Project Risk Management (1)

 Project risk is:

 An uncertain event or condition that, if it occurs,
has a positive or a negative effect on at least one
project objective, such as time, cost, scope, or
quality.
 The objectives of Project Risk Management:
 to increase the probability and impact of positive
events, and decrease the probability and impact of
events adverse to the project by conducting risk
management planning, identification, analysis,
responses, and monitoring and control on a project.

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 Project Risk Management (2)
 Project risk types:
 Known risks that have been identified and
analyzed, and it may be possible to plan responses
for.
 Unknown risks that can’t be managed protectively,
and a prudent response by the project team can be
to allocate general contingency against such risks.
 To be successful, the organization should be
committed to addressing the management of
risk protectively and consistently throughout
the project.

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 Risk Management Terminology

 Risk.
 Issue.
 Threat.
 Opportunity.
 Probability
 Impact.
 Benefit.
 Risk tolerance.

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 Project Risk Processes

1 Plan Risk Management P

2 Identify Risk P

3 Perform Qualitative Risk Analysis P

4 Perform Quantitative Risk Analysis P

5 Plan Risk Response P

6 Monitoring and Control Risk M

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 Project Risk Processes in PLC

Initiation Planning
1 2

3 4

5
Executing
Monitoring &
Controlling
6

Closing

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1 Risk Management Planning

 Risk Management Planning is:

 the process of deciding how to approach and conduct the
risk management activities for a project.
 important to ensure that the level, type, and visibility of
risk management are commensurate with both the risk
and importance of the project to the organization, to
provide sufficient resources and time for risk
management activities, and to establish an agreed-upon
basis for evaluating risks.
 should be completed early during planning.

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1 Plan Risk Management

Inputs Tools & Outputs

Techniques
EEF
Planning
Meetings and
Project
Analysis
management plan
Expert judgment Risk Management
Project charter Plan

Organizational Analytical
Process Assets techniques
Stakeholder
register

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 Plan Risk Management
1
I
N .1 Project management plan
.2 Project charter
P .3 Stakeholder register
.4 Enterprise environmental factors
U .5 Organizational process assets
T
S

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1 Plan Risk Management

T
O .1 Analytical techniques
.2 Expert judgment
O .3 Meetings
L
S

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 1 Plan Risk Management

O Risk Management Plan

 Methodology – defines approaches, tools, and
U data sources that might be used to perform risk
management on the project
T
P  Roles & Responsibilities – defines the lead,
support, and risk management team
U membership for each type of action in the plan
T  Budget - $
S
1 12
 Plan Risk Management
 Timing – Describes when& how often the risk
management process will be performed throughout the
project life cycle

Probability and Impact Matrix

Risk Categories
Revised stakeholders’ tolerances

 Reporting formats - defines how the results of the risk

management processes will be documented, analyzed, and
communicated to the project team and stakeholders

 Tracking – Documents all facets of risk activities and how

the risk process will be audited 13
1 Risk Management Planning

Risk Breakdown Structure (RBS):

O
U
T
P
U
T
S
2 14
1 Risk Management Planning

O
U
T
P
U
T
S
3 15
 Project Risk Processes

1 Plan Risk Management P

2 Identify Risk P

3 Perform Qualitative Risk Analysis P

4 Perform Quantitative Risk Analysis P

5 Plan Risk Response P

6 Monitoring and Control Risk M

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 where risk might be found?

•Budgets/funding •Hardware

•Schedules •Contracts

•Scope or requirements changes •Political concerns

•Project plan •Business risk

•Project management processes •Legal risk

•Technical issues •Environmental risk

•Personnel issues •Management risk

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2 Identify Risk
 Risk Identification determines:
 which risks might affect the project and documents
their characteristics.
 Participants in risk identification:
 project manager and project team members.
 risk management team (if assigned).
 subject matter experts from outside the team.
 customers and end users.
 other project managers, stakeholders, and risk
management experts.

