Prince2 Lesson 08 PDF

PRINCE2 Foundation
Lesson 8Risk Theme
Based on AXELOS PRINCE2 material. Material is reproduced under licence from AXELOS Limited. All rights reserved.
PRINCE2 is a [registered] trade mark of AXELOS Limited, used under permission of AXELOS Limited. All rights reserved.
AXELOS is a [registered] trade mark of AXELOS Limited, used under permission of AXELOS Limited. All rights reserved.
Copyright 2014, Simplilearn, All rights reserved.
1 The Swirl logo is a trade mark of AXELOS Limited, used under the permission of AXELOS Limited. All rights reserved. Copyright 2014, Simplilearn, All rights reserved.
Objectives
After completing Define Risk theme

this lesson, you will
be able to: Explain PRINCE2 approach to Risk theme
Define the roles and responsibilities in Risk theme
2 Copyright 2014, Simplilearn, All rights reserved.

Purpose of Risk Theme
The purpose of the Risk theme is to identify, assess and control uncertainty and, as a result, improve
the ability of the project to succeed.[1]
Risk identification

Risk TermsDefinitions
Risk: A risk is an uncertain event or set of events that may have an effect on the achievement of
objectives.
Threat: An uncertain event that could have a negative impact on objectives.
Opportunity: An uncertain event that could have a favorable impact on objectives.
It is the projects objectives that are at risk. These include completing the project by covering a
number of targets such as time, cost, quality, scope, benefits and risks.

RiskExample
When the project began for the construction of the Sydney Opera House in March
1959, one of the risks identified was that the change in government could affect the
project. As it turned out, in 1965, the new Australian government forced design
changes in the Sydney Opera houses architecture, leading to the resignation of Jorn
Utzon, the architect who designed it.

Risk Management
The term risk management refers to the systematic application of procedures to the tasks of
identifying and assessing risks, and then planning and implementing risk responses.[2]
For effective risk management, risk needs to be identified, assessed and controlled.
Management of risk is a continual activity.
Risk management applies from the strategic, operational, project and programme perspective.
Figure 8.1. Organisational perspectives. Copyright AXELOS Limited 2013. Material is

reproduced under licence from AXELOS. All rights reserved.
PRINCE2 Approach to Risk
Risk management in projects:
Identify whether there are any corporate or programme policies and processes that need to be
applied. This information may be in the form of a risk management policy and/or risk management
process guide.
Should describe the series of steps and their respective associated activities necessary to
implement risk management.
Should communicate how risk management will be implemented throughout the organisation.
PRINCE2s approach to the Management of Risk (M_O_R) is based on AXELOSs publication Management
! of Risk (M_o_R) - Guidance for Practitioners 3rd Edition (TSO, 2010).

Risk Management Strategy
Risk Management Strategy explains how risk management activities will be embedded in the project
management activities.
Risk Management Strategy should have the Project Boards attitude towards risk taking, which is
captured in the form of risk tolerances.
Risk appetite varies with organisation, culture, industry, etc.
While performing various risk management activities, the detailed information about the threats
and opportunity needs to be documented.
! For composition of Risk Management Strategy, please refer PRINCE2 Manual Appendix A.

Risk Register
The purpose of the Risk Register is to capture and maintain information of all the identified threats
and opportunities relating to the project.
Project support will typically maintain the Risk Register on behalf of the Project Manager.
Each risk in the Risk Register is described as:
o Unique identifier
o Who raised the risk
o When it was raised
o Category of risk
o Description of risk
! For composition of Risk Register, please refer PRINCE2 Manual Appendix A.

Risk Register (contd.)
Each risk in the Risk Register is also described as:

Risk Management Procedure
PRINCE2 recommends a risk management

procedure comprising five steps.
The five steps are Identify (context and risks),
Assess (i.e. Estimate and Evaluate), Plan, Implement
and Communicate.
The first four steps in risk management procedure
are sequential with the communicate step running
in parallel.
Figure 8.2. The risk management procedure. Copyright
AXELOS Limited 2013. Material is reproduced under licence
from AXELOS. All rights reserved.

