Assignment Project Risk Management - Mr Anas Alam Faizli

Name: Anas Alam Faizli Student ID No. CGS 00385017Centre of Graduate Studies MPM Intake: January 2009

ASSIGNMENT – EMRM5103

MAY SEMESTER 2009

PROJECT RISK MANAGEMENT – EMRM5103

ASSIGNMENT

LECTURER

ASSOC PROF SAMIAPPAN MARAPPAN

STUDENT

ANAS BIN ALAM FAIZLI

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MAY SEMESTER 2009PROJECT RISK MANAGEMENT – EMRM5103

ASSIGNMENT (45%)

INSTRUCTIONS: ANSWER ALL QUESTIONS.

Part A

Question 1

Provide suitable definitions for the following terms:(a) Risk

The threat or probability that an action or event will adversely or beneficially affect an

organization or project’s ability to achieve its objectives. Simply put, risk is an uncertain

event or condition that, if it occurs, has a positive or negative impact on at least one

project objective.

In engineering, risk is often defined as Risk = (probability of an accident) x (losses per

accident) or in a more general terms, Risk = (probability of event occurring) x (impact of

event occurring).

(b) Uncertainty

The lack of certainty, a state of having limited knowledge where it is impossible to

precisely predict existing outcome or future outcome, where there is more than one

possible outcome.

(c) Frequency of loss

The number of occurrences of a repeating event per unit time which registers negative

number. The negative number is usually derived from the retail price and cost of

production.

(d) Severity of loss

The definition of loss is the act of losing, failure, destruction, privation, the loss of property,

money, loss of health or reputation. This definition remains true for the next questions.

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Severity is the degree of harshness or sternness of the unrecoverable and usually

unanticipated and non-recurring removal of, or decrease in, an asset or resource.

(e) Expected loss

Expected loss is also sometimes referred to as expected risks. It is a probability of loss or

risks that can be calculated.

(f) Potential loss

Potential is a wider scope of expected loss, which is not expected but the potential of the

loss and risks is evident to be there but can also be potentially mitigated.

(g) Loss distributions

Loss distributions are often calculated from the severity and frequency of the loss often

used statistically to explains the phases of the loss.

(7 marks)

Question 2

(a) Describe the key elements of a project.

The key elements of a project is that it is temporary, unique, has a duration of beginning

and end, cost and budget, involves resources and most importantly embodies risks threat

and opportunities. This is in opposite of operation, manufacturing or processes which is

repetitive, permanent or semi permanent functional works.

(b) Explain why projects have to be managed.

There are threats and risks for every project as it has variables which requires

management e.g costs, duration, manpower and its key performance indicators. Without

project management all this variables could not be planned, monitored, controlled and

executed properly to achieve project objectives.

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(c) Discuss the various reasons for project failures.

Among many, project failures are usually attributed due to project manager’s failure to

identify and manage risks. Risks when failed to manage threaten the project completion

parameters – within time, cost, and safety and as per project objectives. All this attributes

when failed to be managed contributed directly to project failures.

(6 marks)

Question 3

An organization has adopted the following standards for its project risk assessment and management purposes. Provide a critical evaluation of the standards.

The standards:

(a) Are process focused?

A project risk assessment conducted for management purposes should not be purely

process focused. It can be focused on the process but it needs to take into account the

overall project management which covers cost, design, quality, schedule, performance

through key performance indicators and other aspects. If not it risk becoming a pure

paper exercise and loss focus once the process change as the project progresses.

(b) Consider each procedure in isolation.

Viewing the procedure in isolation is acceptable if it is taken as a preliminary step of doing

the risk assessment. Project manager cannot run from the fact that each procedure will

interact with each other and produce other associated risks which needed to be tackled

and eliminated or mitigated. The best is to do the project risks assessment as much

integrated as possible and to minimize the chain reaction created by the interacting

procedures.

(c) Are single project oriented.

