Project Management Professional (PMP) ® Exam Review

Project Management Professional
(PMP) Exam Review

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Chapter 11
PROJECT RISK MANAGEMENT
What is a Risk ?
* An uncertain event or condition that, if it occurs, has a positive or negative

effect on one or more project objectives.
Uncertainty Cause and Effect Project Objectives

A state of having limited A risk is triggered by one or more
1 Scope
knowledge where it is impossible causes and it may have one or
to exactly describe the existing more impacts. 2 Schedule
state, a future outcome, or more
than one possible outcome. The effect can be positive or 3 Cost
negative. 4 Quality
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
What is Project Risk Management ?
* Project Risk Management includes the processes of conducting risk management planning,
identification, analysis, response planning, and controlling risk on a project.
Increase positive events Decrease negative events

probability and Impact probability and Impact
Objective of Project Risk Management

Risk, Uncertainty & Cost of changes
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 2-9, Page 40.
Identified, analyzed and responses created.
(proactive)
Known risks
Assign contingency reserve if it cant be managed
proactively.
Cant be managed proactively.

Unknown risks
Requires Management reserve.
Issue an occurred negative risk
Individual Overall
project risks project risk
Risk attitude among organization and stakeholders
Risk appetite the degree of Risk tolerance the degree, amount Risk threshold measures along the level
uncertainty an entity is willing to take or volume of risk that an organization of uncertainty or the level of impact at
on in anticipation of a reward.* or individual will withstand.* which a stakeholder may have specific
interest.*
The organization is willing to accept The organization or stakeholder is willing to The organization or stakeholder will NOT
reasonable risk to the cost on this project. accept risk of up to 8% increase in the project accept a risk that may increase the project
cost. cost by more than 9%.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute Inc., 2013, Page 311.
To be successful, an organization should be dedicated to address risk
management proactively and consistently throughout the project.
KEY POINTS
Project risk could

Positive and negative risks are commonly
exist from initiation
known as opportunities and threats.
till closing.
Risk Aversion Risk Taker Risk Neutral
Project Risk Management Processes
11.1 Plan Risk Management The process of defining
how to conduct risk management activities for a project.*
11.2 Identify RisksThe process of determining which
risks may affect the project and documenting their
characteristics.*
11.3 Perform Qualitative Risk AnalysisThe process of
prioritizing risks for further analysis or action by assessing
and combining their probability of occurrence and impact.
*
Project Risk Management Processes
11.4 Perform Quantitative Risk AnalysisThe process of
numerically analyzing the effect of identified risks on overall
project objectives.*
11.5 Plan Risk ResponsesThe process of developing options
and actions to enhance opportunities and to reduce threats to
project objectives.*
11.6 Control RisksThe process of implementing risk response
plans, tracking identified risks, monitoring residual risks,
identifying new risks, and evaluating risk process effectiveness
throughout the project.*
Project Risk Management
11.1 PLAN RISK MANAGEMENT
Plan Risk Management
* The process of defining how to conduct risk

management activities for a project.
Inputs
1. Project Management Plan
2. Project Charter
3. Stakeholder Register
4. Enterprise Environmental Factors
5. Organizational Process Assets
Plan Risk Management: Tools and Techniques
Analytical techniques
Various techniques used to evaluate, analyze, or forecast
potential outcomes based on possible variations of
project or environmental variables and their relationships
with other variables.*
Expert Judgment
Judgment provided based upon expertise in an
application area, knowledge area, discipline, industry,
etc., as appropriate for the activity being performed.
Such expertise may be provided by any group or person
with specialized education, knowledge, skill, experience,
or training.*
Meetings
Meetings should be a common way to develop risk management plan
with project team members. Meetings can include stakeholders who
have vested interested in the project and subject matter experts.
Several decision can be made this meeting including but not limited to
1. Plans to conduct risk management activities
2. Assign budget and schedule for risk management
3. Assign responsibility in risk management
4. Develop templates for risk categories
Plan Risk Management: Outputs
Risk Management Plan
This will layout the risk management activities structure and
plan.
Methodology
Roles and responsibilities
Budgeting
Timing
Risk categories
Definitions of risk probability and impact
Definitions of risk probability and impact
Defined Conditions for Impact Scales of a Risk on Major Project Objectives
Relative or numerical scales are shown