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2 Identify Risk
Inputs T&T Outputs
EEF Documentation
Reviews
Activity cost E
Information
Scope baseline
Gathering
Activity duration E Techniques

Stakeholder REG Checklist

Analysis
O PA Risk Register
Scope baseline Assumptions
Analysis
Project documents SWOT analysis
Risk .M .Plan Expert judgment
Quality .m .plan
Diagramming
Project .M. Plan Techniques
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2 Identify Risk
1) Enterprise Environmental Factors
2) Organizational Process Assets
I 3) Project Scope Statement
N 4) Risk Management Plan
5) Project Management Plan
P 6) Activity cost estimates
U 7) Activity duration estimates
8) Scope baseline
T 9) Stakeholder register

S 10) Quality management plan

11)Schedule management plan

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2 Identify Risk
1) Documentation Reviews
2) Information Gathering Techniques:

The goal of these techniques is to end up with a comprehensive list

of risks at the end of the meeting.

Delphi
brainstorming
technique

root cause
interviewing
identification

PMP Prep Course mona rudwan 22

2 Identify Risk
3) Checklist Analysis
4) Assumptions Analysis
5) Diagramming Techniques:

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cause-and-effect

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 process
flowcharts

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 Diagramming
Techniques

influence diagrams typically show the causal influences among project

variables, the timing or time ordering of events, and the relationships
among other project variables and their outcomes

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6) SWOT
Strengths, Weaknesses, Opportunity & Threats.

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2 Identify Risk

O 1) Risk Register:
List of identified risks
U List of potential responses
T
P
U
T
S
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 Project Risk Processes

1 Plan Risk Management P

2 Identify Risk P

3 Perform Qualitative Risk Analysis P

4 Perform Quantitative Risk Analysis P

5 Plan Risk Response P

6 Monitoring and Control Risk M

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3 Perform Qualitative Risk Analysis

 Qualitative Risk Analysis includes:

methods for prioritizing the identified risks for further
action.
 It should be focused on high-priority risks.
 Qualitative Risk Analysis assesses the priority of
identified risks using:
 probability of occurring.
 the corresponding impact on project objectives.
 time frame and risk tolerance of the project constraints of
cost, schedule, scope, and quality.
 It’s usually a rapid and cost-effective.

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3 Qualitative Risk Analysis

Inputs Tools & Outputs

Organizational
Techniques
Process Assets Risk Probability
and Impact
Enterprise Assessment
environmental factors
Probability and
Impact Matrix
Scope baseline
Risk Data Project D (U)
Risk Management Quality
Plan Assessment
Risk
Risk Register Categorization
Risk Urgency
Assessment

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3 Qualitative Risk Analysis

I
.1 Risk management plan
N .2 Scope baseline
.3 Risk register
P .4 Enterprise environmental factors
U .5 Organizational process assets

T
S
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3 Qualitative Risk Analysis

1) Risk Probability and Impact Assessment

T 2) Probability and Impact Matrix:

O
O
L
S
1
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 Defined Conditions for Impact Scales of a Risk on
Major Project Objectives

Defined Conditions for Impact Scales of a Risk on

Major Project Objectives

Project Very Low Low Moderate High Very High

Objectives / .05 / .10 / .20 / .40 / .80

Cost

Time
Scope

Quality

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 Probability and Impact
Matrix
Risk Probability and Impact Matrix
Probability 0.1 0.2 0.4 0.6 0.80
/Impact
V. Low
Low Technical
Moderate Schedule

High Vendors Require Cost

ments
V. High

Watch list Moderate High Alert

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 Risk Map.

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3 Qualitative Risk Analysis
O 1) Risk Register (Updates):
U
T
P
U
T
S
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 Project Risk Processes

1 Plan Risk Management P

2 Identify Risk P

3 Perform Qualitative Risk Analysis P

4 Perform Quantitative Risk Analysis P

5 Plan Risk Response P

6 Monitoring and Control Risk M

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4 Perform Quantitative Risk Analysis

 Quantitative Risk Analysis process:

 analyzes the effect of the prioritized risk events and
assigns a numerical rating to those risks.
 presents a quantitative approach to making decisions in
the presence of uncertainty.
 It may not be required to develop effective risk
responses.
 It should be repeated after Risk Response
Planning, as well as part of Risk Monitoring and
Control, to determine if the overall project risk has
been satisfactorily decreased.
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4 Quantitative Risk Analysis

