Project Risk Management

Project Management Diploma Intake 35
PROJECT RISK MANAGEMENT

Waleed El-Naggar, MBA, PMP
What is Risk
Risk = An uncertain event or condition that, if it occurs, has a Positive or Negative effect on a project objective The severity of any risk can be defined in terms of two parameters:
Likelihood
(Probability): The extent to which the risk effects are likely to occur. (Consequence): The effect that a risk will have on the project if it occurs.
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Impact
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Profit vs. Risk
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The processes of conducting risk planning, identification, analysis, response planning and monitoring & control on a project
Objectives:

Increase the probability & impact of positive events
Decrease the probability and impact of negative

events In the project
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Risk Sources
Schedule

Tasks on the critical/near-critical path Optimistically estimated tasks Tasks reliant on external dependencies Tasks with one individual working alone or many people Tasks using scarce resources or Under-skilled people Illness and turnover Uncertainty of funds Shifts in budget priorities Uncertain resource costs Uncertainty of new product development Dynamics of customer requirements
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Resources

Budget

Scope
Risk Sources (another view)

INTERNAL
EXTERNAL
Financial
Research and Development Production Human Resources
Economical
Competition Social/Cultural Regulatory Political
Administrative
Strategic Preference
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Mapping the Processes

Process Group
PM Knowledge Area 11. Risk
Initia tion
Planning
Executing
Controlling
Closing
11.1 Plan Risk Management 11.2 Identify Risks 11.3 Perform Qualitative Risk Analysis 11.4 Perform Quantitative Risk Analysis 11.5 Plan Risk Response
11.6 Monitor and Control Risk
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Major Processes
Planning
11.1 Risk Management Planning
Controlling
11.3 Qualitative Risk Analysis
11.2 Risk Identification
11.5 Risk Response Planning
11.6 Risk Monitoring & Control
11.4 Quantitative Risk Analysis

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11.1 Plan Risk Management
The process of defining how to conduct risk management activities for a project
Important to provide sufficient resources and time for risk management activities, and to establish a basis for evaluating risk.
Should be completed early during project

planning
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Plan Risk Management
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Plan Risk Management Data Flow Diagram
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Plan Risk Management: Inputs

1. Project Scope Statement 2. Cost Management Plan 3. Schedule Management Plan 4. Communication Management Plan 5. Enterprise Environmental Factors 6. Organizational Process Assets
Plan Risk Management: Tools & Techniques

1. Planning Meetings and Analysis Project teams meet with stakeholders. High level plans for risk management are defined in these meetings
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Plan Risk Management: Outputs

1. Risk Management Plan
Methodology Roles
and Responsibilities
Budgeting
Timing
Risk
Categories
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Risk Categories
Risk
Breakdown Structure
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Definition of Risk Probability and Impact
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Probability and Impact matrix Revised Stakeholders' Tolerance
Reporting Formats
Tracking
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Q: An uncommon state of nature, characterized by the
absence of any information related to a desired outcome

, is a common definition for: A. An act of God B. An amount at stake C. Uncertainty
D. Risk aversion
Answer C
11.2 Identify Risks
Identify Risks is the process of determining which risks may affect the project and documenting their characteristics
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Identify Risks Data Flow Diagram
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Identify Risks: Inputs

1. Risk Management Plan 2. Activity Cost Estimates 3. Activity Duration Estimation 4. Scope Baseline 5. Stakeholder Register
6. Cost management Plan

Identify Risks: Inputs (contd.)

