SBM12021 Workshop Schedule

Transcription

1 SBM12021 Project Management Fundamentals 4

2 Copyright Notice Please note that the material contained in the proceedings is protected under the Copyright laws. No part of the material may be reproduced or copied or applied in any way other than for the study purposes, unless authorised in writing. While the College has taken all necessary care to ensure the suitability of this material for the purposes of the workshop, it does not provide any warranty as to their relevance to individual cases or their contents whatsoever; all users will use the information included in this document at their own risk. 2

3 SBM12021 Workshop Schedule Day 1 Workshop Starts: 9:00 9:00 9:15 Introduction to course aims, objectives, target competencies, learning strategies, resources available, timetable and deliverables, assessment methods and related briefings 9:15 9:45 Briefing on how to conduct each phase and the entire unit of study Target Competencies Learning Modes & Peer Competency Tutorials and case study assignments 9:45 10:30 Lecture 1: Overview of project quality, risk and procurement management 10:30 11:00 Morning Break 11:00 12:00 Lecture 2: Project/program quality management 12:00 13:00 Lunch 13:00 14:00 Review of project/program quality management 14:00 16:00 Tutorial 1: (a) review the lecture materials and present 10 key points on managing quality within the project strategic framework (b) determine the scope of quality management broadly (high level) on the example project (c) apply the above to the example project, determine optimum quality management strategies and map processes and phases for management of quality 16:00 17:00 Class discussion of tutorial work Day 2 Workshop Starts: 9:00 9:00 10:00 Lecture 3: Project/program risk management fundamentals 10:00 10:30 Tutorial 2: Review the lecture materials, debate in your group and present 10 key points on managing risks within the project strategic framework 10:30 11:00 Morning Break 11:00 12:30 Lecture: Project/program risk management practice 12:30 14:00 Lunch 14:00 17:00 Group presentation of tutorial 2 and consolidation of the results 17:00 17:15 Feedback Tutorial 3: (a) group work on developing a high level plan for risk management of the example project and preparation for group presentation (b) group presentation and class discussion, as well as consolidation of the findings, all rights are reserved. No part of this document may be reproduced without permission. 3

4 Day 3 Workshop Starts: 9:00 9:00 10:00 Lecture 4: Project/program procurement management 10:00 10:30 Tutorial 4: Review the lecture materials, debate in your group and summarise 10 key points on procurement management within the project strategic framework 10:30 11:00 Morning Break 11:00 12:30 Tutorial 5: (a) group work on developing a high level procurement management plan for the example project (b) presentation of the results as well as class discussion 12:30 14:00 Lunch 14:00 17:00 Tutorial 6: (a) group work on combining quality, risk and procurement management of the example project (b) presentation of the results as well as class discussion 17:00 17:15 Feedback Day 4 Workshop Starts: 9:00 9:00 10:30 Assessment of individual competencies with regard to project/program quality, risk and procurement management 10:30 11:00 Morning Break 11:00 12:30 Review and revision of all work covered, application to Project Phase of the unit 12:30 14:00 Lunch 14:00 15:00 Reinforcing learning outcomes and application of the same to forthcoming team project 15:00 17:00 Conduct of written test on management of project/program scope, time and cost management structures and associated administrative arrangements 17:00 17:15 End of Course Evaluation and Feedback, all rights are reserved. No part of this document may be reproduced without permission. 4

5 SBM1202 Project Management Fundamentals 4 (Project/program quality, risk and procurement management) UOS CODE SBM1202 UOS NAME Project Management Fundamentals 4 CREDIT POINTS 6 STATUS Core SUMMARY This unit of study focuses on 3 core project/program management knowledge and competency areas, namely (1) project quality management; (2) project risk management; and (3) project procurement management. The aims are to develop basic project management competency with focus on these core areas. In short, students are to develop fundamental knowledge and competency with respect to: Project/program quality management Project/program risk management Project/program procurement management Integration of project/program quality, risk and procurement management The Project Management Body of Knowledge (PMBOK ) treats quality, risk and procurement management as the facilitating areas of project management, in other words used as tools to achieve the scope, time and cost objectives. APIC treats these as tools to achieve the greater goals of the project in terms of financial targets, performance targets and environmental targets. In other words, the focus is shifted from project management to project outcomes and from execution to whole of project life cycle. With respect to project quality management the focus will be on designing and applying an optimum quality management master plan covering the entire project life cycle and using that deriving quality management plans to cover each of the phases of the project/program under consideration in a manner that maximises the attainment of the project business case in an efficient and effective manner. At the highest level quality management activities will have to form part of the overall project administrative and governance plans. However, QM has to address the work that is contributed by any contractor/supplier at any phase and to ensure that the quality of works and services supplied meets or exceeds the targets sets during the strategic phase of the project. With reference to project risk management the focus will be on the delivery of the project business case and achievement of the project objectives. This will shift the focus of risk management from the rather limited view of managing risks during the project/program execution phase. It is treated as a creative and exploratory process to guide the project team in learning new insights about the project and means of mitigating exposure to risk and liabilities. COURSE CONVENOR COURSE TUTOR ASSUMED KNOWLEDGE APPROXIMATE WORKLOAD PRE-REQUISITE (course name) OBJECTIVES Considering procurement management, the focus will be on the delivery of the business case and the achievement of the project objectives. It will discuss the process for optimum procurement management including complete contractual strategy, design and delivery framework for projects/programs. It includes understanding and designing frameworks for project delivery and supply chain, developing procurement strategies and processes spanning soliciting bids, assessing bids and awarding contracts, on-going contractual management and all associated activities. This workshop is fundamental to understanding the crucial role of quality, risk and procurement management functions as tools in minimisation of deviations to project goals and maximisation of the chances for successful realisation of project/program deliverables and outcomes. Professor A Jaafari Not applicable Lectures & Team Work Personal Work Readings Workshops 30 hours >60 hours >60 hours >60 hours None. TBA Upon completion of the course, the student should:, all rights are reserved. No part of this document may be reproduced without permission. 5

6 TARGET COMPETENCIES (Project and Program Management)) Demonstrate knowledge and basic competency in relation to project/program quality management Demonstrate knowledge and basic competency in project/program risk management Demonstrate knowledge and basic competency in relation to project/program procurement management Ability to apply tools/techniques to projects/programs in the work environment, including setting up relevant systems and controls to manage quality, risk and procurement functions in each phase in an integrated manner Target competencies in this unit of study comprise the following: Project quality management Undertake QA/QC planning Apply quality tools and techniques to manage quality Undertake quality control and monitoring Undertake quality documentation and closure Project risk management Undertake risk management planning Apply risk management tools and techniques to manage risks Monitor and control risks Undertake risk management documentation and closure Project procurement management Plan project/program procurement Apply project/program procurement, tools and techniques to manage procurement Monitor and control procurement Complete project procurement and documentation TARGET COMPETENCIES Generic: All competencies that are common to all professionals (including cognitive and communication abilities, problem solving and analytical mindset) (Personal and Sociocultural) Leadership: Ability to direct, motivate & manage individuals & teams. Commitment: Ability to dedicate to tasks & to project outcomes. Attitude: Ability to create the right frame of mind that promotes integrity & support for achievement of project goals within a social context. Self Direction: Ability to manage witin and without guidelines & processes, and to work without supervision. Learning: Ability to commit to continuous improvement in knowledge, skills & attitude, & to creating new knowledge developing skills & approaches. Cultural Empathy: Ability to respect for & accommodation of individual lifestyle, beliefs & norms. Creativity & Innovation: Capacity to generate new ideas/approaches & make them happen. MODES OF Upfront intensive workshop (4 days) DELIVERY Project and team based flexible work facilitated via the Internet (over 10 weeks) Face-to-face formal assessment (one week) ASSESSMENT 1. Formal knowledge test 2. Team project submissions (formatted as per specification for the same), 3. Formal PM competency assessment 4. Formal Leadership & Socio-cultural competency assessment PRESCRIBED FOR THE COURSE SELECTED REFERENCES PRINTED MATERIALS Learning material (lecture notes, slides, case study and other material provided online). Case project (students own case project subject to endorsement) Brief for team projects PMI, A Guide to Project Management Body of Gray and Larson (2008). Project Management: A Managerial Approach, McGraw Hill. Turner, R J. Handbook of Project-based Management, McGraw Hill. Lewis, J P (1995). The Project Manager s Desk Reference. McGraw-Hill, 1995 (ISBN: 1-, all rights are reserved. No part of this document may be reproduced without permission. 6

7 WEB SITES Knowledge (Latest edition) National Competency Standards in Project Management (obtained from the Australian Institute of Project Management). IPMA, International Competence Base (ICB). P2M, Project and Program Management for Enterprise Innovation, PMCC, Japan Other learning materials and resources No single Web site presents all the necessary knowledge that students need to learn and apply. However, opposite are some useful sites to visit ) Dinsmore, P C (1993). The AMP Handbook of Project Management. American Management Association, 1993 (ISBN: ) Online useful sources of references are: Students are expected to conduct own search and locate useful web sites. The following are just a sample of such sites: es/index.cfm home.htm m Software N.A. Simple software such as Microsoft project, electronic spreadsheets are recommended COURSE CONTENTS Intensive Phase Day 1 Day 2 Day 3 Day 4 Introduction to course aims, objectives, target competencies, learning strategies, resources available, timetable and deliverables, assessment methods and related briefings Briefing on how to conduct the entire unit of study Lecture: Overview of project/program quality management over project life cycle phases Lecture: Project/program quality management Tutorial on project quality management Lecture: Project/program risk management fundamentals Lecture: Project/program risk management practice Tutorials and coursework on project/program risk management Lecture: Introduction to project/program procurement management Lecture: Review of project/program procurement management Tutorials and coursework on project/program procurement management Self and peer competency assessment on project/program quality, risk and procurement management Revision and preparation for test Reinforcing learning outcomes and application of the same to forthcoming team project Conduct of written test on fundamentals of project quality, risk and procurement, all rights are reserved. No part of this document may be reproduced without permission. 7

