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Risk Analysis

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Risk Analysis Avoiding Future Impacts Risk Analysis Techniques Schedule, Cost, and Other Aspects INCOSE Heartland Chapter October 24, 2001 What Is Risk and Risk ... – PowerPoint PPT presentation

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Title: Risk Analysis


1
Risk Analysis Avoiding Future Impacts
2
Risk Analysis Techniques Schedule, Cost, and
Other Aspects
  • INCOSE
  • Heartland Chapter
  • October 24, 2001

3
What Is Risk and Risk Management?
  • Risk
  • Definition Risk is an event that threatens the
    accomplishment of one or more future goals or
    objectives
  • A Risk is described by the likelihood that an
    event will occur and the severity of the
    consequence of that event should it occur.
  • Risk is about a possible future event and is
    often confused with issues and problems. If the
    likelihood is certain or near certain, then it is
    not a risk.
  • Risk Management
  • Definition Risk management is the formal process
    of identifying risks, assessing their magnitude,
    making decisions about how to handle, and then
    tracking the progress of the handling approach.

4
The Basic Risk Management Process
  • Build the process
  • Allocate Responsibilities
  • Determine What is to be Risk-Managed
  • A Decision-Making Process
  • Iterative with Analysis to select mitigation

Planning
Identification
Analysis
Handling
Communi- cation Tracking
  • Comparative Analysis
  • Assign Attributes
  • Assign Ownership
  • Keep everyone aware of decisions made
  • Track progress
  • Evaluate effectiveness
  • Evaluate the Impact
  • A Risk
  • All Risks
  • Prepare Decision-packages

5
How to State a Risk Formula for Success
  • A risk statement is written as follows
  • If A occurs because of B, then C will be the
    result.
  • A is symptomatic, B is causal, C is the
    outcome
  • Common errors
  • Thinking that problems and issues are risks
  • Using the Risk Management Database as a tool to
    bring attention to problems and issues

6
Exercise 1a
  • Identify whether the following contains a risk or
    a problem
  • You have an 16 year old son who has a job at a
    restaurant in Baybrook Mall. He wants to drive
    your car to work.
  • a shady part of town. He works the night shift.
  • Plus Hes moved into an apartment with another
    young man who has already had his drivers
    license revoked

7
Exercise 1a
  • Identify whether the following is a risk or a
    problem
  • You have an 16 year old son who has a job at a
    restaurant in Baybrook Mall. He wants to drive
    your car to work.
  • a shady part of town. He works the night shift.
  • Plus Hes moved into an apartment with another
    young man who has already had his drivers
    license revoked

8
Risk Handling ExercisePossible Handling Actions
  • Accept
  • Take no action
  • Make contingency plans
  • Avoid
  • Change requirement
  • Dont do
  • Transfer
  • Give to someone else better equipped to deal with
    risk
  • Insurance underwriters
  • Mitigate
  • Reduce Likelihood
  • Reduce Consequence

9
Exercise 3a
  • Were back to your sonwhat would you do with the
    risk of him having an accident for which he is at
    fault? He is currently uninsured.
  • How would you Avoid this risk?
  • Transfer He has a good driving record,
    lives at home
  • What if your son is in a hi-risk pool and
    collision insurance is 4500 per year?
  • Can you think of some Mitigation actions?

10
Outline
  • What Is Risk Analysis?
  • What Products Do We Need To Produce?
  • How Are They Produced?

11
What is it? Definition
  • Risk Assessment (about a risk)
  • The process of estimating the probability and
    impact for each risk
  • Assigning other relevant attributes to a risk
  • Risk Analysis (about all risks)
  • Combining and studying the effects of multiple
    risk assessments
  • A "snapshot" in time of the projects risk
    environment
  • Often done with a Monte Carlo simulation
  • Uses models to understand characteristics of the
    project
  • Results derived include
  • Probability of meeting the project objective such
    as a completion date
  • Contingency needed to achieve an acceptable level
    of likely project results
  • Finding the risks which put the objective in
    greatest jeopardy

Source PMI RiskSIG Lexicon www.risksig.com/resou
rce/lexicon.htm
12
Assessment Assigning A Value To A Risk
  • From previous Module, we have learned how to
    construct the Risk Matrix using qualitative
    techniques