Risk Management ProcedureIdentify
Identify is the first of the four sequential steps of the risk management procedure. Identify steps
includes two sub steps: identify context and identify risks.
Identify context Identify risks
The goal of the identify The goal of the

context step is to identify risks step is
obtain information to recognise the
about the project to threats and
understand the opportunities that
specific objectives that may affect the
are at risk and to projects objectives.
formulate the Risk
Management Strategy
for the project.

Risk Identification Techniques
Risk identification techniques are:
Review lessons
Risk checklists
Risk prompt lists
Brainstorming
Risk breakdown structure
Figure 8.3. Example of a risk breakdown structure. Copyright AXELOS Limited 2013. Material is

IdentifyExample
The objective of the Maasvlakte 2 project at the Port of Rotterdam was to increase
the capacity of Europes largest port (Identify Context). Dutch House of
Representatives, one of the stakeholders of the project, cited inability to meet
deadlines, scope creep and over-expensive budgets as risks (Identify Risks).

Risk Cause, Risk Event and Risk Effect
Risk cause, risk event and risk effect help

in getting a better understanding about
the risk.
Risk cause is the event or situation that

gives rise to risk.
Risk event is the area of uncertainty in

terms of the threat or the opportunity.
Risk effect describes the impact(s) that

the risk would have on the project Figure 8.4. Risk cause, event and effect. Copyright AXELOS
Limited 2013. Material is reproduced under licence from AXELOS.
objectives. All rights reserved.

Example of Risk Cause, Risk Event and Risk Effect
Due to heavy rainfall this year (risk cause), National Institute of Malaria Research
has opined that there is a possibility of more people being effected by malaria (risk
event) which will affect its project to control malaria (risk effect).

Risk Management ProcedureAssess
The assess step of the Risk Management Strategy has two steps: estimate and evaluate.
Estimate Evaluate
The primary goal of the The primary goal of

estimate step is to the evaluate step is to
assess the threats and assess the net effect
the opportunities to of all the identified
the project in terms of threats and
their probability and opportunities on a
impact. project when
aggregated.

Probability Impact Grid
Probability impact grid is a popular technique of estimating the Risk.
Figure 8.5. Probability impact grid. Copyright AXELOS Limited 2013. Material is reproduced under licence from AXELOS. All rights reserved.
Risk Management ProcedurePlan
The primary goal of the plan step is to prepare specific management responses to the threats and
opportunities identified, ideally to remove or reduce the threats and to maximise the opportunities.
Risk responses do not necessarily remove the inherent risks in its entirety, leaving residual risks.
In some cases, implementing a risk response may lead to secondary risk, i.e. risks that may occur
as a result of revoking a risk response.

Threat and Opportunity Responses
The types of responses for threats and opportunity are:
Threat responses Opportunity responses

Avoid Exploit
Reduce (probability and/or impact) Enhance
Fallback (reduces impact only)
Transfer (reduces impact only, and often only the
financial impact)
Share
Accept Reject
Figure 8.7. Threat and opportunity responses. Copyright AXELOS Limited 2013. Material is
Example of Risk Responses
Scenario: None of the Ministry of Petroleum s (MP) employees on the project

management team has any experience in reorganisation. In this case they can:
Hire experienced reorganisation contractors to assist MP staff throughout the
project (Reduce).
Include a clause in the agreement with the selected external supplier stating
that, if the full functionality of the software solution is not delivered, the
selected external supplier will reduce their fees consequently (Transfer).
Rely on the selected external supplier to provide advice that will protect MPs
interests (Accept).
Request assistance from federal government if difficulties arise in
understanding what is happening (Fallback).