8 management Students feedback on the intensive phase Teamwork phase For the purposes of learning project/program fundamentals in an integrated and meaningful manner, students will assume responsibility for developing a detailed plan (covering strategic assessment, initiation, planning, execution and close out) for a single case project. In order to spread the load, different areas of the case project will be addressed in SBM1101, SBM1102, SBM1201 and SBM1202 respectively, though the eventual Project Plan that emerges from the team s work should be a holistic and balanced solution NOT a collection of disaggregated plans. A structured learning program will be applied; in summary form it will comprise: An overall process for studying project quality, risk and procurement management in each phase to apply to a real life case project as advised in the unit s web site; A program of the learning activities which are part of student s Team Workplan and individual competency acquisition needs which each student need to plan to conduct flexibly within the unit of study timeline as advised in the unit s web site (detailed schedules are to be developed and submitted as part of the Team Work/QA Plan) The assignment Brief which is available as a downloadable file. The Learning activities are designed for each team to develop and evaluate a complete project/program quality, risk and procurement management plan* for their case project via the following activities: Assessment of learning styles and team roles, and balancing of team development of self management and socio-cultural/teamwork competencies Team Formation, Case Project selection and team QA/Workplan Case Project Summary, QA/Workplan Activity 1 Best Practice Models vs. Case Project Requirements Submit Assignment 1 Activity 2 Initiation Plan for Quality, Risk and Procurement Management of Case Project Submit Assignment 2 Activity 3 Detailed Plan for Quality, Risk and Procurement Management of Case Project Submit Assignment 3 Activity 4 Evaluation, Formatting and Presentation of Project Report Submit Assignment 4 Continuous reflection, self and peer assessment and competency acquisition. Final Individual Report and Viva to validate competencies acquired versus target competencies *. This component plan need to take that developed in SBM1101, SBM1102 and SBM1201 and expand it to include quality, risk and procurement management plan for each phase of the case project/program COMPETENCY VALIDATION (via evidence and professional interview) Final Report & assessment Each student must plan to progressively acquire, develop and document target managerial and leadership/socio-cultural competencies. The protocols on the web site for this purpose need to be followed carefully to prepare the required evidence of competency acquisition. The evidence for this unit to comprise a final report in two parts to validate individually the following: Specified target competencies and Leadership and Socio-cultural competencies. These will be assessed separately and both need to show the student s development history using the student s L&D plan as the basis., all rights are reserved. No part of this document may be reproduced without permission. 8

9 Slide 1 Asia Pacific International College Home of Transformative Education and Development SBM1201 Project/Program Management Fundamentals 4 Introduction & Briefing Slide 2 Focus The role of project/program quality, risk and procurement (QRP) management Fundamentals of QRP Tools and techniques used 9

10 Slide 3 Scope This workshop addresses: Project QRP management strategy and high level plan Developing QRP plan to meet known standards Management of QRP during project planning & implementation Slide 4 Approximate workload & Course Convenor Depends on the person s background As a rough guide, minimum hours needed are: Intensive phase, 30 hours (4 days) Teamwork, 60 hours Individual work, 60 hours Reading, preparation, 60 hours Course Convenor and Tutor: Prof. A. Jaafari 10

11 Slide 5 Objectives Demonstrate knowledge and basic competency in relation to: project/program quality management project/program risk management project/program procurement management Ability to apply tools/techniques to projects/programs in the work environment, including setting up relevant systems and controls to manage quality, risk and procurement functions in each phase in an integrated manner Slide 6 Target competencies - personal & sociocultural Generic: All competencies that are common to all professionals (including cognitive and communication abilities, problem solving and analytical mindset) Leadership: Ability to direct, motivate & manage individuals & teams. Commitment: Ability to dedicate to tasks & to project outcomes. Attitude: Ability to create the right frame of mind that promotes integrity & support for achievement of project goals within a social context. Self Direction: Ability to manage within and without guidelines & processes, and to work without supervision. Learning: Ability to commit to continuous improvement in knowledge, skills & attitude, & to creating new knowledge developing skills & approaches. Cultural Empathy: Ability to respect for & accommodation of individual lifestyle, beliefs & norms. Creativity & Innovation: Capacity to generate new ideas/approaches & make them happen 11

12 Slide 7 Target competencies managerial and technical Unit Code Element Project quality management A1 A2 Undertake QA/QC planning Apply quality tools and techniques to manage quality A3 Undertake quality control and monitoring A4 Undertake quality documentation and closure Project risk management B1 Undertake risk management planning B2 Apply risk management tools and techniques to manage risks B3 Monitor and control risks Project procurement management B4 C1 C2 C3 C4 Undertake risk management documentation and closure Plan project/program procurement Apply project/program procurement, tools and techniques to manage procurement Monitor and control procurement Complete project procurement and documentation Slide 8 Workshop process & framework Introduction & Learning Framework Knowledge Acquisition & Alignment Consolidation Benchmarking Knowledge Testing & Certification Feedback See Workshop Program for details of activities in each day 12

13 Slide 9 Workshop assessment Knowledge acquisition extends well beyond workshop A written test will be conducted on Day 4 Recommend all to prepare & sit for the test to gauge own knowledge A pass mark (50%) is needed for progressing to the next phase Slide 10 Conclusions Workshop participation is critical to learning & development It opens up the subject unit, defines and lays out the learning framework, covers the fundamentals, engages you in group deliberations and provides a social context to meet fellow students It provides an opportunity to gauge your knowledge and align yourself with others in your team Guidance for enhancement of self learning will be provided Written test assesses your knowledge in comparable fashion and provides feedback Participants to own the workshop and participate actively 13

14 Slide 1 Asia Pacific International College Home of Transformative Education and Development SBM1202 Project/Program Management Fundamentals 4 Overview of Project Quality, Risk and Procurement Management 14

15 Close-out Monitoring& control Execution Planning Initiation Development Creation Integrated Upstream and Downstream Management School of Business Management, Project Management Graduate Program Slide 2 Integrated Project QRP Management Phases Integrated Quality, Risk and Procurement Management Set goals Project business case & targets for triple objectives Goals for project quality management Goals for project risk and procurement management QRP function is to facilitate the delivery of business case and achievement of project objectives QRP considerations commences at an early phase Policies and goals for QRP management adopted Strategies defined QRP high level planning is part of master (initiation) planning QRP function should have dedicated resources, own scope, schedule, budgets Define strategies Strategy for managing risks and complexities Strategy for managing quality Strategy for managing procurement Implementation master plan Develop implementation master plan including: Project business case, high level STC management High level QRP and HSE management High level project performance management Detail plan/documentation, activity level Apply master plan to develop detailed plan including: Project risk management Project quality management Project procurement management Execute: Review/update project implementation plan Acquire resources and organise field execution Expedite performance Monitor and control: Monitor performance vs. implementation plan Apply integrated change control Identify performance shortfalls Develop and apply corrective actions No Delivers business case? Yes Corrective action necessary? Yes No Close-out Final evaluation of deliverables vs. scope baseline Defects and issues resolution Close project management processes Document lessons learnt This slide shows APIC s approach to management of projects and programs with particular focus on management of Quality, Risk and Procurement. The main purpose of this diagram is to demonstrate how QRP functions integrated into the broader project management framework and that these functions form dimensions of planning and management of projects from the early phase till completion and close out. 15

16 Quality Risk and Procurement Management School of Business Management, Project Management Graduate Program Slide 3 Managing impacts and risks on project objectives Variable 1 (e.g. weather) Impact on Life Cycle Objective 1 (e.g. on total project cost) Action 1 (e.g. design for max. offsite manufacturing) Variable 2 (e.g. peform. of major parts) Impact on Life Cycle Objective 2 (e.g. impact on HSE) Action 2 (e.g. precommission parts, undertake simulation) Variable 3 (e.g. currency fluctuation) Impact on Life Cycle Objective 3 (e.g. capacity to meet contractual obligations) Action 3 (e.g. apply currency hedging) This slide shows that numerous variables (mostly independent variables) affect the attainment of project objectives (or achievement of the business case) during the life of the project. Example variables are: cost of input resources, market shifts affecting the project s product, productivity of resources, technology, etc. There has to be an evaluation mechanism to enable estimation of the impacts that these variables can potentially have on the project objectives/business case. To contain possible negative impacts and take advantage of prevailing opportunities, action plans must be developed and implemented. The project s environment and external or internal requirements may change over the life of the project and this may necessitate re-formulation and implementation of action plans to overcome any threat and take advantage of the available opportunities. In many situations it may be necessary to re-align project objectives or alter its business case to maintain the project value. Often these action plans are in the form of revised risk, quality and procurement management actions. Thus, as with all other project areas, risk and quality management as well as contracts management actions are real time and on-going; these should change in response to project dynamics. 16

17 Slide 4 Business case vs. delivery objectives The goals of PM should be optimal achievement of project business case All 9 functions (KAs in PMBOK) viewed as means to achieving business objectives and targets They should not be viewed as end goals E.g. focusing on contracts management within a rigid framework and for its own sake may not contribute to project business case So the ultimate test is value addition/risk reduction as far as the business case is concerned Quality, risk and procurement management aim at facilitating optimal achievement of project business case. All implementation risks (leading to time and cost overrun) should be managed with reference to the project business case. This perspective is important as for example, it may be desirable in a certain situation to invest additional funds and resources in a project to accelerate its completion even though this may lead to cost overrun; so long as it improves the project business case the cost overrun is of little concern. The exception is when funding for the project is not readily available. The past tendency has been for project managers to emphasise successful management of contracts and project interfaces as a goal of PM. On many technological projects PMs tended to be pre-occupied with the resolution of technical issues. Worse are the cases which apply overly complex bureaucratic processes and procedures leading to wasteful use of the available resources. These are all manifestation of the fact that project managers may lack strategic focus on their projects. Ability to manage QRP forms a core competency and provides a means to achieving the project objectives/business case in an optimal and integrated manner. They facilitate the delivery of the project objectives, minimise deviations from the project plan and build in contingencies against latent liabilities. This slide delivers a clear message: we should never manage quality, risk and procurement side of projects as an end goal, but as means to deliver the project objectives. On many projects in the past, management of these areas has tended to assume a life of its own which must be guarded against. 17

18 Slide 5 QRP Management s Role Scope, time and cost management are tools to deliver the business case (e.g. 20% IRR through optimisation & proactive management of scope, time and cost) Quality, risk and procurement management are means to controlling risks (variances associated with targets sets (ϭ 2 < 10%) In the case of procurement management a related function is to aid project implementation Another major point to note is preoccupation with seeing scope, time and cost management as core processes and quality, risk and procurement management as facilitating processes. The core processes or functions define the project focus and objectives and the facilitating ones just enable attainment of delivery objectives. This distinction may imply that the function of QRP is to facilitate achievement of baseline project plan containing scope, time and cost plans. This approach may lead to poor project value. A holistic view of the project requires management over the entire life cycle. An optimal approach is to develop a high level implementation plan, evaluate it in terms of impacts on project life cycle objectives (financial, performance and environment), then repeat the planning cycle to eliminate or reduce impacts of major risks, tap opportunities and improve the base value. This cycle should be repeated till an optimum high level implementation plan is resulted. Obviously, each cycle will bring with it a greater understanding of the dynamics of the project and a more optimal project plan. QRP management are tools in this process. In addition, as was stated earlier, during the life of most projects, particularly long and complex projects, the assumptions and other variables change significantly and the above planning process should be repeated at intervals or continuously. 18

