Module II PMBOK7

MODULE-XI
Project Risk
Management
Serving Clients with Competitive Intelligence for Product, Process & Systems Innovation & Design
Sudeep Bhargava, GA Services Pvt. Ltd.
Project Risk Management

• The processes involved in Project Risk Management
include
– Plan risk management
– Identify risks
– Perform qualitative risk analysis
– Perform quantitative risk analysis
– Plan risk responses
– Control risks
Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation & Design
Slide No. 2 2
1
Plan risk Identify how risk management

activities are going to be
management conducted
Process of identifying the risks

Identify risks which could impact the project
Perform Process of prioritizing risks for

further analysis or action by
qualitative risk assessing the risks
analysis
Slide No. 3 3
Perform
Numerically analyzing risks for
quantitative risk further action
analysis
Developing options and actions

Plan risk to enhance opportunities and
reduce threats
response
Tracking identified risks,

evaluating risk responses and
Control risk looking for new risks
Slide No. 4 4
2
• Risk is an uncertain event or condition, that if occurs,
has an effect on at least one project objectives
• These objectives can include scope, schedule, cost and
quality
• Project risk has its origin in the uncertainty present in
all projects
• Known risks are those that have been identified and
analyzed making it possible to plan responses for those
risks
• Unknown risks cannot be managed proactively.
Slide No. 5 5

• Organizations and stakeholders are willing to accept
varying degree of risk. This is called risk tolerance
• Risks may be accepted if the risks are within

tolerance and are in balance with the rewards that may
be gained by taking the risks
• Risks responses reflect an organization’s perceived

balance between risk taking and risk avoidance
• To be successful, a conscious choice must be made at

all levels of the organization to actively identify and
pursue effective risk management
Slide No. 6 6
3
• Risk management includes
– Risk management planning
– Monitoring and controlling risk responses
• Through this process you increase the probability and

impact of opportunities while decreasing the
probability and impact of threats
• This is an ongoing process
• The project manager and the team should look at the

future and reassess the threats and opportunities
Slide No. 7 7

• Risk event is something that may have a positive or
negative impact on the project
• The negative risk events are known as threats while the

positive risk events are known as opportunities
• Uncertainty is a lack of knowledge about an event that

reduces confidence in conclusions drawn from data
• The risk factors would include

– The probability that it will occur
– The range of possible outcomes
– Expected timing in the life cycle
Slide No. 8 8
4
• Risk averse
– Someone who does not want to take risks
• Risk tolerance and thresholds

– Tolerances are the areas of risk that are acceptable
or unacceptable
– Threshold is the point at which the risk becomes
unacceptable
Slide No. 9 9
Plan risk management

• Process of defining how to conduct risk management
activities for a project
• Careful and explicit planning enhances the

probability of success
• Sufficient time and resources should be provided for

risk management activities
Slide No. 10 10
5
Plan risk management- inputs
• Following could be the inputs to the process of risk
management
– Project charter and scope statement
– Cost management plan
– Schedule management plan
– Communication management plan
– Enterprise environmental factors
– Organizational process assets
Slide No. 11 11
Plan risk management- inputs

All subsidiary plans and High level risks,
baselines should be assumptions and
considered requirements are listed
Organizational
Project process assets
Project charter
Management Plan
Plan Risk Management
Enterprise Stakeholder
environmental Register
factors
Provides an overview of
Risk tolerance, attitudes
all stakeholders and
and thresholds
their role
Slide No. 12 12
6
Plan risk management- tools and techniques
• Planning meeting and analysis
– Meetings are held to develop the risk management
plans
– High level plans for conducting the risk management
are defined in these meetings
– Risk management for cost elements and schedule
activities are developed to be included in the project
budget and schedule
– Risk management responsibilities are assigned
– General organizational templates for risk categories
are tailored to the specific projects
Slide No. 13 13
Plan risk management- outputs

• Risk management plan
– Methodology
• Defines the approaches, tools and data sources
that may be used to perform risk analysis
– Roles and responsibilities

