Topic title/heading. Definition

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1 Topic title/heading Risk techniques Definition No more than a few sentences required approximately 30 words. It should be succinct, and wherever possible, independent of the level of project/programme/portfolio at which the section is applied. Risk Techniques are methods of carrying out particular elements of the Risk Management process with Risk Tools being used to record risk management data or undertake analysis on this data. General Generic description of the topic including universal principles independent of project/programme/portfolio levels in no more than 500 words. Any terms that tie the text to a particular level should be avoided. In some cases, especially in sections 1 and 4, this will be most, if not all of the content. Risk Techniques are methods of carrying out particular elements of the Risk Management process that have through proved their effectiveness over many years of use. Risk Tools can be specialist software products that employ database applications for recording risk data or performing quantitative analysis (Monte Carlo simulation). Although not a technique it is important to develop a positive Risk Management Culture that is open to all and demonstrates an active awareness and involvement with the Process. Additionally; working closely and aligning with other Project Management processes can enhance the value of data being captured through the techniques shown below. The following is a short selection of risk management techniques taken from a more comprehensive listing at Reference 1. Risk Identification Techniques: Assumptions and Constraints Analysis: Assumptions can be used to identify threats taking that the assumption is violated. Constraints can be assessed in a similar manner. Check lists: A checklist is a detailed aide-memoire for the identification of risk taking account of past experience. Prompt Lists: A prompt list is another form of risk identification aide-memoire, but one that uses headings, usually related to generic sources of risks. Brainstorming: Brainstorming captures risks quickly, and provides an event that can be used to raise enthusiasm for risk management across a team. Interviews: Interviews are often used for risk identification when it is not practicable to commit a team to a single meeting. Qualitative Risk Assessment Techniques: Probability Assessment: The risk probability is the estimated likelihood of the risk event occurrence Page 1 of 5

2 and is typically recorded as a percentage. Impact Assessment: Risk impact is the estimated assessment of the consequences should the risk occur. Benefit Assessment: In Reference 1, Benefit refers to the equivalent assessment for an opportunity-related risk. Quantitative Risk Assessment Techniques: Monte Carlo Analysis: Monte Carlo analysis is a widely practised technique for quantitative risk analysis. Input variables are simulated with multiple iterations to produce output confidence levels for cost or time targets. Decision Trees: A decision tree is a quantitative method of modelling showing the possible effects of each decision given the prevailing status. Each outcome is assigned a probability of occurrence allowing the most probable outcome to be determined. Sensitivity Analysis: Sensitivity analysis seeks to examine the sensitivity of a model to individual parameters, risks or solution options. Sensitivity analysis may also be applied to quantitative risk models, including those based upon Monte Carlo analysis, decision trees and influence diagrams. Knowledge Based Risk Assessment: There are a number of risk assessment models that use a knowledge base formed from data arising from previous projects. These models interrogate the knowledge base using a set of generic questions or variables related to the nature of the project and its environment. Risk Control Techniques: Risk control is the process of translating risk assessment information into mitigation action. The processes of risk identification and assessment provide data that improves the predictability of project outcome and identifies key areas for management attention. Project dimensions to the topic An explanation of the application of this topic at a project level is to be included here in no more than 420 words. Anything that applies to programmes and portfolios as well as projects should be included in the general section. This section may reasonably be divided into projects that are part of a programme, and those that are independent components of a portfolio. N.B. The APM definition of a project is: A unique and transient endeavour undertaken to achieve a desired outcome. Programme dimensions to the topic An explanation of the application of this topic at a programme level is to be included here, where applicable. Where the general principles need to be adapted, enhanced or extended for specific programme application, where content is different or additional to that for project aspects to this topic above, it may be added below in no more than 420 words. Anything that applies to projects and portfolios as well as programmes should be included in the general section. If there are no such applicable adaptations, enhancements or extensions, please enter the following text in Page 2 of 5