19 Slide 6 The role of QRP in managing deviations All projects commence with targets set for financial, performance and environment objectives. However, the probability of achieving the set targets is initially low due to the prevalence of uncertainty about project composition, its technical and market performance, projected time and cost to completion and so on. As the project moves from conception to development and onto implementation uncertainties are resolved progressively through the respective planning processes. QRP (particularly risk management) aim to reduce potential deviations from set targets for project objectives of financial, performance and environment. The above slide shows that most of the efforts in QRP are spent on preventing deviations occurring to the base values (targets) for objective functions. However, if there are opportunities that will potentially lead to achieving higher than targets sets, then the baseline in the above diagram is shifted upwards. For example, if a given project has 25% per annum IRR as the financial target based on certain assumptions regarding the price of materials and components and suddenly there is a downward price movement then it is prudent to re-compute the IRR and use the higher value as the baseline. 19

20 Slide 7 When do we consider QRP Consider project phases: creation/selection, development/definition, initiation (implementation strategies), planning, implementation, finalisation & close out Project creation: Set goals for QRP management Project development: derive strategies for QRP management Project initiation: develop optimum QRP management solution (to deliver the business case and achieve triple objectives, unit of analysis: work package) Project execution: turn the solution into detailed plan (unit of analysis: activity) Project commissioning and hand over: assess deliverables vs. project business case & triple objectives (FI, PER, ENV) Management of QRP must start during the early phase, i.e. project development and definition phase. The main task is to determine what quality, risk and procurement management approaches are necessary and optimal to realise the business case. Sometimes, the viability of the project depends on the ability to apply successfully quality, risk and procurement management functions cost effectively. At the development phase the opportunity to maximise project value and minimise costs is the highest. This means that enough efforts should be invested to define and optimise an effective strategy to management of QRP activities on the project, adopt appropriate policies & standards, decide upon the resources required in broad terms and derive an estimate and set a budget for QRP management tasks during the whole project duration. However, QRP management are ultimately tools to maximise the chances of successful project outcome. They should not assume a life of their own. PMBOK does not consider any role for QRP management prior to planning phase of projects. This may lead to development of sub-optimal approaches to project development and management. In accordance with the principle of progressive elaboration, it is necessary that strategic and broad level decisions are made and evaluated during the early phases of projects. Typically as a project moves along its development path, the level of detail expands. Not all details are necessary to be known in the early phase for strategic and high level planning. 20

21 Slide 8 QRP interdependency Quality, risk and procurement are interdependent and should be planned and management together Project risks can be divided into 3 categories: Major (top 20%) Moderate (the next 20%) Minor (the rest) Major risks are managed individually (or transferred to others to manage via contractual arrangements) Moderate risks are grouped together and managed (or transferred to others to manage via contractual arrangements) Minor risks are normally managed through quality assurance and management This slide reinforces the application of the Pareto s Principle to project planning and management. Risk analysis and evaluation of project exposure to threats and chances of discontinuity should be used as means of learning about the project composition and its dynamics. In particular, focus on identifying the major (top 20%) risks (those with highest negative impacts on project business case). The knowledge gained from this evaluation is applied as a guide to finding an improved solution. The base plan is revised and the top 20% risks are identified. This process may be repeated until an optimum solution is found. At that stage, all strategies for quality, risk and procurement aspects of the project are documented and turned into action plans. That is, what resources, tools, and systems are needed to implement the strategies to ensure successful achievement of the project business case. At that stage the residual top 20% risks are managed through the risk management plan. The moderate risks are grouped and managed too. The bottom risks (which are numerous but of minor impact) are managed through a project quality management and product quality assurance plan. 21

22 Slide 9 Example Project On many projects (particularly process plants) the basic design showing the schematic arrangements of project parts, is very helpful in understanding the scope of the project and the technical interrelationships among project parts. It can also be used as the basis for exploring alternative technologies or re-design of sub-processes and optimisation of the whole scheme. Realistically it will not be possible to do much meaningful planning if a basic design of the project is not available to provide a good understanding of what is going to be delivered. Of course the basic design may change subsequently or it may be improved. For high level planning the above is very useful, as we can decide how to approach each major part, what work packages are needed to deliver each part and how we should manage the same. Work packages related to a major part typically consist of design and specifications, procurement management, manufacturing, transportation and warehousing, site installation, testing and commissioning etc. 22

23 Slide 10 QRP Planning Example Consider a complex system made up of interdependent parts; each part available from different suppliers Power plant, has coal-fired furnace, boiler, steam turbine, generator, cooling tower, control system, converters, gas scrubbing & emission control system, etc. PM is responsible for the business outcomes sought by client, i.e. end-to-end system design, delivery & integration into client operations to satisfy needs, incl. functional specs preparation, procurement of parts, assembly and commissioning, staff training etc. Ultimately it must produce electricity at a competitive cost, meeting HSE Standards, portfolio and operational requirements Most important to undertake a thorough review of business needs & requirements, verification of business case, system performance & other requirements Slide 11 QRP Planning Example (continued) Evaluate alternative means of responding to client needs; select an appropriate approach E.g. procure parts, build the system then commission & integrate to client s business Package it each to be procured incl. both provision of services (design, administration) & supply (or supply, install & hand over of materials, components & parts) An alternative approach is to outsource the entire system Each approach has unique risk, quality and operational characteristics Assume that parts are procured through different suppliers 23

24 Slide 12 QRP Planning Example (continued) If procuring parts then system performance risk is the highest; HSE, legal risks may be critical To manage these risks select competent designers with appropriate trackrecord; involve suppliers/contractors early in the process; adopt appropriate incentives to motivate best performance Develop appropriate policy/strategy (e.g. review of operational requirements through simulation, design optimisation, maintain flexibility to direct change during the life of project, apply QM-based contracts etc.) Other major risks are schedule slippage & cost overrun Slide 13 QRP Planning Example (continued) Major delivery process risks are: deviations from targets sets for performance or time & cost of each part to be procured as well as failure of the parts to form a whole functional/optimum system, or overall time/cost overrun, or statutory limitations & liabilities Develop teamwork among PM team, suppliers, designers, installers & client Apply QM to the entire project and to each part Decide on division of responsibility for each (i.e. own staff, contractors/designers, suppliers, insurers etc.) 24

25 Slide 14 QRP Planning Example (continued) Employ problem anticipation & contingency planning techniques Track major risks, e.g. system integration status, time & cost reports, etc. Control minor risks through QA & training Ensure that risks within the competence of the contractors are transferred through contracts to them Ensure contractors manage such risks proactively (assurance of their managerial processes and systems) Slide 15 Conclusions PM KAs or functions are tools to deliver business case Role of QRP is to contain variances and achieve optimum value for project Integrated approach to QRP planning essential Project is a phenomenon and QRP management is a continuous process to improve project baseline value and reduce risks Most important tools to managing risks is application of competencies to manage system complexity, functionality and interdependency QRP management needs planning at initiation level wrt: function, strategy, resources, systems & tools etc. 25

26 Slide 1 Asia Pacific International College Home of Transformative Education and Development SBM1202 Project/Program Management Fundamentals 4 Project/Program Quality Management Slide 2 Quality Management Project quality management is a core managerial function and has the following indicators Quality management master plan Construction and manufacturing quality assurance Administration and conflict resolution Knowledge management 26

27 Slide 3 Quality management master plan Definition: A project quality management master plan is a high level document prepared at the start of the project to guide management of the project from initiation through construction & commissioning. Typically, it will contain the following information: project goals and objectives, allocation of responsibilities including (through contractual means), project administrative and governance procedures, project processes, manufacture or construction processes, inspection and test plan and project QM records. Ideally for each work package on the WBS there should be a corresponding project process and attendant manufacture and construction processes, ITPs and schedule of records. Thus, the project implementation master plan and the project QM master plan need to be designed to correspond as far as possible. All entities involved in the delivery of the project need to define their own operational QM plan based on the project QM master plan. 27

28 Slide 4 Construction and manufacturing quality assurance Definition: Project/program team must ensure that all manufacturing and construction works are covered by respective operational quality management plans and that those plans fit into the project quality management master plan. In addition, the subject works and services must be performed in full conformity with the relevant quality management plan. On most projects the assurance of quality of the works performed by a given entity is that entity's primary responsibility and the role of the project team is to apply the relevant audits to ensure the nominated quality control/assurance processes and procedures are applied rigorously and that the quality of the works and services delivered conforms to the specifications and contractual requirements. On some projects, once the quality of a given package or scope of works or services is certified as being acceptable the payment for the same is authorised (minus the appropriate performance retention amounts). 28

29 Slide 5 Administration and conflict resolution Definition: Successful delivery of a project is dependent on having a responsive administrative and conflict resolution system. Administration and conflict resolution are often influenced by or managed directly through the client's corporate administrative system. However, the administration and conflict resolution system must meet the project management needs not just be part of the corporate administrative system. In fact, for reasons of clarity and objectivity, it is desirable for the project administrative system to run independent of the client's normal administrative system. Slide 6 Knowledge management Definition: Lessons learnt from past projects need to be captured and made available to the project team. All project methodologies must be reviewed and adjusted in line with the lessons learnt. Project methodologies need to be formalised and stated in the project quality management master plan. Training for the correct application of methodologies must be planned and conducted as part of the project plan and activities, and prior to the commencement of the actual operations. Provision of a system to make knowledge available on demand to team members is essential. A potential solution is to have diagrams of methodologies where hot links can explain the knowledge needed for the implementation of such methodologies. Generally speaking, knowledge may come from team planning or past projects or from consultants or suppliers of specialist equipment and so on. 29

30 Slide 7 Quality Management Organisational policies/strategies National, International Standards (e.g. ISO10006 or ISO9000 s) Quality as a function of contractual obligations Quality is driven by customers & end users Quality is a continuous process High level quality management planning Quality management applicable to a project is primarily influenced by the sponsor organisation s policies and strategies and the Standards they wish to apply to manage the quality of both project management processes/activities as well as project products and deliverables. Quality management took off globally with the publication of the first edition of ISO series in the late eighties. The client/sponsor organisations particularly public agencies, mandated that project delivery (e.g. design, manufacturing and construction) should conform to ISO9000 series. Since most product manufacture and delivery tasks are performed through contracts and given the language applied in ISO9000 Standard series, quality management became a part of contract management. In this part the following areas of Project Quality Management are discussed: Quality is driven by customers & end users Quality is a continuous process High level quality management planning 30

