Advanced Tools and Techniques for Risk Management
Advanced Tools and Techniques for Risk Management
As per the practice standard for risk management, there are additional tools and techniques used for risk management, in this article am highlighting ten major tools and techniques used in risk management processes.
- Cause and effect Diagram ( Ishikawa Diagrams )
Used in identify risks and plan risk responses processes, It presents in diagrammatic form the causes with contribute to given outcome, each cause can be split further into sub-causes, to use this technique for risk identification the outcome should be stated as an effect on the project objective, the diagram then identifies risks as those uncertain events which could result in occurrence of the impact, this technique usage for risk identification can lead to confusion between risk and issue, a risk is an uncertain causes of the impact while an issue is a certain cause of the Impact, a cause and effect diagram is a visual tool to help a person or group see the potential cause and identify new ones.
- Assumptions & Constraint Analysis ,
An assumption is a belief of what you assume to be true, but do not necessarily end up being true, it is made based on knowledge, experience or information available on hand. Most of the assumptions are made in the initiating and early planning of the project, usually the project team creates a bunch of them in order to do estimates, but some of these assumptions may not be true even though you needed to make them for the sake of estimates. All assumptions made should be written on a list as you should continually look at them; if one is false then risk was found, This analysis is performed by Four major steps:
- List all project constraints and assumptions
- Test Them by asking Questions relate to them
- Document risks relative to the Question answers
- Document the results in the Assumption Analysis Form
It can be also named Expert Interviews and it can be used in all risk management processes to gain expert opinions, expert Interviews may take the form of meetings, e-mails, telephone calls and letters, they are not informal discussions, they need to be planned, organized and controlled . In Risk management it’s often experts, the customer and senior management that a project manager needs to interview to obtain risks. You need to follow the Steps for an expert interview :
- Be Prepared with : What you want to gain from the interview and specific questions.
- Start by explaining why you are there and why you need to talk to them.
- It’s always better for the expert interview to be conducted by 3 persons , Generally one person asks the questions, another write down the answers and a third looks for nonverbal communications .
- Ask an open ended question to get their individual thoughts before you cloud their thinking by asking your prepared questions.
- Ask questions to clarify the interviewee’s responses .
- Ask the Prepare Questions .
- Ask follow up questions for each question you ask.
- Clarify Responses , usually by repeating them .
- Ask for Other Ideas.
- Tell them you may need to meet with them again.
- Tell them how to get in tough with you .
- Thank them for their time.
What are the advantages of using Expert Interviews?
- Obtain understanding of unfamiliar parts of the project.
- Uncover new risks .
- Gain Information about probability , impact , contingency and fall back plans .
- Gain the experts support for the project.
- Show your knowledge , skill and competency .
What are the disadvantages of using Expert Interviews?
- They take time .
- Requires careful preparation.
- Hurt repetition if done poorly.
- Hard to correct if done poorly.
- Experts are hard to reach and gain cooperation.
- Nominal Group Techniques
A Technique which used when you need a technique to gain a group’s opinion rather than individual opinions , very useful for risk identification , the result of nominal group technique is the groups buy in to the total group opinion on the specific risks of the project , it’s an adaption of brainstorming .Follow the Steps for Nominal Group technique :
- Determine who should be invited to suggest risks.
- Form groups of invitees.
- Collect a list of risks from each group member .
- Provide the group with list of all their risks.
- Ask each group member to rate each risk using a rating from 1 – 10.
- Tabulate all the ratings to obtain the group’s opinion of the top risks.
Advantages of Using Nominal Group Technique :
- Fast way to get group thinking .
- Use ranking gains buy-in to the results.
- Useful to explore high-level risks
The disadvantage is that a major risk can be identified by a member but not accepted by the group in their final top lists of risks .
- Affinity Diagram
The trick of using this technique is to look for missing categories using affinity diagram, in this technique the ideas generated from any risk gathering techniques are sorted into groups by similarities, each group is then given a title. This sorting makes it easier to see additional risks that have not been identified.
Advantages of conducting affinity diagrams include :
- They are fast.
- Fun and unusual.
- It produces more risks even after all other risk identification tools have been used , as usually 20% more risks can be identified.
- It change the pace of the risk identification efforts .
Disadvantages of conducting affinity diagrams include :
- It cannot be done virtually as people need to be in the same room.
- It shall be performed after other risk identification techniques .
- Conduct a “ Pre-Mortem”
It’s a meeting to come up with ideas , the assembled group is asked to imagine that the project is completed or has been terminated , It has failed to meet one or more of its objectives, the group is then asked to describe why the project has failed, the same shall be repeated while imagining the project is a success to find the opportunities.
Advantages of conducting a “pre-mortem “ include:
- Fun and unusual.
