7 Numbers
Project Risk Management
A Decision Making Process
David Staunton
Disclaimer:
The material, content and views in the following presentation are those of the presenter
Introduction
• David Staunton
• Aerospace Engineer
• Risk Management in Bio-Pharma
Today
• Risk Management, Risk Assessment and
Probability Impact Matrices (PIMs)
• 7 Numbers for Project Risk Management
– 2 examples illustrating the 7 numbers as a far
superior method for decision making
• Risk Transition Indicators
Risk Management,
Assessment & PIMs
History of Uncertainty & Risk
• Very Old – Prior to Babylon
• Mathematics of
probability
• Nuclear Power & Oil
Exploration
Definition of Uncertainty
• Uncertainty
– The existence of more than one possibility
– The outcome is not known
• Measurement of uncertainty
– Probabilities assigned to possibilities
– There is a 60% chance of rain tomorrow and a
40% chance it wont
Definition of Risk
• Risk
– Risk involves loss
– What could go wrong?
• Measurement of risk
– Possibilities, quantified probabilities & losses
– We believe that there is a 40% chance of the oil
well being dry with a loss of 12 million dollars
Risk Management Process
Risk Assessment
Mitigation Actions
Transition Actions
Attempt to prevent & contain transition
React to Materialised Risks
Cause/Sources
Origin
Manifestation
Effect analysis
7 Numbers
Transition
Consequence
Risk effects
Materialised Risks
Probability X%
Impact
Risk Management Process
Four Horsemen of Risk Assessment
• Actuaries
• War Quants
Four Horsemen of Risk Assessment
• Economists
• Management
Consultants
Language
• Descriptive words
– Frequent
– Likely
– Occasional
– Severe
– Major
– Moderate
Risk Level
Likelihood of Occurrence
Severity of Risk
1
Insignificant
3
Minor
5
Moderate
7
Major
9
Severe
9
Frequent
Medium
Medium
High
High
High/Critical
7
Likely
Low
Medium
High
High
High/Critical
5
Occasional
Low
Medium
Medium
High
High
3
Unlikely
Low
Low
Medium
Medium
High
1
Remote
Low
Low
Low
Low
Medium
Risk Ranking (RR) = Severity x Likelihood
Estimation of Probability
Is the possibility of a Tail
– High, Medium or Low?
Medium
• I’ll have that in medium please
Ordinal Scale
Is a 4 star movie twice as good
as a two star movie ?
Ordinal Scale
Is a 5 star movie 25% better
than a four star movie ?
Sets Don’t Multiply This Way
• I am going to multiply
– Apples x Oranges = Pears
• Although…
Its not bad for ordering a list and
the Heat Map is very pretty
Risk Dashboard
Ref
Risk
4.1-1
Access to the Suite for CIP commissioning & The
affect on the Plan of Record (4.1-2)
4.10
4.10
6.3-1
Clarity on the sequence of commissioning &
validation activities (6.4-1)
4.10
3.10
5.2-2
I&C and Electrical resource holidays at the same time
3.10
& for VPE IFC Pack
4.60
3.3-1
Changes on P&IDs between IFC & IFD can cause re2.80
work
4.60
2.3-1
Field device interfaces on QBMS Panel & delay to
panel delivery (2.5-1)
3.10
4.00
2.2-1
QBMS FS review by VPE owners & Daldrop (1.31-1)
3.50
3.50
4.11-1
Access to the CIP phases during coding by multiple
groups
3.50
2.50
6.1-1
Failure testing on MCS must test every branch
3.50
2.00
 Total Number of Risks Identified
Probability Impact Matrix
Imp Like
29
 New Risks Identified
7
 Risks Materialised
2
 Closed Risks
5
7 Numbers for
Risk Assessment
12
Innovative Medicines
4
Biosimilars
15
New Competitors
50%
Revenue
Patent Exposed
$3 to $5 bn
Per Successful Drug
95%
Failure Rate
Simple Solution
The Projects Should…
Introduce the new
drugs quicker –
Twice as quick actually
Therefore, the decisions were to determine
• On which work to focus
• What work to stop
• Doing the right work
• Doing less work
Start from the Beginning
• As the drug is being developed in the lab
there are people that know what is tricky
about making the drug
• Focus
• Retain
• Develop
Shouldering Risk
• Vaccines
Injecting babies
• Be more rigorous with what matters
• Rely on the industry experts for the rest
This is What Was Done
• 4 Questions
• What are the product risks?
• Which risks erode the most value if not
pursued?
• Which risks, if pursued, create the most
value?
• Which actions should be pursued?