31 Slide 8 Definition of Quality PMBOK (2000:95) accepts the following definition for quality: the totality of the characteristics of an entity that bear on its ability to satisfy stated or implied needs. ISO 8402:1994 Quality Management and Quality Assurance The definition given for quality is that the supplier must understand the real needs of the customer and aim to satisfy the same in a most cost effective manner. Based on the above definition, it must be understood that: Quality is not synonymous with luxury or aesthetics, rather it is the ability of the product to meet stated or implied needs, i.e. functionality and performance that imply state of quality Quality cannot be added to a product; it is an integral part of the design and construction system applied to produce that product. In the case of purchasing a package of service from a supplier, the quality definition takes a new meaning, as measuring the quality of the service package becomes much more subjective compared to physical products that can be objectively inspected and its attributes/performance verified. Definition of customer is also open to interpretation: is the customer the ultimate end user? Is it the wholesale purchaser of the product? If the product is a standard nut and bolt piece bought off the shelf and does not perform down the track when incorporated into the system, the customer is the one who buys that piece and the manufacturer of that piece can be the supplier. However, there is no explicit contract between the two. This implies a complicated web of suppliers and customers within the supply chain. If the product is a component of a system whose performance also depends on a number of other interlocking components, and assuming that the subject component is delivered perfectly to order but the system as a whole does not perform the required performance, how do you determine customer satisfaction of the subject component? The above discourse about quality of products and services extends to projects and programs, where the situation can be even more complicated. 31

32 Slide 9 Quality on Projects The definition implies fitness for purpose as the overriding criterion On projects quality is more complicated, i.e. : Quality of products vs. quality of management processes? How about fitness of purpose? Who is the customer of projects? How customer satisfaction is going to be measured? How do soft projects prove fitness for purpose? How can one establish a trade-off between hard and soft aspects or functionality and aesthetics? Etc. On projects the concept of fitness for purpose is often cited as the basis of project quality management. This concept is not easy to apply when the ultimate purpose of projects is to deliver a facility (e.g. a manufacturing plant) that will produce a consumer or industrial product or a system that furnishes a service (such as a baggage handling system in an airport) the fitness for purpose over the life cycle of the facility or system cannot be adequately forecast and measured. Consider an example of a Direct Reduction Plant that was supposed to produce a particular grade of pig iron but when it goes online it fails to produce that grade repeatedly, but performs otherwise well, is this a failed quality project? Also is the quality of the ultimate facility or system (product of project) the focus of PM or just the quality of services procured and applied during the project? Do project managers have responsibility with respect to product design and performance specifications or just ensure the project delivery process is conducted in an orderly fashion? How do you manage the quality of a facility that is delivered by a large number of consultants/designers/contractors/sub-contractors/suppliers? Another dilemma is deciding what is fit for purpose (what level of performance is adequate). For example, if the project is to design and build a materials handling system in a process plant, what availability factor is sufficient, 99%, 95%, 90%, 80%...? Adopting any of these will materially affect the system design, materials quality, manufacturing processes etc. If we consider a software system (e.g. an ERP system) the situation is even more complicated. There will be a larger degree of freedom (system variables and their relationships), points of input and output and other factors that will affect the system performance (some very unique to the host organisation, some due to the combination of network design, dominant operating system, interaction with other systems and so on). Forecasting of the system behaviour under a large number of operating scenarios (including those resulting from unknown combination of different variable states) is a complicated task. So quality has a strategic dimension on projects and programs. 32

33 Slide 10 Customer feedback and quality improvement Feedback and quality improvement Project Concept & Business Case Project Implementation (Scope& Activities) Project Deliverables Performance Knowledge transfer On repetitive manufacturing, it is possible to receive feedback from customers experience and feed that back to improve the product design and manufacturing quality so that subsequent batches of the product can better meet customers needs and expectations. Theoretically, the above axiom is correct; in practice with large sums involved in modifying a manufacturing process and plant, it is not always easy to change the system. So if the fault lies in the quality of input materials and or process adjustment, the quality feedback can lead to improvement. On projects it is often impossible to obtain feedback from the customer to improve the quality of a given system/facility (except where a series of similar or identical facilities are involved). Even when a series of similar facilities are involved their site and locality differences can be significant to the extent that they may require different approach. There are often time differences and technology differences that will make the past experience on previous models less relevant. A power plant that has been built 10 years ago will have a different operating technology or design to a similar plant designed and built today. Most projects are unique, carry considerable uncertainty regarding their business concept, design and delivery etc. So at best, lessons learnt on past similar projects can be used indirectly to improve the quality of the new facility. Some of such lessons are often reflected in the numerous Standards that are used to define the quality of project components and parts. Also, projects are delivered over many phases and the ultimate facility delivery is not well linked to the activities undertaken during project implementation. As a matter of fact, facility delivery process has been a fragmented process traditionally, going back to the 19 th Century when the planning, design, manufacturing and construction processes were separated. 33

34 Slide 11 Difficulties with defining product quality Project deliverables (products) are unique and often poorly defined at the outset Customer (owner/sponsor) wants are different to needs Repeated cycles of planning and evaluation are applied to define the product Project development phase is crucial in defining project deliverables and their fitness for purpose Not all uncertainties can be removed at this stage Poor definition of product and its functions are major causes of deviations Also, schema for acceptance is subject to interpretation Quality of the product is a joint and several responsibility Slide 12 Purchaser-supplier relationship Client/purchaser Contract (QA) Goods & Services Contractor/supplier This slide shows that quality management standards define a system under which the obligations contained in a contract of supply between the client (purchaser) and the supplier (contractor) can be assessed and accepted. On most projects there are multiple contracts and for each a quality management system needs to be established. Unless these individual QM systems are aligned there is a risk that their deliverables may contain errors and deviations. To avoid this consequence a project quality management master plan should be prepared to integrate/align the quality of the input provided by numerous suppliers and contractors. 34

35 Slide 13 Quality management according to PMBOK (2008) Project quality management includes the processes applied by the performing organisation to ensure that the project will satisfy the needs for which it was undertaken. It includes all activities of the overall management function that determine the quality policy, objectives, and responsibilities and implements them by means such as quality planning, quality assurance, quality control, and quality improvement, within the quality system. The text quoted above is from: ISO 8402:1994 Quality Management and Quality Assurance. PMBOK2008 defines project quality management as follows: Project Quality Management processes include the processes and activities of the performing organization that determine quality policies, objectives and responsibilities, so that the project will satisfy the needs for which it was undertaken. It implements the quality management system through policy and procedures with continuous process improvement activities conducted throughout, as appropriate. 35

36 Slide 14 Comments on PMBOK approach to quality management PMBOK s approach is broadly similar to ISO 9000 and ISO10000 It is called a system s approach (plan quality, perform quality assurance, perform quality control are called a system) First a project QM plan is developed and used to manage qualityrelated activities over project implementation duration A QA plan to ISO9000 defines how goods and services (subject of a contract) are to be made and delivered by a supplier to a purchaser On many projects often collaboration is required to define the quality/ functionality & operability of the resultant system Also the quality of service by the supplier depends on the effective role being played by the purchaser and others (high interdependency) Note that PM standards (e.g. PMBOK) are model QM standards as they define the managerial process Slide 15 Quality vs. Grade - PMBOK2008 Quality is the degree to which a set of inherent characteristics fulfil requirements Quality is not the same as Grade Grade is a category assigned to products or services having the same functional use but different technical characteristics It is possible to meet functional requirements but with a lower grade 36

37 Slide 16 Principles to remember (based on PMBOK ) Customers satisfaction Expectations/requirements to be met. Also project must perform its intended role (fitness for purpose) Process approach Plan-do-check-act is different in projects; QM process should emphasise prevention (activities have short life) Management responsibility Management is responsible for ensuring adequate resources & participation of all Preventive approach Cost to prevent is a lot less than cost to correct mistakes. You need to build in the quality into the project and product rather than inspect it Quality improvement Opportunity to improve quality on project limited due to short term nature and uniqueness The above principles are called managerial principles in ISO9000. In reality there is a fundamental difference between the PMBOK approach and ISO approach in that the former is a model project delivery standard and by itself constitute a quality management approach to delivering projects. Whereas ISO was designed for assuring the quality of manufacturing products; its focus is on a single entity trying to improve its processes to assure the quality of the goods it produces for its customers. 37

38 Slide 17 Cost of Quality (PMBOK2000) Cost of quality is the total cost of all efforts to achieve product/service quality It includes: Cost of preventive measures Appraisal costs Failure costs Failure cost can be classed into: Internal (within the project itself) External (outside the project control) Product (once off chance failure) System (failure can be traced to the QA system) Failure costs can be huge due to interdependencies & associated consequential costs/delays The above definition for cost of quality is directed less to total product/system concept that the project will deliver and more to do with the management of quality during the production process. Put simply, this approach does not question the fitness for purpose of the whole project but focuses on how well the works and services being delivered during the production process meet technical/functional specifications and contractual obligations. There is no doubt that the quality management during production process is of prime importance. However, quality management based on the fitness for purpose of the ultimate facility/product goes beyond the production process. The quality of feasibility studies, the quality and optimality of the solution contained in design concepts and the strategies for their delivery can also be aspects of quality management. 38

39 Base Time Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Cost of Appraisal Cost of Failure Cost of Quality, QM Implementation Cost of Quality, QM Maturity Point Cost of prevention School of Business Management, Project Management Graduate Program Slide 18 Cost of quality vs. time Additional Cost to design and implement a QM system Developing a QM System Implementation of QM System and continuous improvement This slide shows that applying a quality management system will initially raise the cost of prevention but over time it drops off and with it total quality cost will be lowered. The savings associated with introducing a quality management system is said to pay for the initial cost of developing and applying a quality management system. However, studies have shown that without adequate training and cultural changes on the work front, there is little chance that the cost of quality will decline over time. On many real life projects, the introduction of a bureaucratic QM system has not resulted in the reduction in errors, rejects and reworks while it has added to the cost of the project. Quality is thus not an external factor that can be applied to a product or processes; it is rather a state of mind and vigilance/commitment to reducing causes for errors, rejects and reworks. Thus, it will take time to retrain personnel and to make quality an integral part of all planning, design and delivery processes. Of course the greater question of fitness for purpose must be considered. For example, consider a facility that is delivered to the highest standards in terms of accuracy of design documents, quality of construction works and so on but fails to fulfil the functions that it was supposed to perform. How do you call this facility in terms of quality? Undoubtedly it is a poor quality product even though delivered to a quality system. Unfortunately, this greater understanding of quality of projects has not been the major focus of project quality management literature and practice. It needs to change! 39

