
Further analysis Medium High Execute quantitative analysis and respond only if EMV>10K
Medium Low Execute quantitative analysis and respond only if EMV>20K
Low Just record and monitor
Quantitative Risk Analysis

Quantitative Risk Analysis

 Quantify cost of damages deriving from possible occurrence

of any negative risk
 Quantify economic benefits deriving from possible occurrence
of any positive risk
 Execute a new risks prioritization
 Identify, among Medium Risks, further risks that will be
subdued to response actions
 Executes an economic value of risky value of the project

 Quantitative analysis is more complex and expensive than

qualitative analysis, therefore should be reduced to few risks
Quantitative Risk Analysis

Quantitative risk evaluation

 The most used way to quantitatively evaluate risks is

EMV (Expected Monetary Value)
 For any single risk

𝐸𝐸𝐸𝐸𝐸𝐸 𝑅𝑅𝑥𝑥 = 𝐸𝐸𝐸𝐸𝐸𝐸 𝑅𝑅𝑥𝑥 × 𝑂𝑂𝑂𝑂(𝑅𝑅𝑥𝑥 )

 For the entire project
𝑁𝑁

𝐸𝐸𝐸𝐸𝐸𝐸 𝑃𝑃 = � 𝐸𝐸𝐸𝐸𝐸𝐸(𝑅𝑅𝑥𝑥 )
𝑥𝑥=1

𝐸𝐸𝐸𝐸𝐸𝐸: 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉; 𝐸𝐸𝐸𝐸𝐸𝐸: 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉

𝑂𝑂𝑂𝑂: 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃; 𝑅𝑅𝑥𝑥 : 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 N:total Number of risks
 Quantitative Risk Analysis
Risk Register after Quantitative Risk Analysis
Code Risks Qualitative Probability Economic EMV
Priority Impact

R3 Removal of key resource A 60% € 30.000 €18.000

R2 Malfunctions due to poor SW B 30% € 70.000 € 21.000

knowledge
R1 Market does not respond to the C 25% € 90.000 € 22.500
product
R5 Increase fuel price D 20% € 20.000 € 4.000

R4 Computer failure E 5% € 10.000 € 500

Total € 220.000 € 66.000

Level Action
Top Execute quantitative analysis and respond
Medium High Execute quantitative analysis and respond only if EMV>10K
Medium Low Execute quantitative analysis and respond only if EMV>20K
Low Just record and monitor
 Quantitative Risk Analysis
Risk Register after Quantitative Risk Analysis
Code Risks Qualitative Probability Economic EMV New priority
Priority Impact

R1 Market does not respond to C 25% € 90.000 € 22.500 A

the product
R2 Malfunctions due to poor B 30% € 70.000 € 21.000 B
SW knowledge
R3 Removal of key resource A 60% € 30.000 €18.000 C

R5 Increase fuel price D 20% € 20.000 € 4.000 D

R4 Computer failure E 5% € 10.000 € 500 E

Total € 220.000 € 66.000

Level Action
Top Execute quantitative analysis and respond
Medium High Execute quantitative analysis and respond only if EMV>10K
Medium Low Execute quantitative analysis and respond only if EMV>20K
Low Just record and monitor
Quantitative Risk Analysis

Exercise

 The project of construction of a new product has a planned cost of € 400.000. The following
are the results of the risk analysis
 There’s 5% probability that a stakeholder require a change that would cost us € 75.000
 There’s 15% probability to have a new resource in the project allowing an approximately €
30.000 saving
 There’s 75% probability that availability of the new software release could delay causing €
3.000 overcost
 There’s 5% probability that the code to be developed would be simpler than what expected,
allowing a € 2.500 saving
 There’s 15% probability that a bug might cause a rework and a € 8.000 overcost

 Calculate the whole economic project risk value using EMV

Quantitative Risk Analysis

Exercise results

Cod T/O EMV calculation EMV

1 T 5% x €75.000 + € 3.750

2 O 15% x -€30.000 - € 4.500

3 T 75% x €3.000 + € 2.2.50

4 O 5% x -€2.500 - € 125

5 T 15% x €8.000 + € 1.200

Expected Monetary Value + € 2.575

Quantitative risk analysis suggests that the project expected cost value will be
approximatly € 402.575 (instead of € 400.000)
Quantitative Risk Analysis

