Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project

412 Pages·2015·3.06 MB·English

by  Tom Kendrick PMP

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Identifying
and
Managing
Project Risk
American Management Association • www.amanet.org
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Identifying
and
Managing
Project Risk
Essential Tools for
Failure-Proofing Your Project
Third Edition
Tom Kendrick, PMP
American Management Association
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Library of Congress Cataloging-in-Publication Data
Kendrick, Tom.
Identifying and managing project risk : essential tools for failure-proofing your project /
Tom Kendrick. — Third edition.
pages cm
Includes bibliographical references and index.
ISBN 978-0-8144-3608-0 (hardcover)
ISBN 0-8144-3608-0 (hardcover)
ISBN 978-0-8144-3609-7 (ebook)
ISBN 0-8144-3609-9 (ebook)
1. Risk management. 2. Project management. I. Title.
HD61.K46 2015
658.4’04—dc23 2014039980
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© 2015 Tom Kendrick.
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Contents
Acknowledgments vii
Introduction 1
CHAPTER 1: Why Project Risk Management? 4
The Doomed Project • Risk • Opportunities and Risks • Benefits of Project
Risk Management • Costs of Project Risk Management • The Project Risk
Management Process • Anatomy of a Failed Project: The First Panama
Canal Project
CHAPTER 2: Planning for Risk Management 22
Project Selection • Overall Project Planning Processes • Defining Risk
Management for the Project • Risk Management Infrastructure for the
Organization • The PERIL Database • A Second Panama Canal Project:
Sponsorship and Initiation (1902–1904)
CHAPTER 3: Identifying Project Scope Risk 49
Sources of Scope Risk • Defining Deliverables • High-Level Risk
Assessment Tools • Setting Limits • Work Breakdown Structure
• Other Scope-Related Risks • Documenting the Risks • Panama Canal:
Setting the Objective (1905–1906)
CHAPTER 4: Identifying Project Schedule Risk 79
Sources of Schedule Risk • Activity Definition • Estimating Activity Duration
• Activity Sequencing • Documenting the Risks • Panama Canal:
Planning (1905–1907)
CHAPTER 5: Identifying Project Resource Risk 108
Sources of Resource Risk • Resource Planning • Staff Acquisition
• Outsourcing • Effort Estimates Adjusted for Risk • Cost Estimates,
Budgets, and Risk • Documenting the Risks • Panama Canal:
Resources (1905–1907)
CHAPTER 6: Managing Project Constraints and
Documenting Risks 136
Analyzing Constraints • Managing Opportunities • Scope Modification
• Resource Modification • Schedule Modification • Assessing Options and
Updating Plans • Seeking Missing Risks • Creating a Risk Register • Panama Canal:
Improving the Plan (1906)
v
American Management Association • www.amanet.org
vi CONTENTS
CHAPTER 7: Quantifying and Analyzing Activity Risks 161
Qualitative and Quantitative Risk Analysis • Probability and Impact • Qualitative
Risk Assessment • Quantitative Risk Assessment • Panama Canal: Risks (1906–1914)
CHAPTER 8: Managing Activity Risks 189
Root Cause Analysis • Categories of Risk • Selecting Risks to Address
• Risk Response Planning • Dealing with Risk Causes • Implementing Preventative
Ideas • Dealing with Risk Effects • Documenting Your Risk Plans and Risk Owners
• Managing a Specific Risk • Bow Tie Analysis for Documenting Risk Responses
• Panama Canal: Risk Plans (1906–1914)
CHAPTER 9: Quantifying and Analyzing Project Risk 232
Project-Level Risk • Aggregating Risk Responses • Project Modeling and Simulations
• Integrated Schedule/Cost Assessment • System Analysis • Critical Chain Considerations
• Questionnaires and Surveys • Analysis of Scale • Project Appraisal • Scenario Analysis
• Project Metrics • Financial Metrics • Panama Canal: Overall Risks (1907)
CHAPTER 10: Managing Project Risk 276
Project Documentation Requirements • Project Start-Up • Selecting and
Implementing Project Metrics • Establishing Reserves and Managing for Contingency •
Project Baseline Negotiation • Project Plan Validation • Specification Change Control •
Panama Canal: Adjusting the Objective (1907)
CHAPTER 11: Monitoring and Controlling Risky Projects 299
Don’t Panic • Applying the Plan • Project Monitoring • Collecting Project Status