40 Slide 19 Quality Management (PMBOK2008) 40

41 Slide 20 Plan Quality Quality planning is a key aspect of quality management Note that the process interacts with other PM processes E.g. policy to increase scope of quality management will mean additional resources, activities and expense Management s critical responsibility to select the right QA approach Compliance issues are critical Conduct cost benefit analysis to select an optimum approach Project owners or their project managers can select a number of strategies for assuring the quality of the goods and services they order or the works performed by consultants and contractors. For example, it might be required that 100% of all activities that lead to the production of the deliverables should be inspected and quality assured by the PM team or QA firms engaged by them. Or they could stipulate that quality control and assurance will be 100% assigned to the suppliers and in the event of quality failures the suppliers will be held responsible. The former approach needs expenditure of resources to assure the quality. Unless rigorously controlled it has the potential to leave the contractor/supplier to rely on the PM team for quality control rather than having to put in place own rigorous quality planning, assurance and control. Naturally, and depending on the individual cases, a strategy somewhere between these two extremes may be found as the optimum solution. Take the hypothetical case of designing, manufacturing and commissioning a nuclear power plant. Quality management on such a project has to follow a most rigid process including a strict quality control and assurance regime to exclude the possibility of errors and omissions. This implies that an adequate budget and qualified resources must be assigned to oversee quality assurance of the power plan. In planning all projects, it is thus essential to stipulate the extent and rigour of quality management needed by highlighting the critical areas and how their functionality can be impaired through errors or omissions or poor quality workmanship etc. In addition, it is important to apply quality management to the whole managerial processes applied by the PM and by the client. This is to avoid confusion in terms of roles, responsibility, control and hold decisions and so on. 41

42 Slide 21 42

43 Slide 22 Project Quality Management Plan PQM Plan is the output from quality planning process; it is a part of the project management plan (needs to be integrated with other component plans) In its own right it forms a system according to which the project will be planned and delivered ISO 9000 states: The organisational structure, responsibilities, procedures, processes and resources needed to implement quality management It must include all aspects of quality planning, assurance, control and improvement over the project life cycle (Note the hierarchy of deliverables in different phases of a project life cycle from developing client brief through to schema for hand over and commissioning/start up) Although quality/functionality/operability of the ultimate project facility or product is the main goal, it is important to apply quality management to the intermediate deliverables to ensure that these are also fit for purpose. For example, in a power plant project, the team that conducts the project definition planning should apply a rigorous process to ensure that the relevant project studies have been performed in a systemic manner in line with the standards expected of such studies, and that the results will meet the business needs of the client organisations. Although the cost of conducting such studies is rather small in comparison with the total project cost, the team must still perform these in a cost effective manner. However, cost effectiveness means value for money in terms of the budget for the conduct of the studies concerned; it does not mean sacrificing the project end results in return for reducing the expenditure on the studies concerned. Such cost savings are false economy and may impact the project viability adversely. 43

44 Slide 23 Broad framework for managing projects The hierarchy of deliverables include the following: Project brief & list of options available Project business case (project definition report) Project plan Project product or system completion/testing Project product or system hand over and acceptance Project close out As seen, the question of fitness for purpose of the eventual facility or system that will result from the project must be the overriding concern throughout all phases. In addition to that, it is important that each phase is conducted in an orderly fashion and the intermediate deliverables all are fit for their own intended purposes. In this sense, resource efficiency, goal orientation, optimality of methodologies applied etc, are determinants of the ultimate quality achieved on the project under consideration. 44

45 Slide 24 Operational definition Defines all operations and how their quality is measured Not all pieces of work are individually inspected in all times May need metrics to assess quality, particularly when applying sampling theory Apply to both management processes and also to products/deliverables It is important to map and allocate responsibilities systemically and based on that define the QA processes and procedures This slide again emphasises the current focus of quality management on projects, i.e. all operations of the project definition and implementation should be planned in clarity in advance, including execution methodology, testing and inspection regime as well as documentation. Personnel should have the relevant skills on each operations; materials delivery and equipment need also be planned and provisioned in advance. Everything must proceed to schedule. All of these efforts are aimed at avoiding errors, omissions, sloppy task execution, poor coordination and so on. Of course, this aspect of detailed quality management is very important to the integrity of the end product. The above can only be applied properly if the design and specification information are all well defined and in hand, materials are available and the execution methodology known, such as welding pipes to a given method/standard, and so on. However, this degree of planning can only be applied to major operations otherwise the level of detail expands and the cost of quality management becomes exorbitant. On a building project, major operations are excavation, foundations, structure, roof, façade, services and site works. For each operation there must be a method statement (how the work is planned to be done), including points of inspection, confirmation of the quality and sign off. The QA procedure must be integrated with the whole construction process. The same consideration applies to other projects such as software development. 45

46 Slide 25 Perform Quality Assurance Apply QM plan/system and provide confidence that processes and deliverables meet Quality Requirements Quality control results are an input to the process The aim is to identify: Process or system non-conformances Product or deliverable non-conformances In the case of a product failure, the aim is to trace the cause and find a solution to it In the case of process or system failure (where more than one product failure is experienced) must revise the whole system It is a continuous process Having a well developed quality management plan/system is one thing, ensuring that it is applied and the results are satisfactory is another. The purpose of quality assurance is to demonstrate that the processes applied and the resultant deliverables are to quality management plan and fully meet the client s requirements (i.e. meet contractual obligations). The project quality management should already contain activities that when executed will generate the necessary data to provide confidence that the processes applied and works executed by all project participants will meet quality requirements. Sometimes, additional quality control measures are needed to provide the required confidence. On many operations, technical standards are specified as means of assuring quality. These Standards often specify the relevant test and inspection procedures that need to be applied. All of these must be foreseen at the time of quality management planning process and included in the plan otherwise delays will result. Generally speaking quality control is an aspect of quality assurance. 46

47 Slide 26 Slide 27 Quality Control (QC) Traditionally QM was thought of as QC QC is often after the event The aim of QM should be prevention QC should confirm quality outcomes QC means checking the deliverables and the quality of PM processes to ensure they meet QM plan QC procedures should be part of QM plan These are applied and results are monitored As far as possible QC should be based on objective measures, applying relevant QC techniques 47

48 Slide 28 Perform Quality Control (PMBOK2008) The QC process needs to be detailed in each work package or product Quality is inspected and controlled using a variety of techniques Output is a decision: Accept the deliverables as complying Require rework Adjust an individual procedure to address a cause identified in the system (e.g. equipment malfunction) Revise the whole process and QM plan Seek consensus from all affected stakeholders and implement the quality Slide 29 48

49 - 2 Std. Dev. -1 Std. Dev. +1 Std. Dev. +2 Std. Dev. School of Business Management, Project Management Graduate Program Slide 30 QC techniques Inspection measuring, viewing, reviewing, auditing/testing etc. to establish if the project requirements are being met Control charts Depicts graphically the performance of a process vs. time. Useful in repetitive operations/processes Pareto s diagram A histogram that shows frequency & impacts of faults or errors/mistakes in terms of categories of faults/errors Slide 31 A Sample Process Control Chart Upper Control Line Mid Upper Control Line 1 Base Line Process Performance Curve Mid Lower Control Line Lower Control Line Measurement number (Time) Process in control has variations due to random fluctuations only Process in control should not be adjusted Process improvement aims to shift the baseline After improvement the process may need adjustment to control fluctuations 49

50 Number of Defects (number of process failures) Percentage of Defects School of Business Management, Project Management Graduate Program Slide % Pareto s Diagram Pareto s Diagram is based on Pareto s Law Assumption: 20% of causes of failure are responsible for more than 80% of impacts Cumulative Percentage Curve 75% In this example equipment malfunction is responsible for 50% of process failures 50% It should be tackled first The next cause is faulty material 25% As seen Pareto s diagram is a powerful tool for identifying and addressing faults 0% Equipment malfunction Faulty materials Design errors Store errors Rain causes Workers errors While Pareto Diagram is a powerful way to address the main causes of a process failure, it is not always applicable to projects. On projects the issues that often slow the progress and create confusion are related to interdependencies of the deliverables and management of the interfaces. A Pareto diagram is always useful if one has a long run of production of a certain product and needs to ensure that the process (and associated plant) are quality assured. So if the process is not a continuous one it is often the case that the task/work is redone. An example where Pareto diagrams and process control charts can be useful is in continuous pipe welding in construction of process plants or in slipforming pavement layers (machine laying operation) in road construction projects. In the case of a project that has a large number of often non-repetitive and short tasks, the causes of quality failure can be traced to issues such as poor skills, poor quality information and so on. In such cases we assume that the whole project is a process and that when quality failure takes place regularly it is a sign of the failure of the project management system and the associated processes. 50

51 Slide 33 QC techniques (continued) Statistical sampling A technique applied to reduce QC cost for both products and processes (based on acceptable accuracy) Typically an error of 10% is acceptable in most sampling Flowcharting A graphical chart that shows how components of a system relate to one another An example is cause and effect diagram And system flowchart that shows elements of a system Trend analysis Forecasting the total picture, e.g. estimating the total defective products based on sample results or forecasting some other quantity mathematically incl. project management activities Slide 34 Cause and effect diagram example Material Handling Equipment Methodolgy Effect Prior Work Labour Environment Inspection 51

52 Interface Interface School of Business Management, Project Management Graduate Program Slide 35 Causes? And here are effects! Slide 36 Sample Quality management system flow chart (ISO 9000) Service organization Design process Service delivery specification Customer Supplier Service specification Supplier Customer Service brief Service delivery process Service result Service needs Marketing process Supplier assessment Service performance analysis & improvement Customer assessment LEGEND Service needs/results Service processes Service process documents Service measures 52

53 Slide 37 QM strategy, implementation and assurance This slide shows the hierarchy of quality management planning. Quality management goals are set during the project creation/selection phase. Strategies for achieving these goals are derived during the project development phase, i.e. how can the project concept can result in a product that is fit for purpose. What strategy is needed to achieve fitness for purpose of the product. What strategies are needed to achieve compliance requirements and so on. As part of project initiation a quality management master plan (or high level plan) is developed to aid the delivery of the business case and the achievement of targets set for the project objectives. As a master plan it will be a brief document and highlight the standards, methodologies, resources, timing and other aspects of quality management across the whole project in conformity with the specified strategies. The QM master plan is often the basis for managing quality of the works and services supplied by contractors or suppliers. Normally it is part of the contractual requirements that the suppliers should within a reasonable period (e.g. 6 weeks) compile their own QM plan for their part of the project in conformity with the project QM master plan and strategies. To ensure conformity with the QM master plan these individual construction or manufacturing or services QM plans are submitted to the project manager for endorsement. The task of the project management team during the execution phase is to oversee proper execution of the individual QM plans and to ensure these integrate well as planned. The individual QM plan must be detailed enough so that when executed it will provide confidence that the Quality Goals of the project will be realised. During the execution phase the emphasis is on quality assurance/control and maintenance of proper records. The above approach will ensure that quality management is used as a strategic tool to ensure full fitness for purpose as well as process efficiency and effectiveness. 53