Exercice conclusions

Hypothesis Cost Calculation Cost

Best case 400.000 –30.000 –2.500 € 367.500

Planned before risks € 400.000

Expected value 400.000 + 2.575 € 402.575

Worst case 400.000 +75.000 +3.000 +8.000 € 486.000

The project cost will be from a minimum € 367.500 to a maximum of

€ 486.000; the expected value (most likely) is € 402.575
Quantitative Risk Analysis

PERT Expected Monetary Value

 In PERT (Program Evaluation and Review Technique) risk impact

evaluation is expressed through three values (triangular distribution)
• Pessimistic (P)
• Most Likely (ML)
• Optimistic (O)
 The three evaluations are assigned standard probabilities 1/6, 4/6 and
1/6 (that is equal to 16.66%, 66.66% and 16.66%).
 The single risk Expected Monetary Value is calculated as a balanced
summation of values, through the formula

𝑃𝑃 𝑅𝑅𝑥𝑥 + 4𝑀𝑀𝑀𝑀 𝑅𝑅𝑥𝑥 + 𝑂𝑂 𝑅𝑅𝑥𝑥

𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝐸𝐸𝐸𝐸𝐸𝐸 𝑅𝑅𝑥𝑥 = × 𝑂𝑂𝑂𝑂 𝑅𝑅𝑥𝑥
6
𝑂𝑂𝑂𝑂: 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃
Quantitative Risk Analysis

Exercise on PERT EMV

1. There’s 20% probability that the client require a change

The cost of the change is evaluated as follows:
• € 30.000 Optimistic
• € 60.000 Most Likely
• € 80.000 Pessimistic
2. There’s 15% of probability to have a new resource in the project that would
make us save:
• € 30.000 Optimistic
• € 20.000 Most Likely
• € 10.000 Pessimistic

Calculate the Expected Monetary Value (EMV) using the PERT method
 Quantitative Risk Analysis

Exercise Results

Probabi Impact
Code lity Type Impact Calculation PERT Value PERT EMV
Optimistic + € 30.000
Thr1 20%
Most likely + € 60.000 30000+4x60000+80000 + € 58.333 + € 11.666
6
Pessimistic + € 80.000

Optimistic - € 40.000
Opp1 25%
Most likely - € 20.000 40000+4x20000+10000 - € 21.666 - € 5.416
6
Pessimistic - € 10.000

Total project + € 36.667 + € 6.250

Quantitative Risk Analysis

Monte Carlo method

 can be used on any kind of probabilistic issue

 when used for Project Management purpose and applied on a project
network, Monte Carlo method allows the probabilistic estimation of
• Activity duration
• Existance of an activity
• Existance of a dependency between activities
• Resource allocation on the activities
• Unit cost of the resources
• …

 Cause its complexity, Monte Carlo can be performed only through

specialized software
Quantitative Risk Analysis
Monte Carlo method

 Monte Carlo simulates a lot of cycles of CPM and Cost analysis (at least
500, better 1000 or more)
 During each CPM cycle, using the probabilistic distributions,
• deterministic values are set,
• a complete project time/cost analysis is run
• the results are appropriately recorded
 At the end of the simulation the huge number of data resulting are
organized to show important results, such as:
• Probability to complete the project within time and cost objectives/constraints
• Date within the project will finish for sure (100% probability)
• Budget allowing the completion of the project (100% probability)
• Probability to complete the project within any requested date and any requested
budget
• Sensitivity on project criticality
Quantitative Risk Analysis

Example on Monte Carlo results

 Project target completion date: february the 28th

 Project budget: € 300K
 Through Monte Carlo simulation, we’ll discover
• Probability to close project within target completion date
• Probability to close project within budget
• Date within project close for sure (100% probability)
• Money within project close for sure (100% probability)
Quantitative Risk Analysis

Example on Monte Carlo results

67%

Close
for sure
within

20-apr
28-feb

Probability to close project within

target date
 Project Scheduling and Cost Planning: Monte Carlo
Method
Example on Monte Carlo results

Close for sure

48% within that
budget

Probability to close project

within budget
Quantitative Risk Analysis

Monte Carlo method

More information on Monte Carlo method in Appendix

‘Monte Carlo in-depth analysis using Oracle Primavera Risk
Analysis’
Plan Risk Response