7. Schedule Management Plan 8. Quality Management Plan 9. Project Documents 10. Enterprise Environmental Factors 11. Organizational Process Assets
Identify Risks: Tools & Techniques

1. Documentation Reviews
2. Checklists
3. Assumption Analysis 4. Information Gathering Techniques 5. Diagramming Techniques 6. SWOT Analysis (Strength, Weakness, Opportunities, Threats)
7. Expert Judgment
Checklists
The advantage of a checklist is that its a simple and direct approach to identify risks. The disadvantage of using a checklist is that the participants may limit their risk identification to only the risk categories on the checklists. Checklists are great for risk and quality management. At project closure, however, be certain to update the checklists for future projects. The current project will act as future historical information.
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Assumption Analysis
Examining the assumptions to see what risks may stem from false assumptions
Examining assumptions is about finding the
validity of the assumptions.
Examining the assumptions also requires a
review of assumptions across the whole project

for consistency
Testing Asumptions
Assumptions are weighed using two factors:
Assumption stability: How reliable is the information that led to this assumption?
Assumption consequence What is the effect on the project if this assumption is false?
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Information Gathering Techniques

1. Brainstorming
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2. Delphi Technique
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3. Interviewing
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4. Root-cause Analysis
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Diagramming Methods
1. Cause and Effect Diagram (Ishikawa)
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Diagramming Methods
2. System or process flow charts
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Diagramming Methods
3. Influence Diagram
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SWOT Analysis
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Identify Risks: Outputs
Risk Register
List List
of identified risks
of potential responses
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Risk Register Example
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Definitions

Trigger: indications that a risk has occurred or is about to occur. Workaround: a response to a negative risk that has occurred. (not planned in advance). Contingency plan: backup plan. What shall we do if the risk occurs.
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Quiz
Risk tolerances are determined in order to help:
A. The team rank the project risks B. The project manager estimate the project C. The team schedule the project D. Management know how other managers will act to the project Answer A
11.3 Perform Qualitative Risk Analysis
The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact
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11.3 Perform Qualitative Risk Analysis Data Flow Diagram
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Perform Qualitative Risk Analysis: Inputs

1. Risk Register 2. Risk Management Plan
3. Project Scope Statement

4. Organizational Process Assets
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Perform Qualitative Risk Analysis: Tools & Techniques

1. Risk Probability and Impact Assessment
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Perform Qualitative Risk Analysis: Tools & Techniques

2. Risk Data Quality Assessment 3. Risk Categorization
4. Risk Urgency Assessment

5. Expert Judgment
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Perform Qualitative Risk Analysis: Outputs

1. Risk Register Updates
Relative
ranking or priority list of project risks Risks grouped by categories Causes of risk or project areas requiring particular attention List of risks requiring response in the near-term List of risks for additional analysis and response Watch lists of low-priority risks Trends in qualitative risk analysis results
11.4 Perform Quantitative Risk Analysis
The process of numerically analyzing the effect of identified risks on overall project objectives. Quantitative analysis is performed on risks that have been prioritized by the qualitative risk analysis process as potentially and substantially impacting the project's competing demands.
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11.4 Perform Quantitative Risk Analysis Data Flow Diagram
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Perform Quantitative Risk Analysis: Inputs

1. Risk Register
2. Risk Management Plan 3. Cost Management Plan 4. Schedule Management Plan 5. Organizational Process Assets
Perform Quantitative Risk Analysis: Tools & Techniques

1. Data Gathering and Representation Techniques
Interviewing Probability
Distribution
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Perform Quantitative Risk Analysis:

Tools & Techniques
2. Quantitative Risk Analysis and Modeling Techniques
Sensitivity Expected Modeling
analysis
monetary value analysis and Simulation
3. Expert Judgment
Sensitivity Analysis
A deterministic modeling technique used to test the impact of a change in a value of independent variable on a dependent valuable
A method of assessing the relative impact of a

change in a factor (variable) on the project objective It is also called what if analysis
Sample Sensitivity Analysis
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Decision Tree
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Simulation
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

Exercise
Purchase: 17,500
70%
80,000 30,000
65,000
30%
47,500
Subcontract: 15,000
70%
75,000 25,000
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50,000
30%
Perform Quantitative Risk Analysis: Outputs
Risk Register Updates