54 Slide 38 Schematic representation of a Project Quality Management Plan/System This slide shows schematically the components of a project quality management plan/system prepared to ISO 9000 Standard. It is a top down approach in the sense that the business case is defined/confirmed then the project scope (or contract scope). Project organisation structure is defined next based on the contractual and organisational strategies determined beforehand. They must define: responsibility areas, communication and reporting lines, as well as quality management control lines. System elements are defined in ISO 9000 standard. These are intended to formalise all aspects of the supply and value chains. However, its approach is somewhat functional. On projects, system elements are often satisfied through a number of project procedures. Essentially project procedures define the managerial and administrative processes applied to manage project works. Project processes are intended to define how project components are going to manufactured/ constructed or made in each component/part. These processes will have to include quality assurance/control activities including criteria for assessment and acceptance. The QM Plan must of course be applied in the normal manner. To ensure that it is being applied systematically and or it is effective, it is essential to undertake independent audits. Audits can be internal and or external. However, audits must be done by persons other those who perform the work. Finally, each quality management plan needs to have a proper set of records and documentation to demonstrate that indeed all QA activities have been performed, non-conformances identified and disposed of in an acceptable manner. PM Standards (e.g. PMBOK published by PMI) also intend to define project processes and management practices that are applied to develop the project plan and execute the same; as such, they can be considered similar to quality management. 54

55 Slide 39 Summary Quality management on projects covers both processes and products QM s focus is on orderly conduct of all project activities and effective control of all input factors There is no guarantee (although higher probability) that the end results will lead to the required service/product Connection to customer satisfaction is difficult QM should be strategically planned and resourced Quality management should be planned concurrently with all project areas; its activities should be integrated into project plan Quality is part of each decision/process/activity etc. 55

56 Slide 1 Asia Pacific International College Home of Transformative Education and Development SBM1202 Project/Program Management Fundamentals 4 Project/Program Risk Management Fundamentals Slide 2 Risk = p.m What is Risk p = probability of occurrence of a given event (uncertainty is 1 p) m = impact of that event should it occur p varies from 0 for certain event and 1 absolute certainty that event will take place p is rather low for infrequent events which tend to have high impacts p is rather high for common events which tend to have low impacts There is no certainty that a given risk will eventuate 56

57 Slide 3 Risks vs. uncertainties Risk = Prob. occurrence x impact magnitude When probability < 1 or cannot be estimated it implies uncertainty If impact is negative, then it is a threat If impact is positive, then it is opportunity If neither prob. nor impact known then ignorance (simple & compounded) If unknown causal factors & processes then it is indeterminacy Risks & uncertainties are not static Very often risk and uncertainty definitions given in the literature overlap. However, a distinction of the type shown above is very helpful in undertaking risk and uncertainty analysis. Uncertainty is not necessarily a risk; it can be an opportunity (end up with positive outcome). Also, risks and uncertainties tend to arise or intensify or resolve during the project life, so risk management must be a dynamic process to continuously assess risks and uncertainties, and readjust the risk response strategies. 57

58 Slide 4 Role of Risk Management in APIC Model APIC s approach emphasises both the strategic and the operational roles of risk management During strategic planning phase of projects consideration of risks and due diligence inform and guide all decisions and processes During implementation, risk management aids delivery of the business case and achievement of project objectives That is, it minimises the variance associated with the attainment of decisions made during the strategic planning phase APIC considers PM s challenge as maximising project value, while minimising risks Project value is measured in terms of project business case and project objectives (financial, performance and environment) Success in risk management is measured in terms of business case delivery and achievement of project objectives Slide 5 Risk and Due Diligence - APIC Model (Project Selection/Creation and Development/Definition Phases) Definition: setting of goals for and development of optimal decisions/solutions based on risks and due diligence. Indicators: HSE and statutory risks, management competence, process and operational risks, procurement and transportation risks, manufacturing and construction risks, natural disasters and force majeure risks (insurance) 58

59 Slide 6 HSE and statutory risks - APIC Model Definition: Project/program team must ensure HSE & statutory risks are identified, analysed and treated systematically and in an integrated manner during the early phase (front-end). The results can guide the planning decisions in a major way. Emphasis should be placed on using the results to challenge the project baseline design and related assumptions, re-engineer the project and operations plan etc. Slide 7 Management competence Definition: Successful project conceptualisation, planning and implementation critically depend on management competence. Project risks due to poor management competence at each phase must be understood and treated systematically. 59

60 Slide 8 Process and operational risks, 1/2 Definition: Process and operational risks typically refer to those risks that can materialise once the project enters operation phase, and include process technical and operational performance (raw material, labour and energy intake/unit production), process variations, process integrity & safety, functionality and operability, etc. Slide 9 Process and operational risks, 2/2 Project/program team must ensure process and operational risks are identified, analysed and treated systematically and in an integrated manner during the early phase (front-end). The results can guide the planning decisions in a major way. Emphasis should be placed on using the results to challenge the project baseline design and related assumptions, re-engineer the project and operations plan etc. 60

61 Slide 10 Procurement and transportation risks, 1/2 Definition: Procurement and transportation risks typically comprise risks associated with each stage of procurement and transportation, incl. tender documents, vendor selection, development of order documentation (including the relevant equipment performance specifications), quality supervision, packaging, handling, shipping & transportation to port of destination, land transportation and insurance. Slide 11 Procurement and transportation risks, 2/2 Project/program team must ensure procurement and transportation risks are identified, analysed and treated systematically and in an integrated manner during the early phase (front-end). The results can guide the planning decisions in a major way. Emphasis should be placed on using the results to challenge the project baseline design and related assumptions, re-engineer the project and operations plan etc. 61

62 Slide 12 Manufacturing and construction risks, 1/2 Definition: Manufacturing and construction risks typically comprise construction/manufacturing planning, sequencing, materials & consumables, plant & technology, methods, human resources and skills, safety, environmental protection and quality assurance. Slide 13 Manufacturing and construction risks, 2/2 Project/program team must ensure manufacturing and construction risks are identified, analysed and treated systematically and in an integrated manner during the early phase (front-end). The results can guide the planning decisions in a major way. Emphasis should be placed on using the results to challenge the project baseline design and related assumptions, re-engineer the project and operations plan etc. 62

63 Slide 14 Natural disasters and force majeure risks (insurance), 1/2 Definition: Natural disasters & force majeure risks can materialise and adversely affect all major projects. In certain cases it will be possible to transfer these risks to third parties (e.g. insurance companies) through payment of a premium. In many other cases it is impossible to build a complete defence against such risks. The project team need to identify, set goal for (prioritise) and manage all natural disasters & force majeure risks in an optimum manner. Slide 15 Natural disasters and force majeure risks (insurance), 2/2 Risk management strategies often call for a mixture of preventive measures and recovery planning as well as insurance coverage. Many insurance premiums will be reduced on conditions of appropriate preventive measures and presence of an active recovery plan to mitigate the extent of damage). On some instances it is not possible to put in place any preventive measures and it may be necessary to develop and deploy a recovery plan including relevant response plans, etc. 63

64 Slide 16 On-going Risk Management - APIC Model (Project Implementation Phase) Definition: Setting of goals for and management of risks. Indicators: risk management master plan; and ongoing risk management and closure. Slide 17 Risk management master plan, 1/2 Definition: Project/program team needs to develop a risk management master plan at the start of the project to guide the formation of project strategies, tapping of the opportunities and reduction of exposure to risks in all areas of project implementation, from initiation through construction & commissioning. The project risk management master plan will identify and classify all project risks in terms of major, moderate and minor. 64

65 Slide 18 Risk management master plan, 2/2 Emphasis in risk management should be to reduce or eliminate major risks (top 20% which typically have more than 80% of impacts) by re-planning the implementation of the project or its major components. Moderate risks are also considered in groups and minor risks are normally managed through measures such as contractual provisions, quality assurance and so on. Risk analysis and treatment will guide the development of the project implementation strategies though the ultimate goal is delivery of project business case and achievement of project objectives. 65

66 Slide 19 Ongoing risk management and closure Implement the risk management master plan systematically Emphasise risk analysis to replan/re-engineer the project upfront Continue to monitor and control major risks Risk management is an on-going effort Informs the entire approach to decision making, planning and staging of the project activities etc. Risks must be closed officially at the end of the project The project/program team must implement the risk management master plan systematically. Whilst maximum benefit is usually obtained from applying the results of the risk analysis to replan/re-engineer the project upfront, including formation of strategies for the implementation of the project, it is still essential to continue to apply the risk management plan throughout the project duration, particularly to control major risks which should be the prime focus of the project team. Ongoing risk management is more than just paying attention to the risks and opportunities identified upfront, as new risks will often surface and the dynamics of those risks analysed will change. So risk management is an on-going effort and will have to inform the entire approach to decision making, planning and staging of the project activities etc. Risks must be closed officially at the end of the project by simply recording the actual status of the (major) risks and the precautions that need to be passed on to facility/system operators and users. Often the nature of risks will change. For example HSE and quality risks associated with the operation of the facility will be different to those associated with its construction. 66

67 School of Business Management, Project Management Graduate Program Slide 20 An example of risk and uncertainty Fraction NPV Frequency f.m Total 1 16 Expected value = 16 The actual (eventual) project NPV is unknown It is a probabilistic function Note that in this instance there is 24% chance that NPV will be equal to or less than 0 (project loss) The actual NPV can be anywhere between -10 to +50 million depending on: actual commercial conditions actual cost and time to completion eventual state of many other project variables Uncertainty is characterised by probability distribution This slide shows the simulated probability distribution of NPV of a hypothetical project. This distribution demonstrates the financial risk associated with undertaking the project. If all uncertainties can be resolved favourably (optimistic view) the NPV can be as high as $50 million. If all things that can go wrong go wrong the NPV will be -$10 million. Assume that the NPV was estimated as +$10 million; this is really the most likely value and not necessarily the same as the mean value as humans tend to be optimistic when making assumptions and deriving estimates. The mean value = expected value = $16 million Of course the likelihood of extreme values at either end of the range is low. If the range was smaller then the uncertainty would have been lower (the true value would have been within a narrower range). Risk magnitude can be estimated regarding target values from the above distribution. For example, the risk of breaking even or losing money is -$0.4 million. If we were able to insure this project against loss the premium would be -$0.4 million plus an allowance (say 30% of the risk value) on top of that to cover the overheads and profit margin of the insurers. Total insurance premium = 1.3x.04 = -$0.52 million Of course project losses cannot be insured (the risks are too high and typically project owners/ investors or governments carry these risks). 67