Plan Risk Response

 Analyse whether respond or not to risks (both opportunities

and threats)
 Decide type of response strategy and response actions
 Develop and authorize a Risk Response Plan
 Calculate and authorize the response actions cost
 Develop and authorize a Contingency Plan
 Develop and approve a Fallback Plan
 Calculate and authorize the Contingency Reserve
 Calculate and authorize the Management Reserve
Plan Risk Response

Response strategy to a negative risk is referred to

 Risk cause
• Avoidance (eliminating the cause)
• Mitigation (reducing the cause)

 Risk event
• Avoidance (avoiding to execute the risky activity)

 Risk effect
• Mitigation (acting on impact mitigating the effect)
• Transfer (activating an insurance or by inserting a clause in a
contract to a subcontractor)
Plan Risk Response

Response Strategy - Example

Activity: carriage of highly flammable material, on mountain roads during winter season

Event: a possible accident

Effect: fire with damages to things and people

Type of Strategy Applied to Response actions

Avoidance Event do not execute the carriage, buy the fuel on site

Cause do the carriage in spring

Mitigation Cause change road: many more km. (highway)

Event book a tanker reserve

Trasfer Effect enter into an insurance policy

Plan Risk Response

Risk Response Plan

 Risk Response Plan is composed by the activities we plan to execute to

respond to risks
 Response actions
• Activities to face negative risk (threats)
• Activities to favour positive risk (opportunities)
 The expected effects for each responded risk should be evaluated (expected
occurrence probability and/or expected impact value, new EMV)
 Risk Response owners
 Resources needed for each response
 Response actions costs (to be added to project planned cost, BAC – Budget
At Completion)
 Risk Response Plan becomes part of the Schedule Baseline and its cost
becomes part of the Cost Baseline
Plan Risk Response

Decision Tree

 Generally speaking a Decision Tree helps any kind of decisional

process
 Based on a graphical tree structure showing possible alternatives,
related events and associated probability and estimated cost
 In Risk Management a Decision Tree could be used to find out the
best response for each Top Risk
 The analysis helps finding out the decision with the best EMV,
meaning the one which minimizes the expected loss and/or
maximizes the expected earning
 Plan Risk Response
EMV
Decision Tree example
Single Total per
decision

We’ll get an external skilled Penalty for 2 months delay: 3.000

substitute in 2 months. More cost for substitution: 2.000
Probability: 40%
2.000

4.400
No delay, no penalty
We’ll get an internal non
We’ll substitute KR Cost of lower skill: 4.000
skilled substitute within 2.400
2 weeks. Probability: 60%

Key Resource
could leave
Project cost for KR salary
KR will accept a low increase: 2.000 600
salary increase.
Probability: 30%
We’ll try to keep KR
Medium salary Project cost for KR salary 2.000 3.800
increase. increase: 4.000
Probability: 50%

Strong salary increase. Project cost for KR salary

Probability: 20%
1.200
increase: 6.000

Final decision: we’ll try to keep Key Resource (€ 3.800) than substitute it (€ 4.400)
Plan Risk Response

Decision Tree deep overview

 An exhausting overview on Decision Tree can be explored on the

monograph:
 Risk Decision Tree - Tecniche di quantificazione dei rischi – M. Martinati, PMP, PMI-
RMP e [Link]à

 The monograph belongs to Eureka Service’s PDUStudy&Test© Catalogue

 PDUStudy&Test is a web service which helps PMI certified to get PDU for
PMP, PMI-RMP, PgMP, PfMP, PMI-ACP certification
 More information on PDUStudy&Test
[Link]/site/ita/[Link]
 Plan Risk Response

Risk Response Plan Example

Risks Response
Code Event Actions Duration Resources Cost Owner

R1 Market does not Increase number of 60 days 1 marketing € 6.000 Procurement

respond to the product marketing channels 1 procurement Dpt
(Marchetti)
Insurance 5 days 1 procurement € 2.000

R2 Malfunctions due to Training 10 days 3 SW Developers € 2.500 IT Dpt

poor SW knowledge (Smith)