Project
Objectives
Very low / 0.1 Low / 0.2 Moderate /0.3 High /0.5 Very High /0.8
Insignificant cost 3% - 5% cost 5%-10% cost > 10% cost

Cost increase
< 3% cost increase
increase increase increase
Insignificant time
Time increase
< 10 days delay 10 to 20 days delay 20 to 30 days delay > 30 days delay
Scope reduction Project end item

Scope decrease Minor areas of Major areas of
Scope barely noticeable scope affected scope affected
unacceptable to is effectively
sponsor useless
Only very demanding Quality reduction Quality reduction Project end item
Quality degradation
Quality barely noticeable
applications requires sponsor unacceptable to is effectively
are affected approval sponsor useless
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Table 11.1, Page 318.
Plan Risk Management: Outputs
Risk Management Plan
Probability and impact matrix
Revised stakeholders tolerances
Reporting formats
Tracking
Risk Threshold
Probability & Impact Matrix
Probability Threats Opportunities
0.9 0.09 0.18 0.27 0.45 0.72 0.72 0.45 0.27 0.18 0.09
0.8 0.08 0.16 0.24 0.40 0.64 0.64 0.4 0.24 0.16 0.08
0.7 0.07 0.14 0.21 0.35 0.56 0.56 0.35 0.21 0.14 0.07
0.6 0.06 0.12 0.18 0.30 0.48 0.48 0.30 0.18 0.12 0.06
0.5 0.05 0.10 0.15 0.25 0.40 0.40 0.25 0.15 0.10 0.05
0.4 0.04 0.08 0.12 0.20 0.32 0.32 0.20 0.12 0.08 0.04
0.3 0.03 0.06 0.09 0.15 0.24 0.24 0.15 0.09 0.06 0.03
0.2 0.02 0.04 0.06 0.10 0.16 0.16 0.10 0.06 0.04 0.02
0.1 0.01 0.02 0.03 0.05 0.08 0.08 0.05 0.03 0.02 0.01
Impact 0.1 0.2 0.3 0.5 0.8 0.8 0.5 0.3 0.2 0.1
Red High Risk, Yellow Medium Risk, Green Low Risk
11.2 IDENTIFY RISKS
Identify Risks
* Identify Risks is the process of determining
which risks may affect the project and
documenting their characteristics.
This process will help you identify and anticipate

uncertain events.
Key Points
Frequency of Participation in
Iterative process
iteration each cycle
This process should involve the project New risks may

team evolve
Stakeholders outside the project team may provide additional

objective information.
Identify Risk Process
Who can help you with identifying risks?

Project Manager, Project Team Members,
Risk Management Team (If assigned), Customers, Subject
Matter Experts from outside the Project Team, End Users,
other Project Managers, Stakeholders, and Risk
Management Experts.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure11-5, Page 319.
Tools & Techniques
1. Documentation Reviews
2. Information Gathering Techniques
3. Checklist Analysis
4. Assumptions Analysis
5. Diagramming Techniques
6. SWOT Analysis
7. Expert Judgment
1. Documentation reviews
The process of gathering a corpus of information and

Project reviewing it to determine accuracy and completeness.*
Documents
2. Information Gathering Techniques
Brainstorming
Delphi technique
Interviewing
Root cause analysis
Brainstorming
* A general data gathering and creativity

technique that can be used to identify risks,
ideas, or solutions to issues by using a group of
team members or subject matter experts.
Delphi technique 1. An information gathering technique used as a
way to reach a consensus of experts on a
subject.
2. Experts on the subject participate in this
technique anonymously.
3. A facilitator uses a questionnaire to solicit ideas
about the important project points related to
the subject.
4. The responses are summarized and are then re-
circulated to the experts for further comment.
5. Consensus may be reached in a few rounds of
this process.
6. The Delphi technique helps reduce bias in the
data and keeps any one person from having
undue influence on the outcome.*
Interviewing
* A formal or informal approach to elicit

information from stakeholders by talking to
them directly.
Root Cause Analysis
An analytical technique used to determine

the basic underlying reason that causes a
risk. A root cause may underlie more than
one risk.*
3. Checklist Analysis
Risk identification checklists are developed based

on historical information. The checklist should be
reviewed during project closure to incorporate
new lessons learned and improve it for use on
future projects.*
4. Assumptions Analysis
* A technique that explores the accuracy of

assumptions and identifies risks to the project
from inaccuracy, inconsistency, or
incompleteness of assumptions.
5. Diagramming Techniques
Cause and effect diagrams
* A decomposition technique that helps trace an undesirable
effect back to its root causes .
System or process flow charts