• Metrics and Trend Analysis • Responding to Issues • Communication and Risk
Reporting • Project Archive • Managing Risk Reserves • Project Reviews and Risk
Reassessment • Taking Over a Troubled Project • Panama Canal: Risk-Based
Replanning (1908)
CHAPTER 12: Closing Projects 321
Project Closure • Project Retrospective Analysis • Panama Canal: Completion (1914)
CHAPTER 13: Program, Portfolio, and Enterprise Risk Management 330
Project Risk Management in Context • Program Risk Management • Portfolio Risk
Management • Enterprise Risk Management • Panama Canal: Over the Years
CHAPTER 14: Conclusion 367
Choosing to Act • Managing Your Risks • Panama Canal: The Twenty-First Century
APPENDIX: Selected Detail from the PERIL Database 373
Scope Risks • Schedule Risks • Resource Risks
Index 381
About the Author 391
Free Sample Chapter from The AMA Handbook of Project
Management, Fourth Editionby Paul C. Dinsmore, PMP, and
Jeannette Cabanis-Brewin 394
American Management Association • www.amanet.org
Acknowledgments
T
he third edition of this book rests on more decades of project
work than the earlier editions, as well as many hours of discussion
about project management and project risk (including more than a little
good-humored disagreement). It is also the consequence of many pre-
sentations and workshops on project risk management. Project work
described in this book includes projects I have led at Hewlett-Packard,
DuPont, and elsewhere, in addition to other projects done by col-
leagues, friends, and workshop participants from an enormous diversi-
ty of project environments. The large number of project situations that
serve as the foundation of this book ensures that it is aligned with the
real world and that it contains ideas that are practical and effective—
not just based on interesting theories.
It is not possible to specifically acknowledge all of the people
who have contributed useful content about projects and risk found in
this book, but I need to single out a few. High among these are my col-
leagues from the HP Project Management Initiative team, where I spent
more than a decade. These folks served as a boundless source of wis-
dom and good examples, and they were always quick to point out any-
thing I said that was nonsense. Although all have now moved on, we
remain close as friends, as critics, and as associates. From this group, I
am particularly indebted to Richard Simonds, who diligently reads most
of what I write and complains surprisingly little. I also owe big debts to
Terry Ash, Richard Bauhaus, Ron Benton, Wolfgang Blickle, Charlie
Elman, Randy Englund. Denis Lambert, John Lamy, Patrick Neal, Patrick
Schmid, Ted Slater, and Ashok Waran.
I also need to acknowledge others who contributed to this
book, particularly John Kennedy, who ensured that anything I said
about statistics was within defendable confidence limits, and Peter de
Jager, who bears many Y2K risk management scars.
I am also grateful for support, guidance, and constructive criti-
cism helping to “advance the state of the art” within the project man-
agement RiskSIG, especially Chuck Bosler, Karel de Bakker, Craig
vii
American Management Association • www.amanet.org
viii ACKNOWLEDGMENTS
Peterson, David Hulett, David Hillson, Esteri Hinman, Pedro Ribeiro, and
Janice Preston.
Finally, my largest debt of gratitude in this endeavor goes to my
wife, Barbara, who encouraged this project, supported it, and read
many versions of the manuscript (including the boring parts). She
provided the book with most of its clarity and a good deal of its logical
structure. If the book proves useful to you, it is largely due to her
efforts.
While others have contributed significantly to the content of
this book, any errors, omissions, or other problems are strictly my own.
Should you run into any, let me know.
I also appreciate all the feedback and support from project risk
management facilitators and participants, which have been enormous-
ly helpful in creating this third edition of Identifying and Managing
Project Risk.If you are using this book to conduct training or university
classes and are interested in supplemental materials, please feel free to
contact me.
Tom Kendrick
San Carlos, California
[email protected]
American Management Association • www.amanet.org