Inputs Tools & Outputs

Organizational
Techniques
Process Assets
Expert jugment
EEF

Cost management Data Gathering

plan and Risk Register (U)
Representation
Risk Management Techniques
Plan

Risk Register Quantitative Risk

Analysis and
schedule Modeling
Management Plan Techniques

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4 Quantitative Risk Analysis

1) Organizational Process Assets

I 2) Risk Management Plan
N 3) Risk Register
4) cost Management Plan
P
5) schedule management plan
U
T
S
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4 Quantitative Risk Analysis

1)Data Gathering and Representation

T Techniques:
Interviewing
O Probability distributions
O Expert judgment
2)Quantitative Risk Analysis and Modeling
L Techniques:
S Sensitivity analysis: helps to determine which risks
have the most potential impact on the project.
1
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4 Quantitative Risk Analysis

Expected monetary value analysis:

T Impact
Risk Probability Cost is “-” Ex$V
O Benefit is “+”
O A %20 -4,000 -800
B %45 3,000 1,350
L C %10 2,100 210

S D %65 -2,500 -1,625

Contingency reserved fund = 865
2
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Decision Trees

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Decision Trees

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 Decision Trees
High Demand
Probability =0.3
$ 550,000
Production Successful
Probability = 0.7 Low Demand
Probability = 0.7
Decide to pursue - $100,000

Production Unsuccessful Expect Value of Pursuing Project A

Probability = 0.3 0.7 x 0.3 x $ 550,000 = $ 115,500
Terminate = - $ 200,000 – –
0.7 x 0.7 x $ 100,000 = $ 49,000
Decide not to pursue 0.3 x – $ 200,000 = – $ 60,000
$0
$ 6,500
The expected value of Project A is $6,500. The
expected value of not preceding is $0. Preceding is the
lucrative option.
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 Quantitative Risk Analysis

0.6 Success

0.5 Project A Failure

0.
4

0.7
0.5 Project B Success

0.3
Failure
What is the probability that Project B will
be selected and will be successful? Answer: 0.35
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4 Quantitative Risk Analysis
Modeling and simulation:
Simulations are typically performed using the Monte
T Carlo technique

O
O
L
S
4
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Quantitative Risk Analysis
Results from a Monte Carlo Simulation of a Project Schedule
100

90
Cumulative Probability

80

70

60

50

40

30

20

10

0
110 120 130 140 150 160 170 180 190 200

Days After Project Start

This S-curve shows the cumulative probability of project completion by a particular

date. For example, the intersection of the dashed ones shows that there is a 50 percent
probability that the project will be finished within 145 days of its start. Project
completion dates toward the left have higher risk while those toward the right have
lower risk.
4 Quantitative Risk Analysis

O 1) Project documents updates

U
T
P
U
T
S
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 Risk Category
Descriptions
Impact Occurrence Probability
Category Level

Resources High Greater than 3 month delay of schedule Very likely greater 70%

Med 1-3 month delay in implementation Proable:30-70% probability

Low 1 week to 1 month delay in implementation Unlikely: Less than 30%

probability

Schedule High Greater than 3 month delay of schedule Very likely greater 70%

Med 1-3 month delay in implementation Proable:30-70% probability

Low 1 week to 1 month delay in implementation Unlikely: Less than 30%

probability

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 Project Risk Processes

1 Plan Risk Management P

2 Identify Risk P

3 Perform Qualitative Risk Analysis P

4 Perform Quantitative Risk Analysis P

5 Plan Risk Response P

6 Monitoring and Control Risk M

54
5 Plan Risk Response

 Risk Response Planning is:

The process of developing options, and determining
actions to enhance opportunities and reduce threats to
the project’s objectives.
 It includes the identification and assignment of one or
more persons (the “risk response owner”) to take
responsibility for each agreed-to and funded risk
response.
 It addresses the risks by their priority, inserting
resources and activities into the budget, schedule, and
project management plan, as needed.

