To practice developing a risk register and contingency reserve for the case study
Risk Management – Learning material
|Assignment||1 Teamwork component|
|Objectives||To practice developing a risk register and contingency reserve for the case study
|Activities||Use the GLE Case study provided – see Note 1
Teams are to analyse the risks and prepare a comprehensive Risk Register, and recommended detailed budget contingency reserve for presentation to management.
Limit your risks to a maximum of 15 for this exercise. The purpose of it is to demonstrate the process not to come up with correct answer as for this project there isn’t one as we don’t have sufficient information.
You will need to make assumptions, which is acceptable – just explain them in your answer.
You are preparing a report at the start of the project on the basis of proceeding (yes or no) with your reasons and rationale for making such a recommendation (you are given information about later events in the case, which you can use in coming to your wider recommendations)
|A report to senior GLE management in a suitable format with the following content:
1. Risk Register in table format with:
o Risk description – with impact
o Probability or Likelihood
o Impact amount (also show basic assumptions behind your impact amount calculations)
o Treatment, containment or mitigation plans to reduce the risk occurring
o Estimated cost of mitigation ( make & explain assumptions)
o Owner of the Risk
o Contingency plans (i.e. the action you plan to take when the risk occurs)
o Risk Triggers
2. Recommended Contingency Reserve in monetary terms, showing: (these are funds you will use to implement the contingency plans above)
o Risk covered and their EMV
o And adjusted for various factors to show final recommended contingency reserve figure that should be allocated to cover risks.
For the first pass of the contingency reserve calculations you can use the procedure shown in week 6 notes – or another similar approach if you prefer.
Also conduct a Monte Carlo simulation of the Budget. The embedded spreadsheet indicates the high and low range for each item in the budget which you will need for the Monte Carlo simulation. The current budget has been established on the lower of the figures. Using a random number generator function do 1000 iterations to create a probability distribution table of the possible budget outcome. Graph this table. (it is understood that a higher number of iterations e.g. 10,000 produces more accurate results but this is just a class exercise to understand the process)
See the embedded Monte Carlo simulation example provided below of how to do this in Excel.
The Monte Carlo simulation will address systemic issues in the budget formulation, rather than specific project wide risks that your risk register will cover. (see week 6 notes that explain this).In a real-life situation you would need to consider any duplications between the risk register and the contingency reserve calculated from that, and the Monte Carlo simulation results. For this exercise you do not have the time or the amount of detailed information to do this.
So it will be quite acceptable for you to make a judgment call from the Monte Carlo simulation results about what amount you add to contingency reserve to cover for these findings. Explain your assumptions. Management wish to have a 75-80% confidence level in the budget.
3. If you feel it is appropriate a recommended Management Reserve for the project.
4. An explanation of how the risk register and contingency reserve was derived, that is the complete processes you went through to come up with the final recommended amount
5. The new amount required for the project budget, and how derived, after considering all the above factors
6. The Risk Breakdown structure used (as an appendix)
7. A graphical representation for management of the overall risk profile of the project
Remember that this is report to management so you need to argue and support your case for contingency funds. An executive summary would be useful
Please note at this stage we will not be considering schedule contingency reserve – this will be covered in Assignment 2