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Chapter 7
Managing risk and quality
Learning objectives
• discuss the importance of risk in a project and how it
can be managed
• explain the processes of risk planning, risk assessment
and risk control
• describe tools used in risk management and how to use
them effectively
• explain the process of contingency planning in project
management
Learning objectives (continued)
• discuss the importance of quality to project management
• explain three important quality management processes
• outline key contributions to quality management by
Deming, Juran and Crosby
• explain how to determine the total cost of quality
• describe simple tools used in statistical process control
and how to use them effectively
Risk and risk management
• A project risk is often described as:
– any event with an undesirable outcome for the project
that may happen sometime in the future.
• The 2000 edition of the Guide to the Project
Management Body of Knowledge (PMI, 2000)
states that a project risk is:
– an uncertain event or condition that, if it occurs, has a
positive or negative effect on a project outcome.
The two categories of risk
• Speculative risk - meaning a chance of a
loss or chance of a profit
• Pure risk - meaning only a chance of a loss
The risk management plan will
take account of risks arising from
3 principal sources:
1) Factors under project control
2) Factors in the wider external environment
which are only controllable by decision
makers elsewhere
3) Factors that are essentially uncontrollable
Project risks are characterised by
the fact that:
• they are usually at least partially unknown
• they change with time
• they are manageable, in the sense that action
may be taken to change their impact
• they exist only in the future tense – there are
no past risks, only actual occurrences
• they exist in all projects.
Risk management is about
balancing the harmful effects of
risk against potential project
benefits.
Risk management can be divided
into two types of activities:
• Risk assessment activities
• Risk control activities
Risk assessment
• The following activities are associated with
risk assessment:
– Risk identification
– Risk analysis
– Risk prioritisation
Identification of risks
• The process of risk identification should:
– examine all areas of a project in a systematic
manner
– be proactive rather than reactive
– use information from all available sources. For
example:
• previous lessons learned files and other historical
information about the project and its context
• all planning outputs to date including work breakdown
structures, schedule and cost plans
• the project charter, industry-wide and organisation-wide
risk checklists
• feasibility reports
Risk analysis
• About establishing the probability of
occurrence and the impact of occurrence of all
identified project risks
• Once these two variables have been
determined, the risk exposure of the project to
each risk can be calculated using the equation:
– Risk exposure = probability of risk x impact of risk
Risk prioritisation
•
This method should consider the following three
factors:
1) Probability of the risk occurring
2) Impact of the risk – which can be broken down
further, for example, into:
•
•
•
impact on schedule
impact on cost
impact on performance
3) Cost and resources required to mitigate the risk
Tolerability of risk (ToR)
• A ToR framework defines three bands of risk: intolerable,
tolerable and negligible
Risk response planning
•
Purpose is simply to bring organised, purposeful
thought to the subject of:
–
–
–
–
•
•
eliminating risk wherever possible
isolating and minimising risk
developing alternative courses of action
establishing time and money reserves to cover risks that
cannot be avoided
The output of this process is a risk response plan
There are six types of response to risk:
1. Avoidance
2. Mitigation
3. Acceptance
4. Transfer
5. Absorption or pooling
6. Knowledge and research
Contingency planning - if all else
fails…
• A contingency plan should identify:
– alternative resources and/or processes for completing
mission critical tasks (for example using manual labour
for a task that has been automated)
– resources needed to launch and maintain such processes
– lead time for the substitute processes to become
functional
– trigger point that causes a contingency plan to be
activated
Quality management
About managing the quality of the products, services
and processes associated with a project
International Organisation for
Standardisation (ISO)
• The ISO standards specify the requirements which
determine what elements a quality system has to contain
- but do not specify how a specific company should
implement them
• The basic approach to quality management used in a
project should be compatible with ISO and with
approaches to quality management such as those
recommended by Deming, Juran and Crosby
Deming
Plan-do-study-act cycle
Juran
fitness for purpose
Crosby
•
•
Best known in relation to concepts of ‘do it right
first time’ and ‘zero defects’
Based on four absolutes of quality management:
1) Quality is defined as conformance to requirements,
not as ‘goodness’ or ‘elegance’
2) The system for causing quality is prevention, not
appraisal
3) The performance standard must be zero defects, not
‘that’s close enough’
4) The measurement of quality is the price of
nonconformance, not indices
The cost of quality
•
There are three elements to the cost of quality:
1. Prevention costs
2. Appraisal costs
3. Failure costs
•
The total cost of quality is the sum of all three.
Total cost = Failure + Appraisal + Prevention
of quality
costs
costs
costs
Quality control tools
• Are helpful to identify, quantify and then reduce
the costs of quality
• Primary aim is to assure satisfactory quality in
all processes
• Designed to be easy-to-use tools for quality
control, which can be used by anyone involved
in a project
The tally sheet (or tick chart)
The Pareto chart
A scatter diagram
Control charts