3 X 3 Space Station Genesis
5 X 5 not a requirement
VH Very High H High M Medium L Low VL
Very Low
M
H
VH
L
M
H
VL
L
M
4 X 4s are common, e.g. JPL/MER
Does not have to be symmetrical
13
After Assessment what do you have?
  • Ordered sets of individual risks
  • But, no clear understanding of the integrated
    risk environment

Affinity Grouping Consolidation Classification
Evaluation
Risk n
Risk 1 Item Description
Top 10 (or so) --- --- ---
Risk n
Risk 1 Item Description
14
Now what should I do with this stuff?
  • Decision-making with piles of risks? How?
  • These decisions need to be made based on the
    total integrated risk impact to the project
  • That integrated impact is often
    counter-intuitive

The easy way out is to reduce all RED risks and
most YELLOW risks, but can you afford it?
If, so, then stop here!
15
Outline
  • What Is Risk Analysis?
  • What Products Do We Need To Produce?
  • How Are They Produced?

16
Typical Decision Support Data Products
  • Hyperlink indicates that a sample follows
  • Risk-based reserve allocation
  • Double Pareto Boxes
  • Analytical Hierarchy Process
  • Bubble charts
  • Stochastic critical path analyses
  • Risk-based schedule margin allocation
  • Cumulative distribution functions and their
    utility in decision-making
  • Probability density functions and their utility
    in decision-making
  • Cost utility functions and their utility in
    decision-making
  • Stochastic trending charts
  • Importance Values

17
Double Pareto Box
  • Focus management attention on drivers
  • Reduced list by order of magnitude 100 gt 10
    (ISS Experience)
  • Make effective decisions
  • Which risks to accept
  • Which risks to manage

The Double - Pareto box is a very useful decision
support tool for making mitigation decisions
18
Stochastic Critical Path
  • Critical Paths
  • Deterministic
  • Stochastic
  • Risk-based
  • Sensitivity -- Problem-based
  • Provide Decision Support and Watch Items for
    Project Manager
  • Where can I relax my vigil
  • Where/when should I intensely focus

Other Bus Components
SRC
PPIC, CDH, PCAs
Canister
Launch
ATLO
Star Tracker
FSW 3 4
FSW 1 2
FSW 5
19
Utility of Cumulative Distribution Functions, CDFs
  • To provide the decision maker with information to
    make risk-handling investments
  • Gives you a much richer decision-making
    environment
  • Decisions will be more mature

Which Option would you choose?
20
Probability Density Functions
  • You were told to be ready to launch to the ISS
    on 2/99

However, in your heart, you know that the ISS
will not be ready for you!! What do you do? How
do you plan?
21
Section Recap
  • There exist tools and techniques that produce
    good quality information that relate risk and
    probable future outcomes that threaten cost,
    schedule and mission success
  • These tools and techniques greatly enhances the
    decision-makers quality of decisions

So, How is this done??
Reminder Tools Handout
22
Outline
  • What Is Risk Analysis?
  • What Products Do We Need To Produce?
  • How Are They Produced?

23
How Is It Done?
  • Step 1. Decide What is to be risk-managed
  • Step 2. Build a model
  • Step 3. Select risks for simulation
  • Step 4. Evaluate risks and input
  • Step 5. Analyze, perform the trade studies
  • Step 6. Create the decision-support reports for
    your project manager

24
  • There are only three classes of models needed
  • Integrated Cost, Schedule, Technical
  • (Class participative Simulation)

25
CST Model
Research Project Find Analogies Execute
Questionnaire Analyze Databases --------------- Wh
at can go wrong? How likely is it? What is the
cause? What would be the consequence?
CST Model Project Network
WBS Task 100 Task 101 Task 102 Task 103 Task
104 Task 105 Task 106
This is KEY! This is the part of the technique
that integrates the cost and schedule risk impacts
26
Data Sources-1
  • Data Required
  • CST Days at-risk, dollars at-risk
  • Mission Probability of failure, failure rate
  • Data Type
  • Probability distributions
  • 3-point distributions are fine Pessimistic,
    Most-likely, and optimistic
  • Expert opinion
  • Analogies and databases of prior experiences