The project manager’s responsibility is to tackle individual project, and thus produce a

single oriented project risk assessment. However the findings can be distributed to other

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project manager and the project director for academic purposes and perhaps other project

might also have inter-related risks especially if the resources are on sharing basis like

equipment or manpower. Example, another project is suddenly delayed but is sharing our

resources. Should this happen, there is a risk for the project to lose on its resource.

(d) Emphasize risk quantification

This is important as management will always wanted quantity that they can rationalize and

digest. Saying that a particular risk is a high risk activity doesn’t send the message as

accurate as telling the management that we risk USD 4,000,000 if the equipment arrival

date is further delayed passing the deadline date.

(e) Primarily focus on methods and procedures, not people.

Project risks assessment should take into account the people that is involved in the project

as they represent the manpower and pose a risk to the project. Imagine the engineering

director suddenly decided to leave the company taking all the information in his hands and

left for a rival company?

(f) Do not factor cost and quality.

Cost and Quality is usually one of the key objectives of a successful project. It is wrong if

a project risk assessment which is to be presented to the management does not take this

into account. The cost and quality is critical that most of the associated risks linked to cost

and quality is usually ranked as very high in many organizations.

(g) Do not tie-up with business wide risks

A good project risk assessment includes business wide risks, however the contributor to

the business wide risks identification will have to come from the management level

personnel as they have more access and information to business wide related activities.

Usually the personnel that occupies managerial seat in the organization will be able to

contribute. The management will surely want to know how the project will affect its

business wide activities.

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(h) Do not incorporate contingency into planning.

A project risk assessment have to incorporate contingency into its planning, this can

mitigate the risk rating. It can also alleviate the risk impact and at times minimize the

probability. Not necessarily only one contingency is required for each risk mitigation,

having more than one is also encouraged.

(i) Do not view risk as opportunity.

Risks should be viewed as a threat and opportunity depending on its category, impact and

probability. A project risk assessment should identify all risks and categorized it as either

potential risks which can bring damage to the project and organization or treat it as an

opportunity that the organization and project can capitalize and gain profit on.

(14 marks)

Question 4

Provide brief descriptions of the following risk management tools and explain how they serve their purpose.

(a) The Project Scope document

Project scope document outlines works that need to be executed in order to achieve the

project’s objectives. It detailed out each individual works and task which needed to be

performed and also indicate which specification to be used. A good project scope

document covers in detail every aspect of the execution. If the project scope document is

too general, it will open up many rooms of arguments and the project owner might not get

what they want and will usually only get fit to purpose result and sometimes even less than

that. It is essential that the project scope document is understood by both parties – this

will ensure project is executed within cost, time and specification. In short, project scope is

the customer’s requirement manual.

(b) SWOT analysis

SWOT analysis is the analyzing of the strengths, weaknesses, opportunities and threats to

the projects. Strengths are the organization’s competencies and core capabilities,

knowing this is important to the project team to understand which risks and uncertainties

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that the organization has its history of overcoming. Weaknesses are important to identify

which risks and uncertainties that the organization will have problem in overcoming.

Opportunities are the converse of risk; there is no risk if there is not opportunity on the

other side. Threats are risk, simply put. In other words threats area all the risk factors that

the organization and the individual project faces. Having done the SWOT analysis will

beneficially serve the project team advantage to further tackles the project risks.

(c) Work Breakdown Structure

A work breakdown structure is a detailing out of work in a structural approach into

categories, where it will go from general as level 1 to as specific detailing in level 5. This

is done in an outline form. The top of the WBS is the first level of the work and represents

the final product of the project. The second level goes to serve basic components of the

project. The third level further breakdown the summary tasks which was outlined above

into two or more subtasks. The fourth level and fifth level goes further breaking and

detailing out the above tasks. The WBS serves as the framework that categorizes the risk

and upon rolling up from the bottom level to the top level will produce the deliverable. It

defines risks in a project at a level that risk can be identified, described and assesses

further giving project team better control in managing the risks within it categories.

(d) Task List with Estimated Durations, Linkages, and Resources

A task lists serves as the basic definition of each work and has duration and resource.

Each task lists will help build the network diagram as it will have its predecessor and

successors which structurally will outline the project schedule. This also serves as the

basis for identifying risk on each task, where it can be rolled up from bottom lowest level to

the highest top level.