Framing The Risk
• In order to answer the first question…
The risk must be framed correctly
Tipping point of material consequence
Description
Richter
Witness Observations
Instrumental
1 to 2
Detected only by seismographs
Feeble
2 to 3
Noticed only by sensitive people
Slight
3 to 4
Resembling vibrations caused by heavy traffic
Moderate
4
Rather Strong
4 to 5
Sleepers awakened and bells ring
Strong
5 to 6
Trees sway, some damage from overturning and falling objects
Very Strong
6
Destructive
6 to 7
Ruinous
7
Disasterous
7 to 8
Very
Disasterous
8
Catastrophic
8 or greater
Felt by people walking; rocking of free standing objects
General alarm, cracking of walls
Chimneys fall and there is some damage to buildings
Ground begins to crack, houses begin to collapse , pipes break
Ground badly cracked and many buildings are destroyed.
There are some landslides
Few buildings remain standing; bridges and railways destroyed;
water, gas, electricity and telephones out of action.
Total destruction; objects are thrown into the air, much
heaving, shaking and distortion of the ground
Framing The Risk
7 key numbers
We are in a world where the risk has
materialized…
• What would be surprisingly good
• What would be surprisingly bad
• What is most likely
Numbers
• Applies to Cash Flow on Sales and Cost
• What is the probability
7
Portfolio Risk
Much Better
You see what is missing from the PIM is…
• How do the risks relate to each other?
• How much will the mitigation cost?
• How much risk am I buying down?
7
Numbers
New Product Introduction
• So What did they do to chose what work to
cut and what work on which to focus?
Cutting the Schedule in Half
• Critical Quality Attributes
– Yield
– Proteinaceous Particles on Oxidation
• Critical Process Parameters
– Dissolved oxygen
– Light exposure levels
Reduced Time to Market
• Reduced time to market by 50%
• Improved organisational knowledge
retention
• Failing faster and cheaper
Risk Management as
a decision making
process
2nd Example -7 Numbers
for Decision Making
Threat to Public Health
• In the United States drug shortages almost
tripled between 2005 and 2010
• Shortages are becoming more severe as
well as more frequent.
Call to Action
• There is a call to action from the US and EU
Governments to solve the problem of drug
shortages
• Executive Order 13588 -- Reducing Prescription Drug Shortages
• ISMP Medication Safety Alert, Special Issue Drug Shortages.
• EMA: Reflection paper on medicinal product supply shortages caused by manufacturing /
GMP compliance problems
This is What Was Done
• 4 Questions
• What are the supply risks?
• Which risks erode the most value if not
pursued?
• Which risks, if pursued, create the most
value?
• Which projects should be pursued?
Framing The Risk
• In order to answer the first question…
The risk must be framed correctly
Tipping point of material consequence
Framing The Risk
7 key numbers
We are in a world where the risk has
materialized…
• What would be surprisingly good
• What would be surprisingly bad
• What is most likely
Numbers
• Applies to Cash Flow on Sales and Cost
• What is the probability
7
Identify the Projects
Much Better
You see why its better…
• It makes project management a
competitive advantage
• Relates risks and project to the overall
objectives of the business
7
Numbers
Risk Transition
Indicators
Always Too Late
Risk Transition
Transition indicators and actions
Risk Transition
• Risk transition
indicators
Difference between
success and failure
Transition Point
Risk Transition
Notification that the
risk is:-
• In the process of
materialisation
And in need of
attention
Cassandra List
• The risk register can
become…
–A Cassandra List
Cassandra was cursed by the
Gods.
Like every good manager she
is pulling her hair out
Success in Risk Monitoring
• Identification of appropriately visible
transition indicators for each risk and
keeping an eye out for their appearance
every day
Here and Now
• Risk Transition
Management allows
you to manage the
here and now
• To ensure that you react
to the risks that are
materialising
Emergence
Implications
What impact will this
have on business
understanding?
Will it improve your
ability to manage?
Project Manager
• To lead the Project you must
– Know the work
– Know the detail
– Understand the problems
– Understand the business needs
You are not a powerful supervisor
Engage the Experts
• Establishing risk transition indicators
forces the Manager and the team to
understand the work
• You must engage your
experts
Deming
Profound Knowledge
Creating Profound Knowledge
• Creating risk transition indictors
helps you to generate profound
knowledge
Deming
There is no knowledge
without prediction
Awareness
• What everyone knows is
what has already happened
or become obvious
What the aware individual knows is
what has not yet taken shape,
what has not yet occurred
Tap into the Vibrations
Close to Your Heart
Love your
risk
register
Questions
David Staunton
Email: [email protected]