R3 Removal of key resource Promotion 5 days 1 HR € 6.000 HR Dpt

(Lee)
R5 Increase ifuel price Accepted

R4 Computer failure Accepted

Total € 16.500
 Plan Risk Response

Risk Response Plan Example

Risks Expected before responses Responses Expected after responses

C Event Prob. Impact EMV Actions Cost Impact Prob. EMV

Market does not Increase number of

€ 6K
R1 respond to the 25% € 90K € 22.5K marketing channels € 30K 10% € 3K
product
Insurance € 2K

Malfunctions due
R2 to poor SW 30% € 70K € 21k Training € 2.5K € 70K 2% € 1.4K
knowledge
Removal of key
R3 60% € 30K €18K Promotion € 6K € 30K 0%
resource -
Increase fuel
R5 20% € 20K € 4K Accepted - - 20% € 4K
price

R4 Computer failure 5% € 10K € 0.5K Accepted - - 5% € 0.5K

Total € 220K € 66K € 16.5K € 8.9K

Plan Risk Response

Contingency Reserve and Contingency Plan

 Contingency Reserve includes money to be used in case a risk occur

 For each risk a Contingency Plan should been planned
 Contingency Plan will be executed should the risk occur
 Contingency Plan cost execution will be financed through the
Contingency Reserve
 Contingency Reserve
• is requested by the Project Manager and negotiated with
managers
• should be adequately evaluated by the Project Manager and
justified through realistic risk informations
• can be evaluated on the EMV – Expected Monetary Value basis, but
other methods (like the one offered by Monte Carlo method) could
be applied
 Plan Risk Response

Risk Response Plan Example

Risks Expected before responses Responses Expected after responses

C Event Prob. Impact EMV Actions Cost Impact Prob. EMV

Market does not Increase number of The likely project loss

€ 6K
R1 respond to the 25% € 90K € 22.5K marketing channels € 30Kbe reduced
10% € 3K
will
product About € 66.000 loss
Insurance € 2K to € 8.900
is very likely (“saving” € 57.100)
Malfunctions due
R2 to poor SW 30% € 70K € 21k Training € 2.5K € 70K 2% € 1.4K
knowledge
Removal of key
R3
In all the risks60%
caseresource occur € 30K €18K Promotion € 6K € 30K 0%
-
the project will get a
Increase in fuel
R5
Executing a- € 16.500-
€ 220.000
price loss20% € 20K € 4K Accepted 20% € 4K
response plan…
(very unlikely it happens!)
R4 Computer failure 5% € 10K € 0.5K Accepted - - 5% € 0.5K

Total € 220K € 66K € 16.5K € 8.9K

 Plan Risk Response

Risk Response Plan Example

Risks Expected before responses Responses Expected after responses

C Event Prob. Impact EMV Actions Cost Impact Prob. EMV

Market does not Increase number of

€ 6K
R1 respond to the 25% € 90K € 22.5K marketing channels € 30K 10% € 3K
product Spending € 16.500 more,
Insurance € 2K
we’ll reduce to project likely loss to € 8.900:
Malfunctions due
R2 to poor SW 30% € 70K € 21k Training
knowledge
Shall manager €‘negotiate’
2.5K € 70K 2%
€ 66.000 € 1.4K

Removal of key
with € 25.400?
R3 60% € 30K €18K Promotion € 6K € 30K 0%
resource -
Increase in fuel
R5 20% € 20K € 4K Accepted - - 20% € 4K
price

R4 Computer failure 5% € 10K € 0.5K Accepted - - 5% € 0.5K

Total € 220K € 66K € 16.5K € 8.9K

Plan Risk Response

Contingency Reserve based on EMV

Single Risk Contingency Reserve

𝐶𝐶𝐶𝐶 𝑅𝑅𝑥𝑥 = 𝐷𝐷 𝑅𝑅𝑥𝑥 × 𝑂𝑂𝑃𝑃 𝑅𝑅𝑥𝑥 ) = 𝐸𝐸𝐸𝐸𝐸𝐸(𝑅𝑅𝑥𝑥

Project Contingency Reserve

𝑁𝑁

𝐶𝐶𝑅𝑅(𝑃𝑃) = � 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑥𝑥

𝑥𝑥=1
P: Project
Rx: single project Risk
N: number of project top risks
CR: Contingency Reserve
D: Damage – estimated economic impact of negative risk
OP: risk occurrence Probability
EMV: Expected Monetary Value
 Plan Risk Response