(e) Risk Matrix

A risk matrix is a fundamental risk template that captures the essential risk information in a

project. It identifies all tasks involves and its risks. The matrix also gives impact (I) and

probability (P) marks on each activity ranging from 1-10. Both of this when multiplied

together gives a score from 1-100, P x 1 = (0-100). The last column on the risk matrix

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depicts the contingency plan. A risk matrix is critical to gauge each risk severity to the

project and enforce contingency plan that will be able to eliminate, if not lessen the

negative impact of the risk.

(f) Network Diagram

From the task list, a network diagram can be build. This can further be integrated with

other summary task diagrams to create the whole project network. A network diagram will

allow the project management team to analyze the early and late of each activity and also

helps identify the slack or float. This represents the flexibility of each activity and the

project manager can choose which activity to prioritize based on the network diagram.

Activities that have more risk should have more slack and the network diagram will serve

as the best tools for this identification purposes.

(g) Gantt Chart

The gantt chart is an easier to understand graphical representation of the network

diagram. The project team can easily have a view of the gantt chart and quickly identifies

which is the critical path and which activity tasks have the highest risk embedded to it.

This is one of the core processes of project risk management where risks are captured

and identified as part of the project planning process.

(21 marks)

Question 5

Describe the Project Risk Management Process.

(22 marks)

Project risk management process is an effective management of project risks both threat

and opportunities. The project management team will jointly develop a procedure or plan

that will enables them to identify, measure, quantify and prepare responses, monitor,

control and put in place contingency and mitigating plan of the associated risks.

Risk management should be an ongoing process which involves frequent reviews of

project risks and progress made in dealing with those risks. A good monitoring process

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will allows the project manager to check progress and indicates whether that risk are being

effectively mitigated or handled and if additional resources is required.

Project risk is an uncertain event or conditions that, if it occurs, have a positive or a

negative effect on at least one project objective. (Project Risk Management Handbook,

2007)

Project risk management process help project sponsors and team to make decisions with

regards to alternative approach when handling risks to ensure success chances is

increased.

Project risk management process is divided into six steps which are risk management

planning, risk identification, qualitative risk analysis, quantitative risk analysis, risk

response planning and risk monitoring and control.

Risk management planning is the first step in the project risk management process. It is

an important step and is critical to ensure that it is completed early during project planning.

The results of risk management planning are a risk management plan. It outlines and

details out risks, resources required and time involves for each risks.

Risk identification is the process of identifying project potential risks – threat and

opportunities which is documented in a live document called the Risk Register. Since it is

an iterative process and new risks might develop as the project progresses it is critical that

project team appointed a caretaker for the project risk register. It is best that every

participant in the project is involved during the first risk identification activities from all level

of project stakeholders. Everyone that is involved in the project has their own interest to

safeguard and by including everybody the project risk register will be able to capture all

risks that might affect the project.

The project team shall consider but not limited to:

- Threats : a risk that present negative impact to the project if it occurs

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- Opportunities: a risk that present positive impact to the project if it occurs

- Triggers: signs which indicate that a risk is becoming a certain event

- Residual risks: balance risk that is still there even after responding to original risks

- Secondary risks: this risks are caused by responding to original risks

- Risk interaction: when two risks interact causing more damage than each risk

individually

The next process involves is the Qualitative Risk Analysis which involves prioritizing the

identified risks, sharing the assessment with team members and placing risks with same

levels of probability and impact in a group. Project sponsor would determine how to

assess risks qualitatively and the team member would assess the identified risks with the

pre-set variables determined by the project sponsors.

Quantitative risks analysis is similar to qualitative risk analysis; however the probability is

numerically estimated. It usually involves statistical technique primarily Monte Carlo

simulation that are widely used and accepted. There is also specialized software to

assists the simulation.

Risk Response Planning is the step involves in developing options and actions to deal with

risks. It will also appoint responsible parties that will follow up in mitigating and responding

appropriately to the risks. The strategies vary when dealing with positive or negative risks.