• Defines the lead, support and risk management
team members and clarifies their responsibilities
– Budgeting
• Assigns resources and estimates funds needed
for the risk management
Slide No. 14 14
7
– Timing
• Defines when and how the risk management
process will be performed
• Establishes protocols for application of
schedule contingency reserves
• Establishes the risk management activities to be
included in the project schedule
– Risk categories
• Ensures a comprehensive process of
systematically identifying risks to a consistent
level and enhance its effectiveness
Slide No. 15 15

– Definitions of risk probability and impact
• Different levels of risk probabilities and impacts
are defined
• General definitions of probability and impact levels
are tailored to the individual project
– Revised stakeholder’s tolerances

• Stakeholder’s tolerances may be revised in the
plan risk management process
Slide No. 16 16
8
– Reporting formats
• Defines how the outcomes of the risk management
processes will be documented, analyzed and
communicated
• It describes the content and format of the risk
register
– Tracking
• Document show how the risk activities will be
recorded for the benefit of the current project
• Also outlines whether and how risk management
processes would be audited
Slide No. 17 17
Identify risks
• This is the process of determining which risks may
affect the project and documenting their characteristics
• Identification of the risks is an iterative process because

new risks may evolve
• The format of the risk statement should be consistent to

ensure the ability to compare the relative effect of one
risk event against the others on the project
• The team should be involved so that they may maintain a

sense of ownership and responsibility for the risks and
corresponding responses
Slide No. 18 18
9
Identify risks- inputs
Assignment of roles, How cost and schedule can
responsibilities, provision for risk impact the project and turn
management activities into risk
Cost
Schedule
Risk Management management
management plan
Plan plan
Identify risks
Human Resource
Quality
Scope baseline management
management plan
plan
Roles,
responsibilities Provides a baseline for
High level assumptions , staffing mgmt quality measures
plans
Slide No. 19 19
Identify risks- inputs

Cost and time associated Information about
with the activities stakeholders
Activity cost Activity duration Stakeholder

estimate estimate register
Identify risks
Enterprise
environmental Procurement Project documents
factors documents
Published info, Complexity, Project charter,

benchmarking, industry risk and level schedule, network
study of detail diagram, issue logs
Slide No. 20 20
10
Identify risks
• Classification or categorization of risk cane be done as
– External: Regulatory, environmental, government or
market shifts
– Internal: Time, cost or scope changes, inexperience,
poor planning, people, staffing, material, equipment
– Technical: Changes in technology
– Unforeseeable: The ones that cannot be predicted
Slide No. 21 21
Identify risks
• Risk could also be classified on the basis of its origin
– Schedule
– Cost
– Quality
– Scope
– Resources
– Customer satisfaction
Slide No. 22 22
11
Identify risks- tools and techniques
• Documentation reviews
– Structured reviews may be performed of project
documentation, plans, assumptions, contracts and
other information
– Project requirements, assumptions and the quality
of the plans can be indicators of risk in the project
• Information gathering techniques

– Brainstorming
– Delphi technique
– Interviewing
– Root cause analysis
Slide No. 23 23

• Checklist analysis
– Risk identification checklists may be developed based
on historical information and knowledge
accumulated from previous similar projects
– This can be a quick and simple way of identifying
the risk, though not exhaustive
• Assumption analysis
– This explores the validity of assumptions as they
apply to the projects
– It identifies the risks to the project from inaccuracy,
instability, inconsistency or incompleteness of the
assumptions
Slide No. 24 24
12
• Diagramming techniques
– Cause and effect diagrams
– Process flow charts
– Influence diagrams
• SWOT analysis
– This technique examines the project from each of the
SWOT (strength, weakness, opportunity, threat)
perspective
• Expert judgment
– Risks can be identified by experts with relevant
experience of similar projects
Slide No. 25 25
Identify risks- outputs

• Risk register
– Initial entries into the risk register are the primary
output
– It ultimately contains the outcomes of the other risk

management processes as they are conducted
– List of identified risks

• A simple structure for the risks in the list may be
applied such as EVENT may occur causing
IMPACT
Slide No. 26 26
13
Identify risks- outputs
– List of identified risks
• CAUSE and EVENT may occur leading to
EFFECT
– List of potential responses

• These are identified during this process
• They are useful as inputs to Plan Risk process
Slide No. 27 27
Perform Qualitative Risk Analysis