Example of Risk Responses (contd.)
Scenario: A project to manufacture a smartphone handset is in stage 2. The

Project Manager has heard about the possibility of a competitor mobile handset
developer launching a similar product earlier than the target date for this
project. In this case they can:
Decide not to compete and cancel the project (Avoid).
Wait for confirmation of the rivals product and, if required, include
additional gifts, e.g. mobile covers, screen guards, etc. with the handset as
an extra incentive (Fallback).

Risk Management ProcedureImplement
An important part of the Implement step is to ensure that there are clear roles and responsibilities
allocated to support the Project Manager in the management of project risks.
The primary goal of the Implement step is to ensure that the planned risk responses are actioned,
their effectiveness is monitored and corrective action is taken where responses do not match
expectations.
The main roles in this theme are risk owner and risk actionee.
In many cases, the risk owner and risk actionee are likely to be the same person.

Example of Implement
A multinational bank identified one of its suppliers, an IT service provider, as a

potential risk after a corporate scandal was detected in the latters organisation.
A commercial director at the bank was appointed as a risk owner. One of the risk
responses identified was to terminate the contract with the IT service provider
and find an alternate supplier. The Procurement Manager for the project was
made the risk actionee.

Risk Management ProcedureCommunicate
The Communicate step should ensure that information related to the threats and opportunities faced
by the project is communicated both within the project and externally to stakeholders.
The main forms of communication are the following:
Checkpoint reports
Highlight reports
End Stage Report
End Project Report
Lessons reports

Risk Budget
Risk budget is a sum of money included within the project budget set aside to fund specific
management responses to the projects threats and opportunities.
Risk budget is:
the Expected Monetary Value (EMV) for responses and impacts for a set of risks determines the
risk budget.
a part of the project budget.
influenced by the risk appetite of the organisation sponsoring the project.

Roles and Responsibilities in Risk Theme
The table depicts the responsibilities of Corporate or programme management, Executive, Senior
User, Senior Supplier in Risk theme.
Role Responsibilities
Corporate or programme Provide the corporate risk management policy and risk management process guide (or similar
management documents).
Executive Be accountable for all aspects of risk management and in particular, ensure a project Risk
Management Strategy exists.
Ensure that risks associated with the Business Case are identified, assessed and controlled.
Escalate risks to corporate or programme management as necessary.
Senior User Ensure that risks to the users are identified, assessed and controlled (such as the impact on
benefits, operational use and maintenance).
Senior Supplier Ensure that risks relating to the supplier aspects are identified, assessed and controlled (such as
the creation of the projects products).
Text in box is from Managing Successful Projects with PRINCE2. Copyright AXELOS Limited
2013. Material is reproduced under licence from AXELOS. All rights reserved.
Roles and Responsibilities in Risk Theme (contd.)
The table depicts the responsibilities of Project Manager, Team Manager, Project Assurance and
Project Support in Risk theme.
Role Responsibilities
Project Manager Create the Risk Management Strategy.

Create and maintain the Risk Register.
Ensure that the project risks are being identified, assessed and controlled throughout the
project lifecycle.
Team Manager Participate in the identification, assessment and control of risks.
Project Assurance Review risk management practices to ensure that they are performed in line with the
projects Risk Management Strategy.
Project Support Assist the Project Manager in maintaining the projects Risk Register.
Text in box is from Managing Successful Projects with PRINCE2. Copyright AXELOS Limited
2013. Material is reproduced under licence from AXELOS. All rights reserved.
Quiz

QUIZ Which of the following steps of risk management procedure runs in parallel to the
1 other steps?
a. Communicate
b. Identify
c. Assess
d. Plan

QUIZ Which of the following steps of risk management procedure runs in parallel to the
1 other steps?
a. Communicate
b. Identify
c. Assess
d. Plan
Answer: a.
Explanation: The first four steps in risk management procedure (i.e., identify, assess, plan
and implement) are sequential, with the communicate step running in parallel.