When dealing with negative risks, the team can choose to avoid, transfer or mitigate the

risks. With positive risks, the team can choose to exploit, share or enhance the risks. A

strategy that can be used for both positive and negative risks are acceptance which is

active acceptance and passive acceptance.

The final step in risk management process is Risk Monitoring and Control. This process

starts and ends with the project. Every risk has to be monitored and controlled

accordingly.

Plainly put, project risk management process involves risk identification, risks handling,

risks monitoring and risks control.

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Part B

Question

You are appointed as the Project Manager at an automobile assembly plant responsible for the planning and execution of the development of a new engine, NE incorporating some breakthroughs the R&D team has discovered. External vendors CH and EB supply the cylinder heads and engine bolts, respectively, for the new engine. The remainder of the engine, including integration and testing, is to be done by your team and hence, is your responsibility.

Your task, based on the following hypothetical project description, is to create a project schedule, find the critical path, and to estimate the finish time of the project.

After the project start(a,0) you first have to complete the requirements definition(b,10) step. Next you will negotiate in parallel the cylinder heads specification(c,3) with CH and engine bolts specification(e,8) with EB; and undertake engine layout(d,10) internally in the company. The cylinder heads supplier, CH informs that cylinder heads delivery (g,30) can take place 30 days after you release the cylinder heads specification. The engine bolts supplier, BS informs that engine bolts delivery(h,10) can take place 10 days after you release the engine bolts specification. Once you have completed the engine layout you can start the fuselage design(f,12). Take note that to start the fuselage design you need to have the engine layout, the cylinder heads specification, and engine bolts specification done.

Once the fuselage design is completed you can do engine integration(i,5). Prototype testing(j,20) follows completion of engine integration and leads to the end(k,0).

Notes:

i. task descriptions are in italicsii. (n,25) means the task is tagged as “n” and is expected to take 25 work days.

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(a) Construct a task table from the NE project description. Clearly designate each task with its tag, description and identify immediate predecessors and expected task completion times. Try to arrange the task table in “technological order”.

Task Duration Early Start

Early Finish

Type Predecessor

a. Project Start 0 days 0 0 Sequentialb. Requirements definition 10 days 0 10 Sequential ac. Cylinder heads

specification – with CH3 days 10 13 Parallel b

d. Undertake engine layout – internal

10 days 10 20 Parallel b

e. Engine bolts specification – with EB

8 days 10 18 Parallel b

f. Fuselage design 12 days 20 32 Sequential c,d,eg. Cylinder heads delivery 30 days 13 43 Sequential ch. Engine bolts delivery 10 days 18 28 Sequential ei. Engine integration 5 days 43 48 Sequential f,g,hj. Prototype testing 20 days 48 68 Sequential ik. End 0 days 68 68 Sequential j

Task Early Start

Early Finish

Late Start

Late Finish

Float Status

a. Project Start 0 0 0 0 0 Criticalb. Definition 0 10 0 10 0 Criticalc. Cylinder heads

specification – with CH10 13 10 13 0 Critical

d. Undertake engine layout – internal

10 20 21 31 11

e. Engine bolts specification – with EB

10 18 23 31 13

f. Fuselage design 20 32 31 43 11g. Cylinder heads delivery 13 43 13 43 0 Criticalh. Engine bolts delivery 18 28 33 43 15i. Engine integration 43 48 43 48 0 Criticalj. Prototype testing 48 68 48 68 0 Criticalk. End 68 68 68 68 0 Critical

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(b) Create a project graph.

PROJECT GRAPH

Figure 1 – shows the project graph taken from the list of activity tasks above.

(c) What is the earliest completion time for the project as a whole (in units of work days)?

The earliest completion time for the project as a whole is 68 work days. This is

indicated from activity a to activity k. This is calculated from the critical path which

is the greatest total duration in the project.

(d) What is the critical path? Explain what this means to you as the project manager and where you will focus your attention.