• It includes methods for prioritizing the identified risks for
further action
• It assesses the priority of identified risks using their

– Probability of occurring
– Corresponding impact on project objectives
– Risk tolerance of the project
– Constraints of cost, schedule, scope, and quality
• This is a rapid and cost effective means of establishing

priorities
Slide No. 28 28
14
Perform qualitative risk analysis- inputs
Roles, responsibilities,
Projects using state of art
budget, risk categories,
technology have more risk
impact & probability matrix
Organizational
Risk Management process assets
Scope baseline
Plan
Perform qualitative risk analysis
Enterprise Risk Register

environmental
factors
Information to assess
and prioritize risks
Slide No. 29 29
Perform Qualitative Risk Analysis

• Probability and impact matrix
– Used to reduce the difference in ratings because of
the bias
– Standard rating systems are used to promote
common understanding of what each risk rating
means
– The matrix is standardized within the company
– This results in consistent evaluation of degrees
Slide No. 30 30
15
Qualitative Risk Analysis- tools and techniques
• Risk probability and impact assessment
– Investigates the likelihood that each specific risk will
occur
– Risk impact assessment investigates the potential

effect on a project objective such as time, cost,
scope, or quality
– Probability and impact are assessed for each

identified risk
– The level of probability for each risk and its impact on

each objective is evaluated
Slide No. 31 31

• Risk data quality assessment
– Analysis of the quality of risk data is a technique to
evaluate the degree to which the data about risks
is useful
– Involves examining the degree to which the risk is

understood and the accuracy, quality, reliability,
and integrity of the data about the risk
Slide No. 32 32
16
• Risk urgency assessment
– Risks requiring near term responses may be
considered more urgent to address
– Indicators of priority can include time to affect a risk
response, symptoms and warning signs and risk
rating
• Expert judgment
– Experts generally are those having experience with
similar projects
– Securing expert judgment is often accomplished with
the use of risk facilitation workshops
Slide No. 33 33

• Risk categorization
– Risks to the project can be categorized by
• Sources of risk (e.g., using the RBS)
• Area of the project affected (e.g., using the WBS
• Common root causes: This can lead to
developing effective risk responses
Slide No. 34 34
17
Perform Qualitative Risk Analysis- outputs
• Risk register
– Risk ranking for the project compared with the other
projects
– List of prioritized risks and their probability and
impact rating
– Risks grouped by categories
– Lists of risks requiring additional analysis in near
term
– Watch-list
– Trends
Slide No. 35 35
Perform Quantitative Risk Analysis

• The Quantitative Risk Analysis process analyzes the
effect of those risk events and assigns a numerical
rating to those risks
• It is performed on risks that have been prioritized by

the Qualitative Risk Analysis process as potentially
and substantially impacting the project's competing
demands
• This may be repeated after Risk Response Planning,

to determine if the overall project risk has been
satisfactorily decreased
Slide No. 36 36
18
Perform quantitative risk analysis- inputs
Guidelines and methods to Establishing and managing
be used risk reserves
Organizational
Risk Management process assets Cost management
Plan plan
Perform quantitative risk analysis
Enterprise Schedule
environmental Risk register management plan
factors
Establishing and
managing risk reserves
Slide No. 37 37
Perform Quantitative Risk Analysis

• Quantitative risk analysis is a more objective than
qualitative risk analysis
• The main purpose for the quantitative analysis is

– Determine which risk event warrants a response
– Determine overall project risk
– Determine quantified probability of meeting project
objective
– Determine cost and schedule reserves
– Create realistic and achievable cost, schedule and
scope targets
Slide No. 38 38
19
Quantitative Risk Analysis- tools and techniques
• Data gathering and representation techniques
– Interviews
• Draws on experience and historical data
• Used to quantify the probability and impact of
risks on project objectives
– Probability distributions
• Continuous distributions represent the uncertainty
in values such as durations of activities and costs
• Discrete distributions can be used to represent
uncertain events such as outcome of a test
Slide No. 39 39

• Quantitative risk analysis and modeling techniques
– Sensitivity analysis
• Helps to determine which risks have the most
potential impact on the project
• It examines the extent to which the uncertainty
of each project element affects the objective
being examined when all other uncertain elements
are held at their baseline values
– Expected monetary value analysis