68 Slide 21 Examples of an external threat A court injunction to stop an infrastructure project in an urban area is a threat Whose probability cannot be estimated readily Historical events may be used as analogy Experts can judge its likelihood in that specific case as: Unheard of Very rare Rare Probable Highly likely A mitigation strategy include community awareness campaigns But risk cannot be eliminated A contingency plan is prepared if threat is realised Continuous tracking of the status of community response is essential It all goes back to project team and their competencies! Slide 22 Example of an internal threat An IT/IS system may fail to perform the intended functions Client may take legal action against vendor This is a project failure risk Often realised due to poor management of by both clients and vendors Particularly poor communication Competent managers can eliminate this risk It could also be a case of vendor not acting honestly Failure may be at the client organisation Not applying a proper project governance model Not following a systemic acquisition strategy Not having a competent project management team Not having a well developed project brief/business case It is all about people and their competencies! 68

69 Slide 23 Tendencies in current project risk management Focus is mainly on project delivery side (schedule, cost) Risk averse attitude Mostly subjective approach Not dynamic Not directly linked to project value proposition Not differentiating between risks & uncertainties Not strategically focused This slide shows that the current project risk management practices tend to be incomplete as they have a primary focus on the risks faced during the delivery phase of projects. They also tend to engender a risk averse attitude. Very often risk management is manipulated by subjective numbers assigned to either probability or magnitude of risk. Also, there is no direct linking of risk treatment strategies to the enhancement of project value proposition. All up, a strategic focus is missing as most risk management efforts are directed to overcoming tactical difficulties during the project implementation. 69

70 Slide 24 What is wrong with current project risk management? Base project solution (business case & plan) is taken as granted Risks are identified & mitigated to realise the above This may lead to sub-optimal results True risk/opportunity management requires challenging base solutions Setting stretched targets in terms of project value enhancement & risk mitigation Deriving breakthrough solutions As advocated in typical published literature and textbooks or Standards, risk management starts after the baseline design and plan are available; its purpose is to mitigate risks that pose threats to the realisation of the base plan. This practice tends to lead to sub-optimal outcomes as all that is done is to smooth the path to achieve the base plan. True risk management needs to challenge the base plan and using it as no more than a starting point. The project participants need to radically challenge the project business case, project assumptions, its implementation strategy and other key drivers. They need to come up with solutions that can enhance the project value and reduce its exposure risks. This is a creative process; it requires setting stretched targets for the project and then deriving breakthrough solutions. 70

71 Slide 25 Risk & uncertainty mindset Uncertainties are high at the front-end Aim to resolve uncertainties favourably so as to secure an optimal future wrt: Objectives and outcomes Processes and resources Statutory obligations and Associated liabilities Proactive flexible approach is anticipative not reactive Time spent on reconnaissance is seldom wasted Risk management begins with a correct mindset. It is really a way of thinking about project and its constituent parts. We can refer to this a risk vigilance culture. Project front-end is characterised by high levels of uncertainty that need to be resolved favourably in a measured way. Not all of all of the risks and uncertainties can be visible (see the photo and you cannot see beyond a certain depth and do not know what lies ahead). 71

72 Slide 26 Key Success Factors in Risk Management People and commitment Balanced multi-discipline team with commitment to achieve exceptional results Competencies Success in managing risks depends competencies in project business and implementation management Information Data and assumptions over project life cycle influence results. Whole of life approach critical to success Tools Computer-based tools are needed for project modelling, simulation and testing of plausible strategies etc. Ultimately, successful risk management (aside from good fortunes) is dependent on the project team, client team and contractors commitment to achieve exceptional results for the project. It is not a mechanistic process. In addition to commitment, the aforementioned teams need to possess the right blend of competencies across all project functions or acquire the same to strengthen their capabilities. Information, including those applied as assumptions as how things will unfold over project life cycle, will also influence the outcome and thus communication management is pivotal to risk management. Finally, tools are needed to model and simulate the project to assess the respective outcomes. For example, the NVP Distribution that was shown in Slide 4 cannot be derived manually; it has to be simulated using computer-based software (Monte Carlo simulation). So provision of tools and information systems is fundamental to good risk and communication management. 72

73 Slide 27 Summary Project risk management commences at project concept stage Decisions are made while considering risks & uncertainties Conduct systemic risk analysis immediately after completion of project design concept risk analysis Use risk analysis results to redesign or replan whole concept Apply creativity to come up with solutions that enhances project value, taking advantage of opportunities and eliminating or reducing exposure to threats Like quality, risks need continuous evaluation and response throughout the project life cycle Early emphasis can reduce potential risks & their impacts Very often risk analysis is conducted to show threats to a project and the emphasis is on the negative side. This may impede investments as the risk averse people tend to shy away from the so-called risky projects. The main purpose of risk analysis is to explore how the base value of the project can be improved taking advantage of the prevailing opportunities while seeking measures or changes that minimise exposure to threats. Realistically, the idea is to exploit the available opportunities to the full to add value to the project. It should be seen as a strategic approach. Also, given the fact that up to 85% of the project value is decided during the front end of the project, it is imperative to apply risk analysis and value engineering right at the start, as it is during this stage that one can take advantage of the prevailing opportunities. The front end provides maximum opportunity to devise effective mitigation strategies and quarantine the project against nasty surprises as far as possible. Risk management is thus not a mechanistic process but a smart approach to management of projects. 73

74 Slide 1 Asia Pacific International College Home of Transformative Education and Development SBM1202 Project/Program Management Fundamentals 4 Project/Program Risk Management Practice Slide 2 Risk Management according to PMBOK PMBOK (2008) has 6 interacting processes It is performed relatively late in the process After a project is basically planned Its focus is on scope, schedule, cost and performance This is in contrast to APIC s approach that is primarily focused on the business case and triple project objectives Many consider Risk Management as equalling Project Management And PMBOK or similar model practices as a RM tool 74

75 Slide 3 Processes in Risk Management - PMBOK2008 Plan Risk Management Identify Risks Perform Qualitative Analysis Perform Quantitative Analysis Plan Risk Responses Monitor and Control Risk Responses These Processes are briefly described in the following slides. For details please see PMBOK2008 published by the PMI. Slide 4 Project Risk Management Process (PMBOK, 2008) 75

76 Slide 5 Plan Risk Management Plan risk management is a process that results in Project Risk Management Plan A risk management plan is a strategy document that states how risk management activities are to be conducted throughout project life cycle and includes: Methodology Roles and responsibilities Budgeting Timing Scoring and interpretation Thresholds Reporting formats Risk Breakdown Structure and Tracking The intention is to have a systemic approach to risk management Slide 6 76

77 Slide 7 Risk Breakdown Structure PMBOK2008 Slide 8 Identify Risks Risks are identified through reviews by: Project team Risk management team Subject matter experts Client Contractors End users Permit authorities Others It depends on the project size, type & complexity It is an iterative process, project team, then other stakeholders and then independent experts Often simple and effective risk responses can be developed and implemented during this stage 77

78 Slide 9 Identify Risks This diagram shows that risks considered by PMBOK Standard are those related to project time, cost, WBS, activities, quality, stakeholders and project documents At the end it makes a cursory reference to Enterprise Operations Slide 10 Input to risk identification RM plan Understanding project mission, objectives, importance to client/owner and eventual end users critical Project Management Plan: Project charter Product description WBS Schedule and cost estimate Resource plan Procurement plan Assumptions and constraints list Etc. Risk categories Technical, quality or performance risks PM risks Organisational risks (project not sufficiently aligned or integrated with the sponsor organisation s operations, etc. External risks, such as legislation, natural disasters, etc. Force majeure Historical information Project files Published information, including relevant technical report, commercial data, etc. 78

79 Slide 11 Tools and techniques for risk identification Documentation reviews Information gathering techniques: Brainstorming (e.g. multidisciplined team, define & categorize) Delphi (can reduce or eliminate the undue influence of individuals) Interviewing (structured interviewing of experts and project managers who have had prior relevant experience) SWOT analysis Check lists (useful starting point), using: Historical check lists Specific check lists Assumptions analysis to test validity of assumptions used in planning the project Diagramming techniques; Cause and effect relationships (useful to identify risk causes) System or process flow charts Influence diagrams (diagrams to show causal influences, time ordering of events and other relationships among variables and outcomes Slide 12 Risk Register List of identified risks and their categories, include as much detail as possible but in a structured format Triggers, also known as early warning signs or symptoms that indicate a risk is about to materialise or has already materialised Input to other processes. Risk management may highlight deficiencies in the project plan and its components (scope, WBS, schedule, etc.) 79

80 Slide 13 Perform Qualitative Risk Analysis A RM process aimed at assessing the risks identified earlier It precedes quantitative risk analysis The objective is to rank and prioritise risks As the name implies it is done subjectively Should be repeated regularly (often it is done informally) Can identify time-criticality of given risks and guide the development of risk responses On low risk projects there may be no need to conduct quantitative risk analysis Slide 14 Source: PMBOK

81 Slide 15 Techniques of qualitative risk evaluation Risk probability and impacts (see example) Probability/impact rating matrix (see example) Project assumptions testing Planning is often based on assumptions about the future These assumptions should be tested wrt validity and consequences Data precision ranking Determines if data gathered is useful for risk analysis: Quality, extent, reliability of the data Clarity and ambiguities 81

82 Slide 16 Qualitative risk assessment scales - example Probability Impact Ranking Linguistic term Frequency in % 1 Unheard of 0-1% 2 Very rare 1-2% 3 Rare 2-5% 4 Moderate 5-10% 5 Frequent >10% Order Linguistic term Impact in CM* 1 Marginal <10% of CM 2 Serious 10-50% of CM 3 Most serious % of CM 4 Critical % of CM 5 Catastrophe >500% *. CM stands for Contribution Margin or expected net annual profit from the project. It can also be project NPV or total Project Cost. (Adapted from Elkjaer and Felding 1999) This slide shows a sensible scale for subjective evaluation of probability of occurrence and associated risk impact. In the hands of knowledgeable people and with adequate time and multi-discipline group of professionals undertaking brainstorming, it will be possible to get a good feel of project risks and uncertainties and to judge the same in terms of the above scale. Slide 17 Impacts of risks on the project as a whole Probability Impact Unheard of (0-1%) Very Rare (1-2%) Rare (2-5%) Moderate (5-10%) Frequent (>10%) Marginal (<10%CM) Risk A Serious (10-50% CM) Risk B Risk C Most serious (50-100%CM) Risk D Risk E Critical ( %CM) Risk F Catastrophe (>500%CM) Risk G Risk H 82