The critical path involves tasks a – b – c - g – i – j – k

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The critical path is the activities that are linked together from start to end of the

project with zero slack or float. Another method to see this is by looking at the path

which passes through the network with the greatest total expected duration which

is the path above that contributed 68 work days. This activity generally is the

sequence of activities that determines the duration of the project. Priority should

be placed on critical path activity as delay to the activity will affect the entire

completion date of the project.

The project manager should find a way to start the engine layout which is done

internally as much as parallel / concurrent with the requirement definitions stage,

this will give the project manager more float, minimizing activity d will totally

shorten the project duration.

Activity j, testing should also be minimized by the project manager. Instead of

having to wait all parts completed, the project manager should have separate

testing for individual components.

Once all components are completed a combined test can be done and this will

minimize the work days taken for doing the testing. Preliminary design as a basis

for order can also be considered for the project manager to get better delivery

dates from the vendors.

Noticed that the activity cylinder head delivery also contributed the biggest duration

in the critical path network. If the specification and delivery can be shortened it will

definitely bring down the total project duration. Equipment delivery date can be

improved by ordering up-front the materials and paying extra premium to the

vendor. If the delivery duration of 30 days can be reduced, and as it is in the

critical path, the whole project duration will also be reduced.

Having undertaken these steps, the project manager should be able to minimize

long lead activities and complete the project in shorter working days.

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(e) Assume that you have just completed all tasks up to and including engine integration(i). You are now going to carry out testing(j). Based on previous experience, the completion time for this task j is somewhat uncertain. The task duration time from previous projects is shown in Table 1.

CompletionTime in Days

Frequency

14 316 418 620 1022 824 626 4

Table 1: Completion Time for Task j

What is the probability that you will be able to complete the project ahead of the earliest time that you have obtained in (c) above by a week?

In order to calculate the probability of completing the project ahead of the earliest time by

a week we need to calculate its best and worst duration. Derive the standard deviation

and calculate its probability. Since we do not have the frequency and data for other

activity in the critical path, we will assume other activities do not have a standard deviation

and the standard deviation only applies for activity j.

First, calculate the best and worst duration as per table below:Completion

Time In Days

Frequency

PROBABILITY Pr (x = x )

EXPECTED VALUE EV (x)

14 3 3/41 1 1/41 Best Duration16 4 4/41 1 23/41

18 6 6/41 2 26/41

20 10 10/41 4 36/41

22 8 8/41 4 12/41

24 6 6/41 3 21/41

26 4 4/41 2 22/41 Worst Duration

SUM= 41 1 20 18/41

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From the table below it is established that 14 days is the best duration for activity j while

26 is the worst duration.

Now, we need to calculate the expected duration for activity j.

Activities on

Critical Path

Best duratio

n

Duration

(mean)

Worst Duratio

n

Expected

Duration

Standard Deviatio

n

Var

Remarks

a 0 0 0 SD is assumed as =0, not givenb 10 0 0 SD is assumed as =0, not givenc 3 0 0 SD is assumed as =0, not giveng 30 0 0 SD is assumed as =0, not giveni 5 0 0 SD is assumed as =0, not givenj 14 20 18/41 26 20 2 4 Given that j, ED=7k 0 0 0 SD is assumed as =0, not given 68 2 4

Expected duration = Mean = 20 18/41 = 20.44

Standard deviation = WD – BD / 6 = (26-14)/6 = 2

It is now established that the expected duration is 20.44 and the standard deviation is 2 for

activity j.

Expected total duration is = all duration from critical path activities

= a + b + c + g + I + j + k

= 68 days

Duration is X

Probability of completing 1 week ahead of time: P (X = 68 -7)

Assuming that the duration is a normal distribution, P (X – 68 / SD)

P (X – 68 / 2)

P (Z < - 7/2)

P (Z < -3.5)

From the Z Table it is derived that the P = 0

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Conclusion, it is impossible and there is no probability that the project could be completed

ahead of time by one week.

The fastest way to view this is that the earliest completion of activity j ever achieved is still

only 14 days which will only give 6 days slack to the total duration, which still render it

impossible to complete the project ahead by 1 week.

(30 marks)

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Assignment Project Risk Management - Mr Anas Alam Faizli

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