- Involves looking at the project from different perspective .
- It’s very useful in instances when the participants are too familiar with the details of the project to view it from another perspective.
- It encourages thinking outside the box.
Disadvantages of conducting a “pre-mortem “ include :
- It will not result in identifying all know risks .
- Some people have hard time imagining failure.
Identifying Risk is one of the most critical processes in Risk management, Everyone headed by the project manager should participate in order to list the maximum number of threats and opportunities, this big list will become shorter in the Qualitative analysis process as some of the risks will be eliminated or have a mini effect which doesn’t need a planned response. As any other process identifying risk will have its tools and techniques to help gather all project and activity risks, that includes Brainstorming , Delphi Technique , Affinity Diagrams , Expert Interviews , Failure mode and effect analysis , Force field analysis , SWOT analysis and other tools and techniques , I have chosen Brainstorming to talk about in this article as most of the people think they know everything about brainstorming , read this article carefully in order to be aware of how you should hold a brainstorming meeting as a professional project manager .
Mainly a Brainstorming meeting is to come up with new ideas and it helps building on each other ideas, it is used in a lot of Project management processes but it’s so important in Collect requirements & Identify Risk processes as both results in big lists, the project manager will usually lead the meeting and it can be led by an outside facilitator to keep everyone focused and to add direction.
Brainstorming Steps to Identify Risks
- Plan before the meeting for who will be invited to participate, you may hold more than one meeting with different categories of people.
- Manage 2 persons from the team to record ideas, having 2 scribes will guarantee that each single idea will be recorded.
- The place or the meeting room where you are having the meeting should be comfortable.
- State the agenda and the objectives of the meeting before it starts.
- Start by asking general questions about the project risks in order to get the attendee buy in to the meeting.
- It’s possible to categorize risks in this meeting
- It’s better to state risks in Cause – Risk – Effect format in order to make sure each risk is well defined.
- Rank the risks if you have time.
Brainstorming ( In my opinion ) is the best tool to use in order to get the biggest number of risks , everybody is familiar with the concept of this meeting , individuals can build on each other idea and as a result it ends with group thinking ideas .
- Delphi Technique
Delphi technique is one of the most important technique used in the Project management since it prevent any type of bias, mainly it is used in Collect requirements and Identify risk processes. In brief it is a request for information is sent to experts who participate anonymously, their responses are compiled, the results are sent back to the experts for further review until they reach agreement, It is a group decision making technique, In Risk management it can be used to obtain consensus of expert opinion on what work should be performed, what risks exist in the project, In this article am going to list the steps you as a project manager need to do to perform this technique in a professional way.
It is the facilitator’s responsibility to distribute the project details and request the expert’s opinions, collect the responses and then study the individual reports to define the areas of commonality and the areas of divergence. Wherever consensus is missing, the facilitator initiates a repeat of the process and strives to create a synthesis for final acceptance by all. It is important that the facilitator avoids interjecting any personal bias, belief or principle of his or her own into the process as this would taint the results, he should be neutral as much as possible.
Delphi Method Benefits:
- It gets consensus of expert opinion.
- It can be done virtually.
- It can focus on details of the project.
- Because there is no need for physical meetings of experts any conflict due to difference in opinion will be avoided.
Steps for the Delphi Technique:
- Determine who will be the facilitator, you can do this role as a project manager or you can find a neutral person within your organization, the facilitator should be familiar with data collection methods.
- Determine the panel of experts but keep the list anonymous, an expert is any individual with relevant knowledge and experience of particular topic.
- Define the subject you are willing to take the expert opinions about.
- Send out a specific request with attached details of the projects to each expert in the list and ask for his opinion.
- Collect expert opinions and compile them into one list while keeping the experts names anonymous.
- Start round two and resend this list to every expert so they can review all the thoughts, ask them for further comments based on the compiled list.
- Try to reach consensus, more rounds as well if needed.
8. SWOT Analysis
It identifies four characteristics of a given situation, Strengths, Weaknesses, opportunities and threats, this technique is commonly used in strategic decision making. It can be adapted for risk identification by changing the interpretation of the four perspectives, Such that strengths and weaknesses relate to the characteristics of the organization conducting the project , while the opportunities and threats identify the project risks, this technique is very useful for identifying internally generated risks within the organization.
- Risk Breakdown Structure – RBS
It is a hierarchical framework of potential responses of risk to a project, an organization can develop a generic RBS for use across all its projects, or a project may use a project-specific RBS, it contains RBS Levels 0,1,2 and so on categorizing each group of risks in the first level . Here are some major items which you should be aware of regarding the Risk breakdown Structure:
- The RBS serves as more than just a database for identifying risks to the project. When created, the RBS provides a vehicle for risk analysis and reporting, and risk comparison across projects. Most importantly, the RBS is the tool for risk identification.
