Risk management exercise for project teams

And Saralee Newell, PMP, PSM Consulting

Introduction

Risk management meetings are one of the things project managers and project teams try to avoid. This is, of course, the opposite of what is done in well run projects. Risk management must be done on a continuous basis from the beginning of the project all the way to closeout. In projects, risks can be identified at any time during the life of the project. Risks that were identified at the beginning of the project may have already happened or they may be yet to happen or they may not happen at all. It is therefore critical to good project management to do risk management periodically all through the project.

What we mean by this is that periodic meetings should be held where existing risks are evaluated for the possibility that they will or will not happen in the future, the probability and impact of each of the risks is re-evaluated and the relative importance of the risk is changed if necessary. During these reviews the risk strategy is also reviewed to determine if the strategies already selected for managing the identified risks are still appropriate. At the same time, any newly discovered risks are added to the list of risks already identified.

It may be necessary as a result of the risk review meeting that the evaluation and strategy determination of particular risks must be expanded and elaborated upon by a separate and more extensive effort. Referring to the concept of the Pareto technique where 80% of the cost of quality defects is caused by only 20% of the problems. We can extend Pareto's thinking and say that 20% of our project risks will cause 80% of the cost of risks. We must, however, consider all of the risks for identification and none of the risks should be left out of our risk management plan unless they are properly evaluated and re-evaluated periodically.

One of the reasons for the lack of desire to do risk management is because the meetings are frequently boring and take away from the time we want to spend completing activities on the project. No one wants to go to any more meetings, especially meetings that discuss problems that have not yet taken place. With this attitude toward risk management meetings, it is no wonder that no one wants to attend. Usually, through wish fulfillment, the meetings are indeed dull and boring and don't accomplish much. The problem is that these meetings are important. It would improve risk management considerably if we could motivate people to attend the meetings and participate in them when they did.

The purpose of this paper is to give the attendees a tool that will allow them to have good participation in risk management meetings, do an improved job of identifying and quantifying risks, get them into a ranked order, and take the first step toward establishing a strategy for dealing with them.

If risk meetings are tiresome and boring the participants will be bored and tired. By using the case study that we are demonstrating in this presentation as a kick off meeting we can show the project team that risk management does not have to be the boring, tedious meetings that we are used to. At the same time we will be able to easily move to using the same technique for initially managing the risks of a real project.

The participants are welcome to use the technique and the case study of Liz Taylor's next wedding as a kick off meeting to discuss the risk management of a project. Once the kick-off risk meeting has been held the project team can get down to applying the same technique to meetings about the relevant risks of their real projects. It is important that the risk kickoff meeting exercise have nothing to do with the real project. In fact it should have nothing to do with the industry that the project is in. It should allow the participants to get a step away from the project and have a little fun. If this happens it will give them a pleasant memory to associate with the risk management meeting.

This demonstration will give the attendees experience in participating in a risk exercise that will identify, evaluate, prioritize and decide on a risk response strategy for project risks for a case study of a project. The project case will be to examine the risks associated with the events of the day of the next marriage of Elizabeth Taylor.

The Case Study

Many times project teams learn to dislike risk meetings. The demonstration that the attendees will participate in will show that risk meetings can be enjoyable as well as productive. This will be done by keeping the meeting upbeat and productive.

The attendees at the presentation will be given a description and set of ground rules for the project, the marriage of Liz Taylor. They will be given information to create the environment of the project, an explanation of the work that has already been done, the assumptions and constraints of the project. The attendee project team will be responsible only for the activities on the day of the wedding.

Ground Rules

There are not many ground rules for the exercise.

  1. The facilitator must try to convince everyone to participate and try not to let one person dominate the discussion.
  2. No risks should be rejected. Part of the fun is to have the participants think up things that could happen at the wedding that are a bit on the absurd side.
  3. To limit the number of risks the participants must limit the risks to those that can occur on the day of the wedding.
  4. The participants must be reminded that when they identify a risk it should be stated in a way that it can be quantified.

Project Description

It is spring and Elizabeth Taylor has decided to tie the knot and get married once again. This will be Liz Taylor's 9th marriage. That is if you count her marriage and remarriage to the same person as separate marriages. She married Richard Burton two times, in 1964 and again in 1975. They were of course separate weddings. Liz wants the wedding to be a great success because it may be her last shot at happiness and it may be her last chance to have a really big wedding.

As the project manager we are responsible for the events that take place on the day of the wedding. We are not responsible for the events that take place prior to and after the wedding. We are not responsible for the prenuptial agreement, purchasing the wedding rings, inviting the guests or arranging for the honeymoon. We are responsible for arranging all of the events that take place on the day of the wedding. These include, but are not limited to, making arrangements for the following:

Wedding Ceremony

Who is going to officiate?