These show how various elements of a system interrelate and the
mechanism of causation.
Influence diagrams
* A graphical representation of situations showing causal
influences, time ordering of events, and other relationships among
variables and outcomes.
6. SWOT Analysis
Analysis of strengths, weaknesses,

opportunities, and threats of an
organization, project, or option.*
7. Expert Judgment
Judgment provided based upon expertise in an

application area, knowledge area, discipline,
industry, etc., as appropriate for the activity being
performed. Such expertise may be provided by any
group or person with specialized education,
knowledge, skill, experience, or training.*
Identify Risks: Outputs
Risk Register
A document in which the results of risk analysis and risk
response planning are recorded.
List of identified risks.
List of potential responses.
11.3 PERFORM QUALITATIVE RISK ANALYSIS
Things to know
It enables project
Assesses the priority of Focus on high-priority
managers to reduce the
identified risks risks.
level of uncertainty
This process can lead into

Performed regularly throughout the project life cycle perform quantitative risk
analysis
It is usually a rapid and cost-effective means of establishing

priorities for plan risk responses
Perform Qualitative Risk Analysis
* The process of prioritizing risks for further analysis or action by assessing and
combining their probability of occurrence and impact.
Perform Qualitative Risk Analysis: Inputs
1. Risk Management Plan

2. Scope Baseline
3. Risk Register
Perform Qualitative Risk Analysis: Tools and Techniques
1. Risk probability and impact assessment

2. Probability and impact matrix
3. Risk data quality assessment
4. Risk categorization
5. Risk urgency assessment
6. Expert judgment
1. Risk probability and impact assessment
Risk probability assessment investigates the

likelihood that each specific risk will occur. Risk
impact assessment investigates the potential effect
on a project objective such as schedule, cost,
quality, or performance, including both negative
effects for threats and positive effects for
opportunities.
2. Probability and Impact Matrix
Probability & Impact Matrix
Probability Threats Opportunities
0.9 0.09 0.18 0.27 0.45 0.72 0.72 0.45 0.27 0.18 0.09
0.8 0.08 0.16 0.24 0.40 0.64 0.64 0.4 0.24 0.16 0.08 Evaluation of each risks
0.7 0.07 0.14 0.21 0.35 0.56 0.56 0.35 0.21 0.14 0.07 importance and priority for
0.6 0.06 0.12 0.18 0.30 0.48 0.48 0.30 0.18 0.12 0.06 attention is typically conducted
0.5 0.05 0.10 0.15 0.25 0.40 0.40 0.25 0.15 0.10 0.05 using a look-up table or a
0.4 0.04 0.08 0.12 0.20 0.32 0.32 0.20 0.12 0.08 0.04 probability and impact matrix.*
0.3 0.03 0.06 0.09 0.15 0.24 0.24 0.15 0.09 0.06 0.03
0.2 0.02 0.04 0.06 0.10 0.16 0.16 0.10 0.06 0.04 0.02
0.1 0.01 0.02 0.03 0.05 0.08 0.08 0.05 0.03 0.02 0.01
Impact 0.1 0.2 0.3 0.5 0.8 0.8 0.5 0.3 0.2 0.1
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 11.10, Page 331.
3. Risk Data Quality Assessment
* Technique to evaluate the degree to

which the data about risks is useful for
risk management.
4. Risk Categorization
* Organization by sources of risk (e.g.,

using the RBS), the area of the project
affected (e.g., using the WBS), or other
useful category (e.g., project phase) to
determine the areas of the project
most exposed to the effects of
uncertainty.
5. Risk Urgency Assessment
* Review and determination of the

timing of actions that may need to
occur sooner than other risk items.
6. Expert Judgment
Expert judgment is required to evaluate the

probability and impact of each risk.
Perform Qualitative Risk Analysis: Outputs
1. Project Documents Updates
Project documents that may be updated include, but are
not limited to:
Risk register updates
Assumptions log updates
11.4 PERFORM QUANTITATIVE RISK
ANALYSIS
Perform Quantitative Risk Analysis
* The process of numerically analyzing the effect of identified

risks on overall project objectives.
Perform Quantitative Risk Analysis: Inputs
2. Cost Management Plan
3. Schedule Management Plan
6. Risk Register
Perform Quantitative Risk Analysis: Tools and Techniques
1. Data gathering and representation techniques