- When you set with the team to identify risks, the risk breakdown structure will be very useful; Categories could serve as a great reminder while brainstorming.
- RBS is just one way to categorize risks, it is not a tool or technique by itself, and it should be included as a part of the risk management plan.
- Once you come up with a list of risk you will label each risk with one of these categories since that will make it easier to figure out how to deal with risks later.
- The first level of the RBS can be used as a sanity check to make certain that all topics that might include risk are covered during the risk identification process.
10. Analytical Hierarchy Process
Very useful in Subjective risk analysis process, it’s a method to calibrate preferences for achieving the different objectives of a project, what’s the relative weighting of the project objectives in terms of their priority to the stakeholders or to management, the results are weights that reflect the relative priority of each objective , the prioritization can be important in determining how trade-offs affecting different objectives will be decided, it can be also used to create an overall project risk priority list from risks that have been assessed on their implications for individual projects.
- Failure Mode Effect Analysis
It’s also known as Fault Tree Analysis , It’s a methodology for analyzing potential reliability problems early in the development cycle as it is easier to take actions in order to overcome these issues, used to assess the potential reliability of the product. It looks at the potential failure modes, determine the effect on the operation of product then then identify solutions to mitigate those failure modes, the team working on this process should formulate as extensive all possible failures as possible , the main goal of FMEA is to design the failure out of the product .
- System, Focus on the system function.
- Design, Focus on components.
- Process, Focus on manufacturing and assembling phase.
- Service, Focus on service function.
- Software, Focus on software functions.
When it is used?
In the earlier stage it was used by engineers in order to improve quality and reliability of design, here as we are focusing on Project and Risk management, we will consider usage of this technique in Identifying risk and creating the Risk register.
How to use FMEA?
Once the team is done with listing Failure modes, FMEA will rate the different risks associated with each failure mode, Failure modes with highest ranking are handled and documents in the risk management process as risks, highest ranking here is described with their risk priority number (RPN), below are the steps you should follow to perform FMEA in Identify Risk Process:
- Check if your organization have a standard FMEA work sheet or prepare one as follows
|Item/Function||Failure Mode||Potentials Effect||Severity||Causes||Occurrences||Controls|
- Start listing Items or functions with all possible failure modes.
- Describe the potential effects of these failure modes.
- Establish a numerical ranking of severity as a scale from 1 to 10.
- Identify causes of each failure mode listed.
- Establish a numerical probability factor (Occurrences) as a scale from 1 to 10 which indicates how likely this cause will happen.
- Identify current controls which may prevent this cause to happen.
- Determine the likelihood of detection; Detection is an assessment of the likelihood that the Current Controls will detect the Cause of the Failure Mode, thus preventing it from reaching the Customer. Based on the Current Controls, consider the likelihood of Detection using.
- Calculate the Risk Priority number (RPN)
- Identify recommended actions to address risks with high RPN.
- Assign responsible and target date for those risks.
- Indicate actions taken.
- Keep updating FMEA Sheet.
- Determine risks and actions taken to reduce risks.
- Focuses on product improvement and development.
- Increase customer satisfaction.
- Emphasize problems prevention.
- Early identification and elimination of potential product/process failure modes.
- Increase customer satisfaction.
- Improve Product reliability and Quality.
- Risk Categorization
Grouping risks into categories may lead to improved analysis of the probability and magnitude of project risk and to effective responses, one major category is the root cause category, some risks may be linked in a casual chain, and understanding the chain of risks may lead to a better understanding of project risk, a combination of risk analysis information with the work breakdown structure can show the areas of the project that exhibit the highest risk , it’s very useful sort the project risks by cause, If you use the cause-Risk-Effect Format to write your risks and then sort them by cause , you might discover that one activity, person, event is causing more than one risk, most common causes of risks , move forward in the risk management process.
- Reserve Analysis
An analytical technique to determine the essential features and relationships of components in the project management plan to establish a reserve for the schedule duration, budget , estimate cost or funds for the project , tracking the state of reserve through the project execution will provide summary information as to the evolution of the status of the corresponding risks , time buffers are used in two different ways , provide for accepted schedule risks(Used as Schedule Reserves), as a schedule related technique in critical chain project management.
Risk Reserve Report
- This report keeps a running balance of the remaining reserve and helps the project manager control the reserve .
- It’s the output of performing the reserves analysis .
- Money/time is added when activities are completed cheaper or faster , and money is deducted when it’s used for identified risks .
- The Reserve report will look after the contingency and management reserves.
- Look into the Organization process assets of your company to find the template used for reserves reports.