The Owner's Role in Project Risk Management (2005) / Chapter Skim
Currently Skimming:
4 Risk Identification and Analysis
4 Risk Identification and Analysis
Pages 22-40
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 22... ...
This training should cover not only risk analysis techniques but also the managerial skills needed to interpret risk assessments. Because the owner may lack the specific expertise and experience to identify all the risks of a project without assistance, it is the responsibility of DOE's project directors to ensure that all significant risks are identified by the integrated project team (IPT)
|
From page 23... ...
Project team participation and face-to-face interaction are needed to encourage open communication and trust, which are essential to effective risk identification; without them, team members will be reluctant to raise their risk concerns in an open forum. While smaller, specialized groups can perform risk assessment and risk analysis, effective, ongoing risk identification requires input from the entire project team and from others outside it.
|
From page 24... ...
Risk identification is not an exact science and therefore should be an ongoing process throughout the project, especially as it enters a new phase and as new personnel and contractors bring different experiences and viewpoints to risk identification. For this reason, the DOE project director should ensure that the project risk management plan provides for periodic updates.
|
From page 25... ...
This process requires some qualitative assessment of the magnitude and seriousness of each identified risk. Various methods that have been developed to assess failures in physical equipment and systems have also been applied in one form or another to project risks.
|
From page 26... ...
, the actual durations of activities, deliveries of equipment, productivity of the workforce, changes due to design development or the owner's preferences, and other uncertainties that are typically considered to lie within the natural variability of project planning, design, construction, and start-up (they do not include catastrophic events or radical design changes)
|
From page 27... ...
truly root causes or (2) simply work packages or activities that may reflect underlying causes but are themselves symptoms.
|
From page 28... ...
Failure Modes and Effects Analysis In project risk assessment, a failure can be any significant event that the sponsor does not want to happen -- a budget overrun, a schedule overrun, or a failure to meet scope, quality, or mission performance objectives. While risks may arise from specific causes, they may also be the result of general environmental conditions that are not limited to specific times and places but are pervasive throughout the project.
|
From page 29... ...
Identification of potential risks that turn out, upon further assessment, to be negligible is a waste of time; however, failure to identify potential risks that turn out to be serious is a threat to the project. Therefore, the project director should err on the side of caution when identifying possible risks.
|
From page 30... ...
, and risks that do not appear to require follow-up, because of both low impact and low likelihood. It should be clearly understood that there is no quantitative assessment of the overall risk to the total project: The severity factors are not estimated
|
From page 31... ...
METHODS OF QUANTITATIVE RISK ANALYSIS After risk factors are assessed qualitatively, it is desirable to quantify those determined by screening activities to be the most significant. It cannot be repeated too often that the purpose of risk assessment is to be better able to mitigate and manage the project risks -- not just to compute project risk values.
|
From page 32... ...
Owner's representatives should be proficient in simple statistical approaches for computing risk probabilities, in order to be able to check the numbers given to them by consultants and contractors. When addressing probabilistic risk assessment, project directors should keep in mind that the objective is to mitigate and manage project risks and that quantitative risk assessment is only a part of the process to help achieve that objective.
|
From page 33... ...
System dynamics models can be used to clarify and test project participants' assumptions as well as to design and test proposed project improvements and managerial policies. Because system dynamics models are based on dynamic feedback the models can also be used to evaluate the impacts of various failure modes or root causes, particularly in cases where the root causes can be identified but the ripple effect of their impacts is difficult to estimate with any confidence.
|
From page 34... ...
, and owners can develop their own or specify that their contractors should perform such simulations before a project starts, in conjunction with the other preproject planning efforts. Stochastic Simulation Models Stochastic simulation models are computerized probabilistic simulations that, for computational solution, typically use random number generators to draw variates from probability distributions.
|
From page 35... ...
The simulations simply add up the uncertainties associated with work packages, but they may be inaccurate because these work packages are not necessarily independent. It is computationally much easier to perform Monte Carlo simulation if the analyst avoids the need to consider interactions between variables by simply assuming that all variables are independent; however, an analysis without consideration of common mode failure can lead to an under
|
From page 36... ...
If a consultant or contractor is performing Monte Carlo simulations for risk assessments, it would be prudent for the owner's project director to review the confidence limits on all values computed using Monte Carlo simulation, to ensure that a sufficient number of iterations has been performed. The use of Monte Carlo and other techniques for mathematically combining the risks of individual work packages into a single project risk number should not obscure the fact that the objective is to manage the risks.
|
From page 37... ...
If the objective is simply to find the probability distribution of the project cost estimate as the sum of a number of work packages or activities, stochastic simulation is unnecessary. One advantage of simple additive models is that they are easily understood, and it is usually obvious which activities contribute the most to the total project uncertainty and which do not.
|
From page 38... ...
By comparing the actual performance on com pleted work packages, activities, or milestones with the prior esti mated uncertainties, one obtains revised estimates of the work packages, activities, or milestones yet to come. Through second-moment analysis, project directors can use the information and experience on the actual project to revise the estimates of the work to go.
|
From page 39... ...
CONCLUSION Although additive, second-moment models lack the computational complexity of stochastic risk assessment techniques, for most practical applications they are more than adequate. From the standpoint of the owner, the purpose of project risk assessment is to minimize the impact of uncertainty on the project.
|
From page 40... ...
Probabilistic simulations are of particular value when data are sparse and the full range of possible adverse events cannot be easily inferred. Provided that a sufficient number of simulations are performed, boundaries for total project risk can be established.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.