Pinto pm5 Inppt 07

Project Management: Achieving
Competitive Advantage
Fifth Edition
Chapter 7
Risk management
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives
7.1 Define project risk.
7.2 Recognize four key stages in project risk
management and the steps necessary to manage risk.
7.3 Explain the Project Risk Analysis and Management
(PRAM) process.
PMBoK Core Concepts
Project Management Body of Knowledge (PMBoK) covered
in this chapter includes:
1. Plan Risk Management (PMBoK 11.1)
2. Identify Risks (PMBoK 11.2)
3. Perform Qualitative Risk Analysis (PMBoK 11.3)
4. Perform Quantitative Risk Analysis (PMBoK 11.4)
5. Plan Risk Responses (PMBoK 11.5)
6. Control Risks (PMBoK 11.6)
Questions to Consider in Risk Management
• What is likely to happen (the probability and impact)?
• What can be done to minimize the probability or impact of
these events?
• What cues will signal the need for such action (i.e., what
clues should I actively look for)?
• What are the likely outcomes of these problems and my
anticipated reaction?
Risk Management
Risk management—the art and science of identifying,
analyzing, and responding to risk factors throughout the
life of a project and in the best interest of its objectives.
Project risk—an uncertain event or condition that, if it
occurs, has a positive or negative effect on one or more
project objectives such as scope, schedule, cost, or
quality.
Risk = Probability of Event  (Consequences of Event)
Figure 7.2 Risk Versus Amount at Stake:
The Challenge in Risk Management
Four Stages of Risk Management
1. Risk identification
2. Analysis of probability and consequences
3. Risk mitigation strategies
4. Control and documentation
Risk Clusters
• Financial • Execution
• Technical • Contractual or legal risk
• Commercial
Common Types of Risks

• Absenteeism • Skills unavailable
• Resignation • Ineffective training
• Staff pulled away • Specs incomplete
• Time overruns • Change orders
Risk Factor Identification
• Brainstorming meetings
• Expert opinion
• Past history
• Multiple (or team-based) assessments
Figure 7.4 Risk Breakdown Structure (RBS)
Figure 7.5 Risk Impact Matrix
Project Risk Scoring (1 of 2)
1. Use project team’s consensus to determine the score
for each Probability of Failure category: Maturity (Pm),
Complexity (Pc), and Dependency (Pd).
2. Calculate overall probability.
Pm  Pc  Pd
Pf 
3
3. Use project team’s consensus to determine the score

for each Consequence of Failure category: Cost (Cc),
Schedule (Cs), Reliability (Cr), and Performance (Cp).
Project Risk Scoring (2 of 2)
4. Calculate Cf by adding the four categories and dividing
by 4:
Cc  Cs  Cr  C p
Cf 
4
5. Calculate Overall Risk Factor for the project by using
the formula:
RF  Pf  Cf  Pf Cf 
Rule of Thumb:
Low Risk RF < 0.30
Medium Risk RF = 0.30 to 0.70
High Risk RF > 0.70
Risk Mitigation Strategies
• Accept • Insurance
• Minimize • Workaround
• Share • Other Mitigation Strategies
• Transfer – Mentoring
– Cross training
• Contingency Reserves
– Task contingency • Control and Documentation
– Managerial – Change management
contingency
Control and Documentation
Helps managers classify and codify risks, responses,
and outcomes
Change management report system answers:
• What?
• Who?
• When?
• Why?
• How?
Project Risk Analysis and Management
(PRAM)
PRAM presents a generic methodology that can be
applied to multiple project environments, and encompasses
the key components of project risk management.
Key Features of PRAM
• Risk management follows a life cycle.
• Risk management strategy changes over the project life
cycle.
• Synthesized, coherent approach.
Nine Phases of Risk Assessment
1. Define
2. Focus
3. Identify
4. Structure
5. Clarify ownership of risks
6. Estimate
7. Evaluate
8. Plan
9. Manage
Summary
1. Define project risk.
2. Recognize the four key stages in project risk
management and the steps necessary to manage
risk.
3. Explain the Project Risk Analysis and Management
(PRAM) process.
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Project Management: Achieving

Risk = Probability of Event  (Consequences of Event)

Common Types of Risks

3. Use project team’s consensus to determine the score

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