• Statistical concept that calculates the average
outcome when the future includes scenarios that
may or may not happen
Slide No. 40 40
20
– Expected monetary value analysis
• EMV is calculated by multiplying the value of
each possible outcome by its probability of
occurrence, and adding them together
• It is positive for the opportunities while it is negative
for the threats
– Decision tree analysis

• Describes a situation under consideration, and the
implications of each of the available choices and
possible scenarios
Slide No. 41 41

– Modeling and simulation
• Uses a model that translates the specified
detailed uncertainties of the project into their
potential impact on project objectives
• The project model is computed many time with the
input values chosen at random
• Expert judgment
– Required to identify potential costs and schedule
impacts
– Also required to evaluate probability
– Also helps in interpretation of the data
Slide No. 42 42
21
– Monte Carlo simulations
• Evaluates the overall risk in the project
• Provides the probability of completing the project
on any specific day or for any specific cost
• Takes into account the path convergence
• Translates uncertainties into impacts to the
project
• Results in a probability distribution
Slide No. 43 43
Perform Quantitative Risk Analysis- outputs

• Risk register
– Probabilistic analysis of project
• Estimates are made of potential project schedule
and cost outcomes, listing the possible
completion dates and costs involved
• This can be used with stakeholder risk tolerance to
permit quantification of the cost and time
contingency reserves
– Probability of achieving cost and time objectives

• With the risks facing the project, the probability of
achieving project objectives under the current
plan can be estimated
Slide No. 44 44
22
Perform Quantitative Risk Analysis- outputs
• Risk register
– Prioritized list of quantified risks
– Amount of contingency time and cost reserves
needed
– Possible realistic and achievable completion dates
and project costs
– Quantified probability of meeting project objectives
– Trends in quantitative risk analysis
Slide No. 45 45
Plan Risk Reponse

• This is the process of developing options, and
determining actions to enhance opportunities and
reduce threats to the project's objectives
• One or more persons are assigned for each agreed-to

and funded risk response
• The planning addresses the risks by their priority,

inserting resources and activities into the budget,
schedule, and project management plan
• Planned responses should be appropriate, cost

effective, realistic and agreed upon by all parties
Slide No. 46 46
23
Perform quantitative risk analysis- inputs
Roles, responsibilities, risk
analysis definitions,
thresholds
Risk Management
Plan
Plan risk response
Identified risks, root causes,

owners, symptoms, ratings
Risk register of risks
Slide No. 47 47
Plan Risk Response

• Responses may include one or all of the following
– Do something to eliminate the threats before they
happen
– Do something to make sure the opportunities
happen
– Decrease the probability and/ or impact of threats or
increase the probability and/ or impact of opportunities
– For the remaining (residual) threats that cannot be

eliminated
• Do something if the risk happen (contingency
plan)
• Do something if contingency plans are not effective
(fallback plans)
Slide No. 48 48
24
Plan Risk Reponse
• The best answer to a question describing a major
problem on the project would be the choice that talks
about implementing the contingency plan
• Risks can actually be eliminated but it may not be

cost effective to remove all the risks
• The risk planning process is iterative. You need to

review risks throughout the project
Slide No. 49 49
Plan Risk Response- tools and techniques

• Strategies for negative risks or threats
– Three strategies deal with negative threats
• Avoid: involves changing the project management

plan to eliminate the threat posed by an adverse
risk
• Transfer: requires shifting the negative impact of a

threat, along with ownership of the response, to a
third party
• Mitigate: implies a reduction in the probability

and/or impact of an adverse risk event to an
acceptable threshold
Slide No. 50 50
25
• Strategies for positive risks or opportunities
– Three responses deal with positive threats
• Exploit: This strategy seeks to eliminate the

uncertainty associated with a particular upside risk
by making the opportunity definitely happen
• Share: involves allocating ownership to a third

party who is best able to capture the opportunity for
the benefit of the project
• Enhance: modifies the 'size' of an opportunity by

increasing probability and/or positive impacts
Slide No. 51 51

• For both positive and negative risks
– Strategies must be timely
– The effort selected must be appropriate to the
severity of the risk
– One response can be used to address more than one
risk
– More than one response can be used to address the
same risk
– A response can address a root cause of risk and
thereby address more than one risk
Slide No. 52 52
26
• Contingent response strategy
– Some responses are designed for use only if certain
events occur
– For some risks, response plan is made which is
executed under predefined conditions
– Events that trigger the response should be clearly
defined and monitored
Slide No. 53 53
Plan Risk Response- outputs