QUIZ The purpose of the ___________ is to capture and maintain information on all of the
2 identified threats and opportunities relating to the project.
a. Risk Management Strategy

b. opportunities
c. Risk Register
d. threats

QUIZ The purpose of the ___________ is to capture and maintain information on all of the
2 identified threats and opportunities relating to the project.
a. Risk Management Strategy

b. opportunities
c. Risk Register
d. threats
Answer: c.
Explanation: The purpose of the Risk Register is to capture and maintain information on all
of the identified threats and opportunities relating to the project.

QUIZ Who is responsible for carrying out a risk response action or actions to respond to a
3 particular risk or set of risks?
a. Risk owner
b. Risk actionee
c. Project Assurance
d. Project Manager

QUIZ Who is responsible for carrying out a risk response action or actions to respond to a
3 particular risk or set of risks?
a. Risk owner
b. Risk actionee
c. Project Assurance
d. Project Manager
Answer: b.
Explanation: The risk actionee is responsible for carrying out a risk response action or
actions to respond to a particular risk or set of risks.

QUIZ
Which among the following risk responses can be a threat or opportunity?
4
a. Enhance
b. Fallback
c. Exploit
d. Share

QUIZ
Which among the following risk responses can be a threat or opportunity?
4
a. Enhance
b. Fallback
c. Exploit
d. Share
Answer: d.
Explanation: Share response is a common response between threat or opportunity.

QUIZ
Which of the following is not a step of risk management procedure?
5
a. Identify
b. Check
c. Plan
d. Implement

QUIZ
Which of the following is not a step of risk management procedure?
5
a. Identify
b. Check
c. Plan
d. Implement
Answer: b.
Explanation: The five steps of risk management procedure are identify, assess, plan,
implement and communicate.

QUIZ
Risk budget, if used, is a sum of money included within the project budget.
6
a. TRUE
b. FALSE

QUIZ
Risk budget, if used, is a sum of money included within the project budget.
6
a. TRUE
b. FALSE
Answer: a.
Explanation: A risk budget, if used, is a sum of money included within the project budget
and set aside to fund specific management responses to the projects threats and
opportunities.

QUIZ
Who maintains the Risk Register on behalf of the Project Manager?
7
a. Project Support
b. Quality Assurance
c. Team Manager
d. Project Assurance

QUIZ
Who maintains the Risk Register on behalf of the Project Manager?
7
a. Project Support
b. Quality Assurance
c. Team Manager
d. Project Assurance
Answer: a.
Explanation: Project Support will typically maintain the Risk Register on behalf of the
Project Manager.

QUIZ A useful way of expressing risk considers which of the following aspects of each risk?
8
1. Risk cause, 2. Risk event, 3. Risk effect, 4. Risk tolerance
a. 1,2,3
b. 2,3,4
c. 1,3,4
d. 1,2,3,4

QUIZ A useful way of expressing risk considers which of the following aspects of each risk?
8
1. Risk cause, 2. Risk event, 3. Risk effect, 4. Risk tolerance
a. 1,2,3
b. 2,3,4
c. 1,3,4
d. 1,2,3,4
Answer: a.
Explanation: Risk cause, risk event and risk effect are used together to effectively express
risk.

QUIZ
Which of the following management products is not used to communicate risks?
9
a. Checkpoint Reports
b. Highlight Reports
c. Lesson Reports
d. Project Status Account

QUIZ
Which of the following management products is not used to communicate risks?
9
a. Checkpoint Reports
b. Highlight Reports
c. Lesson Reports
d. Project Status Account
Answer: d.
Explanation: Risks are communicated as part of the following management products:
Checkpoint reports, Highlight reports, End Stage Report, End Project Report and Lessons
reports.

QUIZ For risk management to be effective, risks need to be: 1. identified, 2. assessed, 3.
10 controlled, and 4. communicated.
a. 1,2,4
b. 1,2,3
c. 2,3,4
d. 1,2,3,4

QUIZ For risk management to be effective, risks need to be: 1. identified, 2. assessed, 3.
10 controlled, and 4. communicated.
a. 1,2,4
b. 1,2,3
c. 2,3,4
d. 1,2,3,4
Answer: b.
Explanation: For risk management to be effective, risks need to be identified, assessed and
controlled.