3 the space provided NO SPECIFIC ADAPTATION REQUIRED OF THE TOPIC FOR PROGRAMME MANAGEMENT. N.B. The APM definition of a programme is: A group of related projects, which may include business-as-usual activities, that together achieve a beneficial change of a strategic nature for an organisation. Though Risk Techniques can be universally applied across Projects, Programmes and Portfolios - Programmes represent unique challenges around risk. Business change programmes may involve wide-ranging business and technical risks of scale which often demonstrate significant and numerous delivery inter-relationships. Programme risks are often ones which are expensive to bear - being closely aligned to business strategies and key operational resources. The Programme Sponsor should be fully committed at the outset of the Programme to openly discuss the effective utilisation of a variety of risk techniques. This attitude will aid his decision making around aspects of risk reduction and help him to determine what amount of risk is acceptable to bear as the programme progresses through it s life. Programme Managers, in supporting this objective, should understand which approaches / tools are best suited to consider as the Programme passes through its stages of Feasibility, Design and operation. At Feasibility stage, Programme Managers will need to consider how to structure the programme in order to implicitly optimise the risk /reward balance. Key judgements made around the programmes investment and expected benefits must be made within this context of risk /reward. Often intended projects within programmes, when risk assessed, result in the Programme Manager needing to advise the Programme Sponsor to reprioritise those projects within his programmes scope. During the Programme Design stage, it will be necessary for Programme Manager to focus upon the best ways to tranche up the Programmes delivery in order to best spread those business and technical risks. This will result in an assured management position as the programme starts. Once the Programme moves into its Operation stage the total risk exposure of the programme should be known, documented and costed. The Programme Manager should administer risk techniques to control and mitigate those key risks which may negatively affect the programmes delivery. Often, this demands a strong interface management awareness across the programme and a constant reviewing of the resource balance and utilisation of staff within his project teams. It is clear that the softer, people focused risk techniques have great value within the world of programmes. The Programme Manager must learn to effectively instruct how to adopt and communicate their benefits. In doing this those business challenges facing the programme will be better understood, costed and protected against. Though Risk Techniques can be universally applied across Projects, Programmes and Portfolios - Programmes represent unique challenges around risk. Business change programmes may involve wide-ranging business and technical risks of scale which often demonstrate significant and numerous delivery inter-relationships. Programme risks are often ones which are expensive to bear - being closely aligned to business strategies and key operational resources. Portfolio dimensions to the topic An explanation of the application of this topic at a portfolio level is to be included here, where applicable. Where the general principles need to be adapted, enhanced or extended for specific portfolio application, where content is different or additional to that for project and programme aspects to this topic above, it may be added below in no more than 420 words. Anything that applies to projects and programmes as well as portfolios should be included in the general section. If there are no such applicable adaptations, enhancements or extensions, please enter the following text in the space provided NO SPECIFIC ADAPTATION REQUIRED OF THE TOPIC FOR PORTFOLIO Page 3 of 5

4 MANAGEMENT. N.B. The APM definition of a portfolio is: A grouping of an organisation s projects, programmes and related business-as-usual activities taking into account resource constraints. Portfolios can be managed at an organisational, programme or functional level. Many of the techniques applied at the project and programme level can equally be applied at the level of the portfolio. Use of Monte Carlo analysis and decision trees can help to develop the understanding of the risks that arise from the external business environment and could affect all projects within the portfolio. Information can be obtained by scanning the business environment for trends in factors that could pose a risk to the portfolio. This information can be used to develop different scenarios that may occur in the future and response strategies that provide risk mitigation to the portfolio can be developed. In developing scenarios the intent to explore multiple views of the future business environment rather than try to forecast the most likely scenario. Focusing on a single mitigation strategy against a single forecast puts all the eggs in the same basket. By developing several views of the future, several different mitigation strategies can be established and the one that provides the best fit can be adopted as the business environment changes. Key function of portfolio management is to maximise the value of the portfolio within acceptable levels of risk. Plotting the strategic value of each project against the risk of each project (figure 1) can provide a visual representation of the portfolio that allows senior management to assess whether the portfolio in aligned with their risk tolerance. It would normally be assumed that those projects with lower strategic value and high risk should be targeted to reduce the level of risk, improve the value or ultimately terminate the project. However care must be taken as these projects may be key enablers for other projects, for example creating the basis for expansion into new business areas. High Size of circle indicates project cost Strategic Value Level of Risk High Figure 1 - Value / Risk analysis of projects within the portfolio Page 4 of 5

5 Further reading All cited references, and items for further reading should be listed together in a section headed, further reading. You may use the Harvard system of referencing. This requires the author name, title, date of publication, publisher and place of publication. Provide us with these basic details and our copy editors will be able to complete the task. Appendix B, Management of Risk (MOR), OGC ISO3100 APM PRAM Guide See recommended further reading for 3.5 and Page 5 of 5