Risk Response Plan Example

Risks Expected before responses Responses Expected after responses

C Event Prob. Impact EMV Actions Cost Impact Prob. EMV

… shall
Market Increase number of
does not manager ‘negotiate’ € 66.000 € 6K
€ 8.900 will be discussed with
R1 respond to the 25% € 90K € 22.5K marketing channels € 30K 10%
product
with € 25.400? Manager to become the project€ 3K
Insurance € 2K
Contingency Reserve
Malfunctions dueIf the answer is YES… (according to PMBOK will be also
R2 to poor SW 30% € 70K € 21k Training € 2.5K
added to€ 70K 2%
project BAC) € 1.4K
knowledge
Removal of key
R3 60% € 30K €18K Promotion € 6K € 30K 0%
resource -
Increase in fuel € 16.500 will be added to the project
R5 20% € 20K € 4K Accepted - - 20% € 4K
price BAC (Budget At Completion)
R4 Computer failure 5% € 10Kand will be spent Accepted
€ 0.5K - - 5% € 0.5K

Total € 220K € 66K € 16.5K € 8.9K

Plan Risk Response

Management Reserve

 Management Reserve is the economic reserve to

manage unpredictable events should they occur
 Usually it is estimated as a percentage of the BAC (i.e. 5-
10% depending on the uncertainty level of the project )
 Management Reserve has to be approved by
management
 Project Manager
• can use Management Reserve after management authorization
only
• should justify the occurred event was really an unpredictable
event
Plan Risk Response

Residual Risk
 Residual Risks are still existing risks
 Mitigated risks are always Residual Risks
 Residual Risks could depend on a wrong response in case of risk
avoidance response
 Accepted Risks are always Residual Risks until they finish or they occur

Secondary Risk
 Secondary Risks come as a consequence of a risk response action
 In case they are too dangerous, the risk response action should be
changed or removed
 Usually secondary risks are recorded and monitored only
 Contingency Reserve will finance Secondary Risks cost should they occur
Plan Risk Response

Fallback Plan

• Fallback Plan is a reserve plan to be executed in case the

contingency plan is not giving the expected results
• Contingency Reserve will finance Fallback Plan

• In some context the term Fallback Plan is also used as the

reserve plan in case the Response Plan is not effective
Plan Risk Response

Project Budget after Risk response Plan

Project Budget
=
BAC – Budget At Completion for deliverables execution
+
Risk Response Plan Cost
+
Contingency Reserve
+
Management Reserve

• Project BAC does not include Management Reserve

 Plan Risk Response
205,4K
196,5K
180,0K
Cost

BAC= € 205.400

Management Reserve (10%)= € 20.540

Project Budget = € 225.940

Time

Contingency Reserve = € 8.900

Risk Response Plan = € 16.500

BAC for deliverables = € 180.000

Control Risks
Control Risks

 Monitor project risks evolution

 Check risks occurrence
 Eliminate not occurred risks
 Verify response plan effectiveness
 Re-analyse risks and change priority
 Execute Fallback Plan if needed
 Use, release and control Contingency Reserve
 Record unexpected events
 Execute Workarounds for unexpected events
 Use and control Management Reserve for unexpected events
 Identify, analyze and respond to new risks
 Update Risk Register, and Risk Response Plan
Control Risks

Use of Contingency Reserve

 Contingency Reserve is used only when a residual risk occurred

 Risk related Contingency Reserve will be released in case the residual risk
doesn’t occur
 Released Contingencies can be
• re-assigned to new identified risks
• used to finance Management Reserve if needed
• Increment project profit (“Released to profit”)
Control Risks

Workaround

 Workaround is an unplanned action executed to react to an

occurred unpredictable event
 Workaround are usually expensive and badly organized
emergency actions
 A Project Manager (and/or a Risk Manager) could be
evaluated on number of workarounds executed: a few
number of workarounds means a good Risk Management job
Control Risks
Risk Updating

 Risk Register updating

• Risk occurrence, impact, score and priority updating
• Risk status updating (Open, Closed, Occurred, not Occurred,..)
• New risks recording

 Risk Response Plan updating

• Response actions time and cost actual value recording
• Effectiveness of response actions
• Response actions replanning
• Response actions for new risks recording

 Contingency Plan updating

• Contingency activities recording
• Fallback Plan execution recording
• Activities for occurred unpredictable events recording
• …
Value and Risk Management

Thanks