2. Quantitative risk analysis and modeling techniques
3. Expert judgment
1. Data gathering and representation techniques
Interviewing. Interviewing techniques draw on

experience and historical data to quantify the probability
and impact of risks on project objectives. The
information needed depends upon the type of
probability distributions that will be used. For instance,
information would be gathered on the optimistic (low),
pessimistic (high), and most likely scenarios for some
commonly used distributions.
Probability Distribution
2. Quantitative Risk Analysis and Modeling Techniques
1. Sensitivity analysis
2. Expected monetary value analysis
3. Modeling and simulation
Sensitivity analysis * A quantitative risk analysis
and modeling technique used to
help 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.
The typical display of results is
in the form of a tornado
diagram.
Expected monetary value analysis
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 11-16, Page 339.
Modeling and simulation
A project simulation uses
a model that translates
the specified detailed
uncertainties of the
project into their potential
impact on project
objectives. Simulations
are typically performed
using the Monte Carlo
technique.*
3. Expert Judgment
Judgment provided based upon
expertise in an application area,
knowledge area, discipline, industry,
etc., as appropriate for the activity
being performed. Such expertise may
be provided by any group or person
with specialized education,
knowledge, skill, experience, or
training.*
Perform Quantitative Risk Analysis: Outputs
Project Documents Updates
Probabilistic analysis of the project.
Probability of achieving cost and time objectives.
Prioritized list of quantified risks.
Trends in quantitative risk analysis results.
11.5 PLAN RISK RESPONSES
Key Points
Follows of
Optimum risk
qualitative and or Realistic
response
quantitative analysis
Agreed upon by all

Cost-effective in meeting the challenge
parties involved
Identification and assignment of one person (an owner for risk

response) to take responsibility for each agreed-to and funded
risk response
Plan Risk Responses
* The process of developing options and actions to enhance

opportunities and to reduce threats to project objectives.
Plan Risk Responses: Inputs
2. Risk Register
Plan Risk Responses: Tools and Techniques
1. Strategies for negative risks or threats
2. Strategies for positive risks or opportunities
3. Contingent response strategies
4. Expert judgment
1. Strategies for negative risks or threats
Risk avoidance is a risk response strategy whereby the project team acts
Avoid to eliminate the threat or protect the project from its impact.
Risk transference is a risk response strategy whereby the project team
Transfer shifts the impact of a threat to a third party, together with ownership of
the response.
Risk mitigation is a risk response strategy whereby the project team acts
Mitigate to reduce the probability of occurrence or impact of a risk.
Risk acceptance is a risk response strategy whereby the project team
Accept decides to acknowledge the risk and not take any action unless the risk
occurs.
2. Strategies for Positive Risks or Opportunities
The exploit strategy may be selected for risks with positive impacts
Exploit where the organization wishes to ensure that the opportunity is realized.
Sharing a positive risk involves allocating some or all of the ownership of

Share the opportunity to a third party who is best able to capture the
opportunity for the benefit of the project.
The enhance strategy is used to increase the probability and/or the

Enhance positive impacts of an opportunity.
Accepting an opportunity is being willing to take advantage of the

Accept opportunity if it arises, but not actively pursuing it.
3. Contingent Response Strategies
Responses provided which may be used in the event
that a specific trigger occurs.*
4. Expert Judgment
Judgment provided based upon expertise in

an application area, knowledge area,
discipline, industry, etc., as appropriate for
the activity being performed. Such expertise
may be provided by any group or person with
specialized education, knowledge, skill,
experience, or training.*
Plan Risk Responses: Outputs
1. Project Management Plan Updates
Schedule management plan
Cost management plan
Quality management plan
Procurement management plan
Human resource management plan
Scope baseline
Schedule baseline
Cost baseline
2. Project Documents Updates
Terminologies
Trigger
Management Fallback
Reserves plans
Risk Owner
Contingency Residual
reserves risks
Secondary
risks
11.6 CONTROL RISKS
Control Risks
* Control Risks is the process of implementing risk response plans, tracking