Example Q-Model
Project Risk Information
Risk Correlation Factors
27
Data Sources-2
  • Projects are at-risk of significant overrun if
    they proceed before they are ready

(Source NASA Comptrollers Office)
28
Data Sources-3
  • System Management Process Maturity
  • Deviations from norm introduce risk

29
Hands-on Class Exercise
  • Managing Cost Schedule and Technical Risk in a
    Project

30
Format of Class Exercise
  • A simplified space project will be presented
  • An _at_Risk/MS Project simulation of the project
    will be presented
  • The model will be run to assess the impact of the
    risks
  • The students will be presented with the risks as
    identified by the simulated project, question? Is
    the risk list complete?
  • The students must select a mitigation plan from
    several options presented
  • The case will be rerun with the selected
    mitigation plan
  • A random number generator will be used to obtain
    final outcome
  • The Genesis Model will be shown using a more
    complex simulation tool in order to demonstrate
    other capabilities

31
Risk List
32
Risk Managers Report
Launch Window
Cost Cap
33
Handling Options Pick Your Poison!
  • Accept Build contingency plan
  • Avoid Switch to PV
  • Transfer Sorry, not allowed by your
    organization!
  • Mitigate Consequence
  • Reduce mass
  • Add thermal margin
  • Buy better Telecom eqpt
  • Mitigate Likelihood Insert advanced tech
    development project up front
  • Other???

Skip to Closing
34
Accept
  • Its a trap!!!
  • All you have done is add cost and more risk
  • The likelihood and consequences of the risks are
    unchanged
  • You have done nothing to help your case
  • Unfortunately this is a very common approach and
    very ineffective

35
Avoid Results
Launch Window
Cost Cap
36
The Winner Avoid Outsource SW
Launch Window
Cost Cap
37
Mitigate Consequence
Launch Window
Cost Cap
38
Mitigate Likelihood
Launch Window
Cost Cap
39
What About Good Luck??
  • 2- .028
  • 3 - .083
  • 4 - .166
  • 5 - .277
  • 6 - .416
  • 7 - .583
  • 8 - .722
  • 9 - .833
  • 10 - .916
  • 11 - .971
  • 12 1.00

40
A few carry-away thoughts
  • "History is a vast early warning system."
    Norman Cousins
  • Those who cannot remember the past are condemned
    to repeat it. George Santayana
  • "Insanity doing the same thing over and over
    again and expecting different results.
    Albert
    Einstein

41
Closing
42
QUALITY ASSURANCE AND THE SINKING OF THE LARGEST
OFFSHOREOIL PLATFORM March 2001
43
For those of you who may be involved in project
cost control (at whatever level),
44
please read this quote from a Petrobras
executive,
45
extolling the benefits of cutting quality
assurance and inspection costs,
46
on the project that sunk into the Atlantic Ocean
off the coast of Brazil in March 2001.
47
"Petrobras has established new global benchmarks
for the generation of exceptional shareholder
wealth
48
through an aggressive and innovative programme of
cost cutting on its P36 production facility.
49
Conventional constraints have been successfully
challenged
50
and replaced with new paradigms appropriate to
the globalised corporate market place.
51
Through an integrated network of facilitated
workshops,
52
the project successfully rejected the established
constricting and negative influences of
prescriptive engineering,
53
onerous quality requirements, and outdated
concepts of inspection and client control.
54
Elimination of these unnecessary straitjackets
has empowered the project's suppliers and
contractors to propose highly economical
solutions,
55
with the win-win bonus of enhanced profitability
margins for themselves.
56
The P36 platform shows the shape of things to
come
57
 in unregulated global market economy of the 21st
Century.
58
And now you have seen the final result of this
proud achievement by Petrobras.
59
  • QUIZ
  • How many lives were lost to this cost saving
    effort and how did this impact the environment,
    needlessly?
  • Did the person giving this speech or anyone in
    upper management connected with this decision
    lose their job/bonus?
  • How much did Petrobras really save?
  • Does your company have a cost saving effort? If
    so, youd better know how to swim.
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