Probabilistic Probability Prioritized
analysis of the project
of achieving cost and time objectives

list of quantified risks
Trends
in quantitative risk analysis results

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Quiz
If a project has a 60% chance of a US $ 100,000 profit
and a 40% chance of a US $ 100,000 loss, the expected

monetary value for the project is : a. $ 100,000 profit
b. $ 60,000 loss
c. $ 20,000 profit d. $ 40,000 loss Answer: C
11.5 Plan Risk Responses
The process of developing options and actions to enhance opportunities and to reduce threats to project objectives.
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11.5 Plan Risk Responses Data Flow Diagram
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Plan Risk Responses: Inputs

Risk Register Risk Management Plan
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Plan Risk Responses: Tools & Techniques

1. Strategies for negative risks or threats
Avoid Transfer Mitigate
Accept
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Response Strategies for Threats
Avoidance:

Risk prevention Changing the plan to eliminate a risk by avoiding the cause/source of risk Protect project from impact of risk Examples: Change the implementation strategy Do it ourselves (do not subcontract) Reduce scope to avoid high risk deliverables Adopt a familiar technology or product
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Mitigation
Seeks to reduce the impact or probability of the risk event to an acceptable threshold Be proactive: Take early actions to reduce impact/probability and dont wait until the risk hits your project Examples: Staging - More testing - Prototype Redundancy planning Use more qualified resources
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Transfer
Shift responsibility of risk consequence to another party Does NOT eliminate risk Most effective in dealing with financial exposure Examples: Buy/subcontract: move liabilities Selecting type of Procurement contracts: Fixed Price Insurance: liabilities + bonds + Warranties
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Acceptance
Used when project plan cannot be changed & other risk response strategy cannot be used Active Acceptance Develop a contingency plan to execute if the risk occur Contingency plan = be ready with Plan B Passive Acceptance Deal with the risks as they occur = No Plan B prepared
Contingency allowance/ reserve
Established amount of reserve (e.g.: time and/or money) to account for the identified known risks. Amount is decided based on probability and impact
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2. Strategies for Positive Risks or Opportunities
Exploit: Ensure opportunity is realized Ex: Assigning organization most talented resources to the project to reduce cost lower than planned. Share: Allocating some or all of the ownership to third part best able to capture the opportunity Ex: Joint ventures, special-purpose companies Enhance: Increase the probability and/or the positive impact of the opportunity Ex: Adding more resources to finish early Accept: Welling to take advantage of opportunity if it comes, but not actively pursuing it.
Contingent Response Strategies

Expert Judgment
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Plan Risk Responses: Outputs

Risk Register Updates Risk-Related Contract Decisions Project management Plan Updates Project Documents Updates
Assumptions Technical
log updates
documentation updates
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Quiz
Purchasing insurance is BEST considered an example of risk: a. Mitigation b. Transference c. Acceptance d. Avoidance Answer B
Risk reserves
Contingency Reserve

Known Unknowns expectable risks Accounts for:
Amounts dedicated for contingency plans identified in the risk management process
Residual risks that we decided to put aside when developing the risk management plan
Management Reserve

Unknown Unknowns un-expectable risks Accounts for items that we did not or could not identify in the risk management process
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Monitor and Control Risks
The process of implementing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.
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Monitor and Control Risks Data Flow Diagram
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Monitor and Control Risks: Inputs

1. Risk Register 2. Project Management Plan 3. Work Performance Information 4. Performance Reports
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Monitor and Control Risks: Tools & Techniques

Risk Assessment Risk audits Variance and Trend Analysis Technical Performance Measurement Reserve Analysis Status Meetings
Monitor and Control Risks: Outputs
Risk Register Updates
Organizational Process Updates

Change Requests
Recommended
corrective actions
Recommended preventive actions
Project management Plan Updates

Project Document Updates
Quiz
What should be done with a non- critical Risk? a. Document them for historical use on other projects b. Document them and revisit during project execution c. Document them and set them aside because they are already covered in your contingency plans d. Document them and give them to the customer Answer B
Play Time
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Project Management Diploma Intake 35