Summary
Here is a quick The purpose of the Risk theme is to identify, assess and control uncertainty
recap of what we
and as a result, improve the ability of the project to succeed
have learnt in this
lesson:
A risk is as an uncertain event or set of events that may have an effect on
the achievement of objectives
To apply risk management procedure in the project, it is important to

identify whether there are any corporate or programme policies and
processes that need to be applied

Thank You
Based on AXELOS PRINCE2 material. Material is reproduced under licence from AXELOS Limited. All rights reserved.
PRINCE2 is a [registered] trade mark of AXELOS Limited, used under permission of AXELOS Limited. All rights reserved.
AXELOS is a [registered] trade mark of AXELOS Limited, used under permission of AXELOS Limited. All rights reserved.
The Swirl logo is a trade mark of AXELOS Limited, used under the permission of AXELOS Limited. All rights reserved.
51 Copyright2014,
Copyright 2014, Simplilearn,
Simplilearn, All rights
All rights reserved.
reserved.
References
[1] Based on Managing Successful Projects with PRINCE2, by AXELOS. Risk, Purpose.
[2] Based on Managing Successful Projects with PRINCE2, by AXELOS. Risk, What is risk management?

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PRINCE2 Foundation

Lesson 8Risk Theme

After completing Define Risk theme

Define the roles and responsibilities in Risk theme

2 Copyright 2014, Simplilearn, All rights reserved.

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Threat: An uncertain event that could have a negative impact on objectives.

Opportunity: An uncertain event that could have a favorable impact on objectives.

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Figure 8.1. Organisational perspectives. Copyright AXELOS Limited 2013. Material is

Risk management in projects:

7 Copyright 2014, Simplilearn, All rights reserved.

Risk appetite varies with organisation, culture, industry, etc.

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! For composition of Risk Register, please refer PRINCE2 Manual Appendix A.

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Each risk in the Risk Register is also described as:

10 Copyright 2014, Simplilearn, All rights reserved.

PRINCE2 recommends a risk management

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Identify context Identify risks

The goal of the identify The goal of the

12 Copyright 2014, Simplilearn, All rights reserved.

Risk identification techniques are:

Risk prompt lists

Risk breakdown structure

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Risk cause, risk event and risk effect help

Risk cause is the event or situation that

Risk event is the area of uncertainty in

Risk effect describes the impact(s) that

15 Copyright 2014, Simplilearn, All rights reserved.

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The primary goal of the The primary goal of

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Probability impact grid is a popular technique of estimating the Risk.

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The types of responses for threats and opportunity are:

Threat responses Opportunity responses

Scenario: None of the Ministry of Petroleum s (MP) employees on the project

21 Copyright 2014, Simplilearn, All rights reserved.

Scenario: A project to manufacture a smartphone handset is in stage 2. The

22 Copyright 2014, Simplilearn, All rights reserved.

23 Copyright 2014, Simplilearn, All rights reserved.

A multinational bank identified one of its suppliers, an IT service provider, as a

24 Copyright 2014, Simplilearn, All rights reserved.

The main forms of communication are the following:

End Stage Report

End Project Report

25 Copyright 2014, Simplilearn, All rights reserved.

Risk budget is:

a part of the project budget.

influenced by the risk appetite of the organisation sponsoring the project.

26 Copyright 2014, Simplilearn, All rights reserved.

Project Manager Create the Risk Management Strategy.

29 Copyright 2014, Simplilearn, All rights reserved.

30 Copyright 2014, Simplilearn, All rights reserved.

31 Copyright 2014, Simplilearn, All rights reserved.

a. Risk Management Strategy

32 Copyright 2014, Simplilearn, All rights reserved.

a. Risk Management Strategy