• Risk register
– Residual risks: These are the ones that have been
accepted and for which contingency and fallback
plans can be created
– Contingency plans: Describes the specific actions that

will be taken if the opportunity or threat occurs
– Risk response owners: Each risk must be assigned

to someone who may help develop the risk
response and who will be assigned to carry out the
risk response
Slide No. 54 54
27
Plan risk response- outputs
Changes in tolerance
Changes in tolerance,
related to accounting,
resource leveling and
tracking and report
loading
Schedule Cost Management

Management Plan plan
Plan Risk Response
Human Resource Procurement Quality

management plan management management plan
plan
Changes in staff Changes related to
Changes in
allocation and requirement, quality
make or buy
organization structure assurance and control
decision
Slide No. 55 55
Plan Risk Reponse- outputs

• Risk register
– Secondary risks: These are new risks developing after
implementing the response
– Risk triggers: These are the events that trigger the

contingency response
– Contracts: Terms and conditions required to mitigate

or allocate threats and to enhance opportunities
should be included in the contract
– Fall back plans: specific actions that will be taken if

the contingency plans are not effective
Slide No. 56 56
28
• Contingency reserves
– They account for the known risks.
– These are the items identified during risk management
• Management reserves
– These account for the unknown risks
– They are the items that were not identified during the
risk management
Slide No. 57 57
Slide No. 58 58
29
Control risks
• This process involves
– Identification, analysis, and planning for newly arising
risks
– Keeping track of the identified risks and those on
the watch list
– Reanalyzing existing risks
– Monitoring trigger conditions for contingency plans
– Monitoring residual risks
– Reviewing the execution of risk responses while
evaluating their effectiveness
Slide No. 59 59
Control Risks- inputs

Risk management plan Identified risks, owners,
including guidelines for risk responses, secondary risks,
monitoring & control residual risks
Project Risk register

Management Plan
Control risks
Work Work performance

performance data
reports
Variance analysis Delivery status,
schedule progress and
cost incurred
Slide No. 60 60
30
Control risks
• List of actions involved in this process would include
– Look for the occurrence of risk triggers
– Monitor residual risks
– Identify new risks and then analyze them and plan for
them
– Evaluate the effectiveness of the risk management
plan
– Develop new risk responses
– Collect and communicate risk status
– Communicate with stakeholders about risks
– Check the validity of the assumptions
– Revisit the watch list to check the requirement of the
additional risk responses
Slide No. 61 61
Control Risks
• List of actions involved in this process would include
– Recommend corrective actions to adjust to the
severity of the risk events
– Look for any unexpected effects or consequences of
risk events
– Reevaluate risk identification and qualitative and
quantitative risk analysis
– Update risk management and response plans
– Make changes to the project management plans and
project documents
– Create a database of risk data that may be used
across the entire organization
Slide No. 62 62
31
Control risks- tools and techniques
• Risk reassessment
– Risk Monitoring and Control often results in
identification of new risks and reassessment of
risks
– Project risk assessments should be regularly
scheduled
• Risk audits
– It examines and documents the effectiveness of risk
responses in dealing with identified risks and their
root causes
– Audits may be included during routine project review
meetings
Slide No. 63 63

• Variance and trend analysis
– Variance analysis should be employed to compare
the planned results to the actual results
– Trends in the project’s execution should be reviewed
using performance information
– Outcomes from these analysis may forecast
potential deviation of the project at completion
from cost and schedule
– Deviations from the baseline may indicate the
potential impact of threats or opportunities
Slide No. 64 64
32
• Workarounds
– Recommendations for the corrective actions are
included in the workarounds
– They are unplanned responses developed to deal
with the occurrence of unanticipated events or
problems
– If proper time is not spent on risk management,
managers would end up spending time on creating
workarounds
Slide No. 65 65