identified risks, monitoring residual risks, identifying new risks, and evaluating
risk process effectiveness throughout the project.
Things to know
Contingency reserves for cost or
Risk response owner reports
schedule should be adjusted
Project assumptions are still valid. periodically to the project
based on the current risk
manager
assessment.
Analysis shows an
Risk management policies and procedures are being followed assessed risk has changed
or can be retired.
Project work should be continuously monitored for new,

changing, and outdated risks.
Control Risks: Inputs
1. Project Management Plan
2. Risk Register
3. Work Performance Data
4. Work Performance Reports
Control Risks: Tools and Techniques
1. Risk reassessment
2. Risk audits
3. Variance and trend analysis
4. Technical performance measurement
5. Reserve analysis
6. Meetings
1. Risk reassessment
* Risk reassessment is the

identification of new risks,
reassessment of current risks, and
the closing of risks that are
outdated.
2. Risk Audit
* Examination and documentation of

the effectiveness of risk responses in
dealing with identified risks and their
root causes, as well as the effectiveness
of the risk management process.
3. Variance and trend analysis
A technique for determining the
cause and degree of difference
between the baseline and
actual performance. (Variance
Analysis)
An analytical technique that uses

mathematical models to forecast
future outcomes based on
historical results. (Trend Analysis)
4. Technical performance measurement
Technical performance
measurement compares technical
accomplishments during project
execution to the schedule of technical
achievement.
5. Reserve analysis
* An analytical technique to
determine the essential features and
relationships of components in the
project management plan to establish
a reserve for the schedule duration,
budget, estimated cost, or funds for
a project.
6. Meetings
Project risk management should be

an agenda item at periodic status
meetings. The amount of time
required for that item will vary,
depending upon the risks that have
been identified, their priority, and
difficulty of response.
Control Risks: Outputs
1. Work performance information
2. Change requests
3. Project management plan updates
4. Project documents updates
5. Organizational process assets updates
End of Chapter 11
PROJECT RISK MANAGEMENT

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Project Management Professional

(PMP) Exam Review

* An uncertain event or condition that, if it occurs, has a positive or negative

Uncertainty Cause and Effect Project Objectives

Increase positive events Decrease negative events

Objective of Project Risk Management

Cant be managed proactively.

Issue an occurred negative risk

Project risk could

Risk Aversion Risk Taker Risk Neutral

* The process of defining how to conduct risk

Relative or numerical scales are shown

Insignificant cost 3% - 5% cost 5%-10% cost > 10% cost

Scope reduction Project end item

This process will help you identify and anticipate

This process should involve the project New risks may

Stakeholders outside the project team may provide additional

Who can help you with identifying risks?

The process of gathering a corpus of information and

* A general data gathering and creativity

* A formal or informal approach to elicit

An analytical technique used to determine

Risk identification checklists are developed based

* A technique that explores the accuracy of

System or process flow charts

Analysis of strengths, weaknesses,

Judgment provided based upon expertise in an

This process can lead into

It is usually a rapid and cost-effective means of establishing

1. Risk Management Plan

1. Risk probability and impact assessment

Risk probability assessment investigates the

* Technique to evaluate the degree to

* Organization by sources of risk (e.g.,

* Review and determination of the

Expert judgment is required to evaluate the

* The process of numerically analyzing the effect of identified

1. Data gathering and representation techniques

Interviewing. Interviewing techniques draw on

Agreed upon by all

Identification and assignment of one person (an owner for risk

* The process of developing options and actions to enhance

Risk transference is a risk response strategy whereby the project team

Mitigate to reduce the probability of occurrence or impact of a risk.

Risk acceptance is a risk response strategy whereby the project team

Sharing a positive risk involves allocating some or all of the ownership of

The enhance strategy is used to increase the probability and/or the

Accepting an opportunity is being willing to take advantage of the

Judgment provided based upon expertise in

* Control Risks is the process of implementing risk response plans, tracking

Project work should be continuously monitored for new,

* Risk reassessment is the

* Examination and documentation of

An analytical technique that uses

Project risk management should be

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