Wedding music during the ceremony

Food

Catering food in the welcoming area, the wedding area, the entertainment area

Catering a sit down dinner after the wedding

Main wedding cake and mini wedding cakes for each table

Beverages

Providing alcoholic and non-alcoholic drinks in all areas

Entertainment

Small band music prior to the wedding

Dance music after the wedding

Michael Jackson and his backup band

The New York Philharmonic Orchestra

The Blue Angels

Party Favors

Small gift for each of the guests

Larger gift for each of the members of the wedding party

Small gifts for staff

Large gifts for local police

VIP Transportation

Special transportation for distinguished guests:

President of the United States

Yasser Arafat of the Palestinian government

Queen Elizabeth II of Great Britan

President Putin of Russia

Former President Jimmy Carter

Former President Gerald Ford

Donald Trump

14 United States Senators

114 United States Congressmen

The Gotti Family

Debbie and Kelly O'Bray

Cathy Tonne

Security

Perimeter security from paparazzi

Internal security for unruly guests

Terrorist attacks

Contamination of food and drink

Air security

Parking lots

Medical Care

Emergency medical staff

Emergency infirmary

Private doctor for bride and groom

Clothing

Liz Taylor's dress

Groom's clothing

The wedding party

Dressers for hair, make up and clothing

Location

The wedding is to take place outdoors at Liz Taylor's mansion which is on 10 acres of landscaped lawns and gardens in Beverly Hills, California.

Decorations

Flowers and decorations inside house

Flowers and decorations outside house

Wedding flowers for Bride

Flowers for wedding party

Risk Management Exercise

With the help of the presenter/facilitator, the attendees will use the brain storming technique to list the risks that they think are associated with the project. The facilitator will list the risks on a flip chart or suitable display device.

Exhibit 1

Exhibit 1

Identification

Referring to Exhibit 1, a flip chart is used to write down all of the risks that the participants name. It is very important that the principles of brainstorming be used. That is that ANY risk that is mentioned is allowed to be listed. It is important that the participants be encouraged to add risks to the list that are a bit on the absurd side. This will increase the entertainment value of the exercise. The facilitator must guide the participants to stay within the scope of the project. That is, the participants should not list risks that are not within the scope of this project. Risks that should be excluded are risks that occur off the wedding property or risks that take place before or after the wedding day. The facilitator must be careful not to judge the mentioned risks and not allow the other participants to judge the risks.

The brain storming session continues until the fist page of the flip chart is filled with identified risks. When all of the risks have been listed the attendees will be asked to evaluate the risks listed. Both the probability and the impact of each risk are to be evaluated qualitatively. In qualitative analysis the impact or the probability of each risk can be evaluated as high or low, low, medium or high or on a scale of 0 to 10. We have found that evaluating the risks on a scale of 0 to 10 works best. A value of 0 means that there is either no impact or a zero probability for the risk. A value of 10 means that the probability for the risk is 100%, a virtual certainty. Risks that have an impact or probability of 0 are insignificant and can be eliminated from further consideration. Risks that have a probability of 10 are a certainty and should be included in the project plan. They are not risks.

Evaluate Probability and Impact

It is best to evaluate the impact of each risk first. This discussion will expand everyone's understanding of the nature of the risk. For example, someone will probably name rain as a risk. When the impact of the risk is evaluated some participants will name the impact as a 10 and others will say that the impact is a five. The facilitator can question the two values by saying, “What do you mean by that?” One of the participants may mean that rain is any rain at all, even a small amount while another may say that rain means a really gully washer.

Rather than take too long to evaluate each probability and impact, encourage each participant to yell out a number and then pick one that is some place in the middle.

Evaluation of Severity

Once the probability and impact have been listed on the flip chart, the severity can be calculated. This is done by simply multiplying the value for the risk in the impact column by the value in the probability column.

Ranking the Risks

Looking over the list of risks and their severity, mark the rank of the four or five highest severity risks. There will usually be a break where there will be four or five risks that have a quite high severity and the rest will be noticeably lower. It is not necessary to rank all of the risks.

Setting Risk Strategy

Going over the four or five highest ranked risks, and starting with the highest ranked one, ask the participants what they would do about it. The participants will give ideas of things that could be done. Encourage them to consider mitigation strategies of reducing the probability or the impact or both. Transfer and avoidance strategies can also be used. The risks that are ranked lower are perhaps risks that could be accepted.

Wrap Up

Explain to the participants that this process is the same process that can be used to evaluate the real risks of a project. Once they have tried to do risk analysis for Liz Taylor's next wedding they will understand that risk management does not have to be a long boring process where everyone fights with everyone else. The meetings can be interesting and fun and still be productive.

The technique, when used exactly the way it is described, but for real projects with real risks, will give a good qualitative ranking of the risks. This qualitative ranking is good enough to give the project team guidance as to which of the identified risks rank very high in the order of importance. These risks should be studied further by separate groups. Lower ranked risks should also be evaluated separately to validate that their low rank is indeed low.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2004, Michael Newell, PMP
Originally published as part of the 2004 PMI Global Congress Proceedings – Anaheim, California

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