83 Slide 18 Selecting scales for both probability and impacts (PMBOK,2000) Ordinal or Cardinal scales used Ordinal uses descriptors, e.g. very low, low, moderate, high, very high Cardinal uses numeric values Cardinal scales are either: Linear e.g..1,.3,.5,.7,.9 Non-linear e.g..05,.1,.2,.4,.8 (non linear scales are often preferred) Organisational templates define which scale type to use Slide 19 Technique for evaluating impacts of a given major risk on objectives* Impact scale** Objective Very low (0.05) Low (0.1) Moderate (0.2) High (0.4) Very high (0.8) Cost Insignificant cost increase <5% cost increase 5-10% cost increase 10-20% cost increase >20% cost increase Schedule Insignificant schedule slippage Schedule slippage <5% Overall schedule slippage 5-10% Overall schedule slippage 10-20% Overall schedule slippage >20% Scope Insignificant scope changes Minor changes to scope Major areas of scope affected Scope changes unacceptable to the client Project end item is not useful to the client Quality Insignificant changes to quality Some project areas are affected Quality changes need client s approval Quality reduction unacceptable to the client Project end item effectively unusable *. Source: PMBOK, 2000 (page 136) **. Only one cell is ticked for each major risk against each objective. Non-linear numeric values used as scale for impacts and in order to avoid risks with high and very high impacts. 83

84 Slide 20 PMBOK2008 Criteria for Assessing Negative Impacts Slide 21 Source: PMBOK

85 Slide 22 Perform Quantitative Risk Analysis The purpose is to quantify major risks numerically using decision trees and Monte Carlo simulation Purpose is to: Determine probability of achieving a target, e.g. target completion date Quantify the extent of risk exposure Determine size of contingency reserves wrt project cost and schedule Identify critical risks needing the most attention over project life Set realistic and achievable cost, schedule and scope targets Slide 23 Source PMBOK

86 Slide 24 Quantitative risk analysis tools and techniques Interviewing Purpose is to gather information on probability distribution of risk factors or project components through expert interviews Important to document the rationale for each risk distribution (range & probability distribution) It provides information for risk analysis Sensitivity analysis Hold the value of all variables but change one to see its impact on the project objectives (e.g. cost) Needs common tools such as Excel or MS Project Slide 25 Example of risk interview outputs WBS component Work package 1 Work package 2 Work package 3 Work package 4 Low ($m) Most likely ($m) High ($m) Total project cost estimate is $47 million, often used as the base estimate What is the probability of successfully delivering the project to this budget? 86

87 Slide 26 Quantitative risk analysis tools and techniques Decision tree analysis A tree diagram evaluating different pathways and outcomes of an event Event value is computed for each pathway See example Simulation Uses Monte Carlo (numeric) simulation to assess the project exposure to combined risks At least of the input variables should be stochastic All variables can be stochastic Trial computations are applied using a computerised tool The results for objective function turned into a histogram or probability distribution (see example) Slide 27 Distribution examples (triangular and beta) Area = 1 (100%) Area = 1 (100%) Low Most likely High Low Most likely High WBS component Low ($m) Most likely ($m) Work package Work package High ($m) Work package Work package

88 Slide 28 Example of a decision tree Decide which of the alternative designs will meet project duration requirements Strategic needs dictate duration< 30 months Design A Favourable weather 0.3 Poor weather 0.3 Favourable weather 0.3 Normal 0.4 Project duration 24 months 28 months 34 months 28 months Design B Normal months Poor weather months This slide shows the decision tree for two alternative designs or plans, against different expected weather conditions. Note that Design B is able to shield most of the works from the adverse effects of the weather, so it is less sensitive to weather conditions than Design A in this hypothetical example. 88

89 Slide 29 Example of a decision tree (solution) Desgin A Desgin B 0.3x24 0.3x28 0.4x28 0.4x30 0.3x34 0.3x30 Expected value (months) Expected value (months) Choose Design A on the basis of EV However, 30% probability that project duration will be 34 months Design B has no risk of exceeding 30 months Based on a lower expected value, the decision makers may go for Design A. However, if the strategic needs dictate that project duration shall be less than 30 months then this choice entails uncertainty as to whether the project will be delivered to the required duration as there is a probability of 30% that it won t be. Which choice to make? Other things being equal, the choice depends on the impact either alternative have on the LCOFs, say project NPV. However, if for statutory or other operational reasons the project must come on line within 30 months and other things being equal, Design B is preferable. 89

90 Cumulative Probability Density Function School of Business Management, Project Management Graduate Program Slide 30 An example of project cost distribution* 100% 75% 50% 25% 20% 90% Characteristic Value 0% Total Project Cost ($m) * simulated output using numeric simulation tools Slide 31 Explaining the project cost distribution example There is only 20% probability in this example that the total project cost will be less than or equal to $47 million The example shows that the most likely cost estimate (what estimators typically produce) is well short of the mean value, $56m, Let the mean value be the project base cost The 90% characteristic value is $65.5 million approx. This means there is 90% chance that the total project cost will be less than or equal to $65.5 million So if this project wants to fix a contingency reserve a possible solution is = $9.5 million Relative to most likely value the contingency is = $18.5 m 90

91 Slide 32 Plan Risk Response The purpose is to develop response measures to tap opportunities and mitigate against threats to ensure realisation of project objectives/scope Process is to: Take all information on board Prioritise risks for treatment Develop appropriate strategies to treat risks Assign responsibility for each Evaluate actions against project risk management plan Set contingency reserves Document and communicate the response plan Implement and monitor results Feedback and modification of risk response plan 91

92 Likelihood of occurrence School of Business Management, Project Management Graduate Program Slide 33 Risk classification mapping Risk approach High Eliminate Medium Replan Low Reduce Very low Monitor/Respond Accept/manage Very low Low Medium High Degree of impact (Adapted from Elkjaer and Felding 1999) This slide shows a suggested framework for mapping of risks two dimensionally in accordance with the degree of impact and associated probability of occurrence. The shading is an indication of the magnitude of impact and probability. Risks situated in the upper left quadrant are the most significant ones to tackle. Note that the suggested strategies to tackling these risks are notional and a lot depends on whether or not the planners are able to influence a given risk or not and or whether or not it is possible to predict the probability of the given risk materialising. 92

93 Slide 34 Risk Treatment Process Risk management plan Risk identification & classification Qualitative risk analysis Quantitative risk analysis Risk response planning Can it be eliminated? Yes Develop new strategy/plan No Can it be reduced? Yes Re-design Re-plan No Shelf Project Can it be transferred? Yes Insurance & indemnities No Can it be distributed? Yes Contractual terms No No Can it be accepted? Yes Manage risk This slide shows a prudent risk response planning approach, particularly applicable to major risks. It is most important to follow the order depicted in the above diagram when planning a response to a given risk. 93

94 Predictability School of Business Management, Project Management Graduate Program Slide 35 Ability to respond to risks High Transfer/ Hedge Risk B Eliminate/ Reduce Risk C Risk A Risk D Medium Low Monitor/ Standby Emergency QM Plans Risk E Low Medium High Ability to influence (Adapted from Elkjaer and Felding 1999) We cannot eliminate or substantially reduce all risks. Our ability to influence risks varies depending on our degree of influence as well as our ability to predict how a given risk factor or a given uncertainty will affect the project outcomes. The notional strategies suggested in the above diagram are for guide only. The worst situation (in terms of control over risks) is the low-low quadrant in the above diagram. This is because we can not predict the impacts and associated probabilities of occurrence and also we lack ability or authority to influence the same. Nobody could have foreshadowed the events of September 11 th 2001, which led to profound business consequences around the globe. While this is an extreme event, it illustrates that it is not possible to identify and always positively influence a given risk factor. 94

95 Slide 36 Monitor and Control Risk Responses Purpose is to determine: If risk response plans are executed and their effectiveness established If not effective, risk response plan revised If project assumptions are still valid If project exposure to risks reduced as planned If a risk trigger has been witnessed If proper policies and procedures are followed If new risks are identified, analysed, treated and monitored It is a continuous process! Slide 37 Source: PMBOK

96 Slide 38 Some observations on Risk Management Creativity and innovation Project risk management should be a tool engendering creativity and development of breakthrough solutions. It is also a state of mind/culture Business Case Optimisation Risk management effectiveness should be related to optimisation of project business case (whole of life approach) not necessarily focused on the delivery process People and Competencies Also, risk management goes back to people and their insights, competencies, practices and tools they apply Tools for Risk Management Project Health Check tool is intended to assess whether or not the right capabilities (management team and their competencies) are in place and whether or not the practices applied are optimum for the project under consideration. This is the most important factor in achieving successful risk management 96

97 Sensitivity Analysis Take y =f(v1, v2, v3, v4,.) We are aiming to construct a sensitivity chart that corresponds to variations in y due to the range of variations assigned to v1, v2, v3, respectively one at a time. It is better to construct a radar chart to present variations to y. Show the respective variation to y due each variable on a straight line labelled with the name of the variable under consideration. For example, if we have v1, varying within a range of values and substituting these values for v1 in the above function (and keeping each of the other variables at their base value) we will obtain a range of values for y. We can show this range of y values along a straight line as shown in the following chart. We can repeat the process in respect of each of the variables and show the results on different straight lines we end up with a radar chart as per the example shown below. Steps to construct radar chart for sensitivity data: Compute variations of y due to the range of variations in v1 (other variables remaining constant). Then show the corresponding variations for y on a line labelled as v1 Repeat this for other variables (v2, v3, ) one at a time. Prof. A Jaafari 97

98 Show the envelope line to clearly indicate the extent of variability of y to each of the variables v1, v2, The chart shows how y varies relative to variations in each of the variables. The chart can show in an instant how sensitive y is relative to maximum variations in each of the variables under consideration. In the above example, we note that y will have a minimum value of -4 and a maximum value of 10 against variations in the value of v4. So it can be said that y is sensitive to variations in the value of v4. On the other hand, y is not that sensitive to variations to v2 (varying from to 1.2 respectively). This sort of chart permits isolating sensitive variables and then aiming to find the underlying root causes that give rise to variations in y. The team can then come up with strategies or changes that will reduce variability in y in respect of each of the sensitive variables. This technique provides a priority order to tackle variables. In the above example, first v4 then v1 and v3 and finally v2 are examined and changes made to the project plan to address the variations. After replanning it will be prudent to redraw the above chart to confirm that the changes introduced will impact y in a favourable manner (reducing the extent of variability). Note the following weaknesses in the above analysis: 1. The variability in y does not take into account the interdependency of variables v1, v2, v3, (so it will be accurate when all variables are independent from one another and do not impact y in an interdependent manner). 2. The probability of values assigned to each of the variables v1, v2, is not known. In other words, we are assuming each of the values assigned to these variables in the above function is equally likely to occur. This flies on the face of the law of statistics whereby extreme values are assumed to be less likely to occur. 3. It is important to note that typically changes in a project or system can compensate each other. So it is important to have one single measure or distribution to characterise the function under consideration. That single measure is often the simulated distribution for y against all variations due to variables v1, v2,... and considering the likelihood of each value assigned to these variables. Essentially that measure is found through Monte Carlo simulation.. Prof. A Jaafari 98