• Technical performance measurement
– Compares technical accomplishments during
project execution to the project management plan's
schedule of technical achievement
– Deviations can help to forecast the degree of
success in achieving the project’s scope
• Reserve analysis
– Compares the amount of the contingency reserves
remaining to the amount of risk remaining at any time
in the project
– Helps in determining if the remaining reserves are
adequate
Slide No. 66 66
33
• Status meetings
– Status may be collected through one to one
conversations
– Risks should be a major point of discussion during
such meetings so that new risks may be identified and
response plan is kept ready
Slide No. 67 67
Control risks- outputs

Mechanism to Recommended preventive
communicate and support and corrective action
project decision making
Work performance Change requests

information
Control risks
Organizational Project
process assets management plan
updates updates
Risk register gets updated because

of risk reassessment and outcome of
risk responses
Slide No. 68 68
34
Control Risks- outputs
• Risk register updates
– Outcomes of risk reassessments, risk audits, and
periodic risk reviews are updated
– Updates are made to probability, impact, priority,
response plans, ownership, and other elements of
the risk register
– Actual outcome of project’s risks can help mangers to
plan risk for the future projects
• Organizational process assets updates

– Templates for the risk management plans
– Risk breakdown structure
– Lessons learned from the risk management activities
Slide No. 69 69
Control Risks- outputs

• Change requests
– Recommended corrective actions
• These include the contingency plans and
workaround plans
• Workaround plans are the responses that were not
initially planned, but are required to deal with
emerging risks that were previously unidentified or
accepted passively
– Recommended preventive actions

• Documented directions to perform on activity that
can reduce the probability of negative
consequences associated with the project risk
Slide No. 70 70
35
Common risk management errors
• Risk identification is completed without knowing enough
about the subject
• Project risk is evaluated only through questionnaire or
interviews
• Risk identification is finished too soon
• Risks identified are general rather than specific
• Whole category of risks are missed
• Enough time is not devoted towards the process of risk
identification
Slide No. 71 71
Thank You
Slide No. 72 72
36

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MODULE-XI

Project Risk Management

Plan risk Identify how risk management

Process of identifying the risks

Perform Process of prioritizing risks for

Project Risk Management

Developing options and actions

Tracking identified risks,

Project Risk Management

• Risks may be accepted if the risks are within

• Risks responses reflect an organization’s perceived

• To be successful, a conscious choice must be made at

• Through this process you increase the probability and

• This is an ongoing process

• The project manager and the team should look at the

Project Risk Management

• The negative risk events are known as threats while the

• Uncertainty is a lack of knowledge about an event that

• The risk factors would include

• Risk tolerance and thresholds

Plan risk management

• Careful and explicit planning enhances the

• Sufficient time and resources should be provided for

Plan risk management- inputs

Plan Risk Management

Plan risk management- outputs

– Roles and responsibilities

Plan risk management- outputs

– Revised stakeholder’s tolerances

• Identification of the risks is an iterative process because

• The format of the risk statement should be consistent to

• The team should be involved so that they may maintain a

Identify risks- inputs

Activity cost Activity duration Stakeholder

Published info, Complexity, Project charter,

• Information gathering techniques

Identify risks- tools and techniques

Identify risks- outputs

– It ultimately contains the outcomes of the other risk

– List of identified risks

– List of potential responses

Perform Qualitative Risk Analysis

• It assesses the priority of identified risks using their

• This is a rapid and cost effective means of establishing

Perform qualitative risk analysis

Enterprise Risk Register

Perform Qualitative Risk Analysis

– Risk impact assessment investigates the potential

– Probability and impact are assessed for each

– The level of probability for each risk and its impact on

Qualitative Risk Analysis- tools and techniques

– Involves examining the degree to which the risk is

Qualitative Risk Analysis- tools and techniques

Perform Quantitative Risk Analysis

• It is performed on risks that have been prioritized by

• This may be repeated after Risk Response Planning,

Perform quantitative risk analysis

Perform Quantitative Risk Analysis

• The main purpose for the quantitative analysis is

Quantitative Risk Analysis- tools and techniques

– Expected monetary value analysis

– Decision tree analysis

Quantitative Risk Analysis- tools and techniques