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56
5 Risk Response Planning

Inputs Tools & Outputs

Techniques
Strategies for
Negative Risks
or Threats Project Management
Risk Management
Plan Strategies for
Plan (U)
Positive Risks or
Opportunities

Expert judgment Project document (U)

Risk Register

Contingent
Response
Strategy

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5 Risk Response Planning

1) Risk Management Plan

I 2) Risk Register

N
P
U
T
S
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5 Risk Response Planning
Strategies for Negative Risks or Threats

T
O
O Mitigation
(Corrective action)
L Avoidance
Acceptance

S (Prevention)
(Accept consequences)

1
Transference
(Shift Responsibility)
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5 Risk Response Planning
2) Strategies for Positive Risks or Opportunities:
Exploit
T Share
O Enhance
Acceptance
O
L
S
2
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Risk Response Planning

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 Description of Risk Event Response Strategy

Remove a poor performer from the Avoid

project team

Move a work package to a date when a

more experienced resource is available Exploit
to be assigned to the project

Seek additional funding to cover

increased cost of materials Accept

Begin negotiation for the equipment

earlier than planned so as to secure a Enhance
lower price
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 Description of Risk Event Response Strategy

Outsource a work package so as to Share

gain an opportunity

Notify management that there could be a

cost increase if a risk occurs because no Accept
action is binge taken to prevent the risk

Train a team member to improve their Mitigate

performance

Ask the client to handle some of the work Transfer

Prototype a risky piece of equipment Mitigate

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5 Risk Response Planning
O
U 1)Project Management Plan (Updates)
T 2)Project document (Updates)

P
U
T
S
64
 Project Risk Processes

1 Plan Risk Management P

2 Identify Risk P

3 Perform Qualitative Risk Analysis P

4 Perform Quantitative Risk Analysis P

5 Plan Risk Response P

6 Monitoring and Control Risk M

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6 Risk Monitoring and Control

 Risk Monitoring and Control is:

 the process of identifying, analyzing, and planning for
newly arising risks, keeping track of the identified risks
and those on the watchlist, reanalyzing existing risks,
monitoring residual risks, and reviewing the execution
of risk responses while evaluating their effectiveness.

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6 Risk Monitoring and Control
Inputs Tools & Outputs
Techniques

project Risk Reassessment Work performance

Management Plan information
Risk Audits
Requested Changes
Variance and Trend
Risk Register Analysis
Project document (U)
Technical
Performance
Work performance Measurement
data Organizational Process
Assets (U)
Reserve Analysis
Performance Project Management
Reports Status Meetings Plan (U)
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 Risk Monitoring and Control
6

project Management Plan

I 1)
2) Risk Register
N 3) Work Performance DATA
P 4) Performance Reports

U
T
S
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6 Risk Monitoring and Control
1) Risk Reassessment
T 2) Risk Audits
3) Variance and Trend Analysis
O 4) Technical Performance Measurement
O 5) Reserve Analysis

L 6) Status Meetings

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6 Risk Monitoring and Control

O 1)Work performance information

2) Requested Changes
U 3) project document (Updates)
T 4) Organizational Process Assets (Updates)

P 5) Project Management Plan (Updates)

U
T
S
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 Key Terms
contingency reserves acceptance
 residual risk Monte Carlo analysis
decision trees avoid
risk breakdown structure (RBS) Nominal Group Technique
Delphi technique Brainstorming
 risk categories  ordinal scale
Enhance cardinal scale
risk management plan  passive acceptance
expected monetary value (EMV) cause-and-effect diagrams
risk register  probability
 probability and impact matrix contingency planning
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 Key Terms

exploit share

risk tolerance influence diagramming

force majeure tornado diagram

secondary risks interviews

Impact transfer

 sensitivity analysis mitigate

impact scale triggers

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Q&A
Question 2
Which risk analysis provides the project
manager with a risk ranking?

A. Quantifiable.
B. Qualitative.
C. The utility function.
D. SWOT analysis.

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Question 3
The water sanitation project manager has determined
the risks associated with handling certain chemicals
are too high. He has decided to allow someone else
to complete this portion of the project, outsourcing
the handling and installation of the chemicals and
filter equipment to an experienced contractor. This is
an example of which of the following?

A. Avoidance.
B. Acceptance.
C. Mitigation.
D. Transference.

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Question 4
Which of the following can determine
multiple scenarios with risks and the
probability of impact?

A. Decision trees.
B. Monte Carlo simulations.
C. Pareto charts.
D. Gantt charts.

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