Progress in Improving Project Management at the Department of Energy 2001 Assessment (2001) / Chapter Skim
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4 Risk Management
4 Risk Management
Pages 33-49
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From page 33... ...
The committee believes that all three phases of risk management are critical to effective project management in DOE. The ARM process emphasizes the identification of project risks very early in the project, the development of a risk management plan during front-end project planning, and the updating of the plan throughout the project.
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From page 34... ...
Effective risk analysis requires an examination of the nature of the project to identify the root causes of risks and to trace these causes though the project to their consequences. As an example, if a project has a work package called Design Advanced Superconducting Magnets Using New High-Temperature Superconducting Material, there may be uncertainties surrounding this activity, insofar as the more advanced the design, the longer the design process may take and the more it will cost.
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From page 35... ...
Neglect or underestimation of the ripple effect is a common deficiency in risk analysis, leading almost always to an underassessment of risk. RISK ANALYSIS AND EVALUATION Several approaches are available for handling the kind of risk assessment commonly associated with DOE projects: .
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From page 36... ...
Unfortunately, from the presentation in Figure 4-1 one cannot determine if the elements referenced (e.g., AZ 101 HEW Start-up HEW Vitrification Production, the highest-ranking source of uncertainty) are truly root causes or simply work packages or activities.
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From page 38... ...
Stochastic simulation models that are based on event trees or feedback models can give reasonable estimates of total project risk. Monte Carlo simulations that simply add up the uncertainties associated with various activities or work packages may be biased, because the typical approach is to assume that all these activities are statistically independent.
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From page 39... ...
Commercial, off-the-shelf programs are available to perform the calculations. Although systems dynamics models are more often deterministic than stochastic, because they are based on dynamic feedback principles, they can nevertheless be used to evaluate the ripple effect of various changed conditions or root causes.
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From page 40... ...
Internal project risk assessments should be separately evaluated by independent assessors or reviewers who are not project proponents for reasonableness of assumptions, estimates, and results. Risk mitigation and management plans should be prepared that can deal with significant risks identified.
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From page 41... ...
This may be a realistic description of conventional infrastructure projects, but rework and iteration are common in DOE projects because of factors such as design and scope changes resulting from inherent uncertainties in science, technology, and environmental characterization. Regulatory issues also provide a source of uncertainty that can cause conceptual project planning and design to be reworked many times.
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From page 42... ...
The committee reviewed some project risk assessment studies but did not see an example of a risk assessment or risk mitigation plan that it finds acceptable. The discussion in the draft PPM is merely an outline, and the material in the draft PMP is not useful as a guide for practicing risk management.
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From page 43... ...
Incorporating flexibility into risk management plans can reduce project costs and durations. Flexibility can be incorporated into project planning in several ways.
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From page 44... ...
There are two critical starting points for risk allocation: (1) the government initially owns all the risk and the other project participants (particularly prospective contractors)
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From page 45... ...
To use a market-based approach to allocating risks and to avoid unpleasant surprises and subsequent litigation, it is necessary that all parties to an agreement have full knowledge of the magnitude of risks and who is to bear them. ACTIVE RISK MANAGEMENT The management of risk during many DOE projects appears to be passive and ad hoc without the benefits of tracking the root causes of risk identified during characterization or making proactive decisions and taking actions to mitigate risks.
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From page 46... ...
Project participants who manage risks actively and achieve successful project performance should be appropriately rewarded. ONGOING PROJECT RISKS The committee observed that many ongoing DOE projects are characterized by a high level of uncertainty and a minimal understanding and management of their risks.
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From page 47... ...
However, traditional risk management tools, methods, and practices may be inadequate. The committee believes that the methods in the draft PPM and PMP documents are inadequate if applied in a piecemeal fashion to the task of assuring successful project management practices under the conditions pervading DOE projects.
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From page 48... ...
, such as systems analysis, event trees, causal loop diagrams, system dynamics, and stochastic simulation, which have been tested and shown to be valuable on similar projects or in addressing similar challenges. PROGRAM RISKS ACROSS MULTIPLE PROJECTS The discussion above has addressed risks mainly at the individual project level.
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From page 49... ...
Recommendation. The deputy secretary as secretarial acquisition executive, and the chief financial officer, assisted by the PSOs and OECM, should define and state DOE policy on management reserves.
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