Project Risk

Management
Sections of this presentation were adapted
from A Guide to the Project Management
Body of Knowledge 4th Edition, Project
Management Institute Inc., © 2008
 Risk Management
“The process involved with identifying,
analyzing, and responding to risk. It
includes maximizing the results of positive
risks and minimizing the consequences of
negative events”
 Why Do We Manage Risk?
Project problems can be reduced as much
as 90% by using risk analysis
Positives:
 More info available during planning
 Improved probability of success/optimum
project
Negatives:
 Belief that all risks are accounted for
 Project cut due to risk level
 Key Terms
Risk Tolerance – The amount of acceptable
risk
Risk Adverse – Someone that does not want to
take risks
Risk Factors
 Probability of occurrence
 Range of possible outcomes (impact or amount at
stake
 Expected Timing of event
 Anticipated frequency of risk events from that
source
 How Do We Manage Risk?
Use the six risk management processes
 Plan Risk Management
 Identify Risks
 Perform Qualitative Risk Analysis
 Perform Quantitative Risk Analysis
 Plan Risk Responses
 Monitor and Control Risks

Plan Risk Identify Perform Perform Plan Risk Monitor and

Management Risks Qualitative Quantitative Responses Control Risk s
Risk Analysis Risk Analysis
 Plan Risk Management
Inputs Tools & Techniques
Project Scope  Planning Meetings and
Statement Analysis
Cost Management Outputs
Plan Risk
Schedule Management
Management Plan Plan
Enterprise
Environmental Factors
Organizational
Process Assets

Plan Risk Identify Perform Perform Plan Risk Monitor and

Management Risks Qualitative Quantitative Responses Control Risk s
Risk Analysis Risk Analysis
What is a Risk Management Plan?
Methodology – Approach, tools, & data
Roles & Responsibilities
Budgeting – Resources to be put into risk
management
Timing – When and how often
Risk Categories – Risk Breakdown
Structure (RBS)
Definitions – Risk probabilities and impact
What is a Risk Mgmt Plan (Cont’d)?
Probability and Impact Matrix
Stakeholder tolerances
Reporting formats
Tracking
 Risk Breakdown Structure
Lists categories and subcategories where
risks may arise

Project

Technical Organizational Project Management

Limited Design Time Funding Estimates

Specifications Adherence Prioritization Scheduling

Resource Availability Communication

 Identify Risks
Risk Management Plan
Activity Cost Estimates
Activity Duration
Tools & Techniques
Estimates  Documentation Reviews
Inputs
Scope Baseline  Information Gathering
Techniques Outputs
Stakeholder Register
Risk Register
 Checklist Analysis
Cost Management Plan
 Assumption Analysis
Schedule Management
Plan  Diagramming Techniques

Quality Management Plan  SWOT Analysis

Project Documents  Expert Judgment

Enterprise Environmental
Factors
Organizational Process
Assets

Plan Risk Identify Perform Perform Plan Risk Monitor and

Management Risks Qualitative Quantitative Responses Control Risk s
Risk Analysis Risk Analysis
Information Gathering Techniques
Brainstorming
Delphi technique
 Successive anonymous questionnaires on project
risks with responses summarized for further
analysis
Interviewing
Root cause identification
Strengths, weaknesses, opportunities, and
threats (SWOT) analysis
 Diagramming Techniques
Cause and Effect Diagrams
 Also known as Ishikawa or fishbone

Testing Inadequate Project

Time Prioritization

Product
Delivered
Late

Personnel Materials Insufficient Bad Specs

Resources

Potential Causes Effect

 Risk Register
List of
 Identified risks
 Potential responses
 Root causes
Updated risk categories (if required)
 Perform Qualitative Risk
Analysis
Inputs Tools & Techniques
Risk Register  Risk probability and impact
statement
Risk Management Outputs
Plan  Probability and impact matrix
Risk Register
Project Scope  Risk data quality
Updates
Statement assessment

Organizational  Risk categorization

Process Assets  Risk urgency assessment
 Expert Judgement

Plan Risk Identify Perform Perform Plan Risk Monitor and

Management Risks Qualitative Quantitative Responses Control Risk s
Risk Analysis Risk Analysis
 Methodologies
Probability and Impact Matrix
 Based on Failure Modes and Effects
Analysis (FMEA)
 From 1950’s analysis of military systems
 Probability and Impact Matrix
Define Probability Scale & Impact Scale

Impact Scale Probability Scale

Consequence Health and Safety Likelihood of Occurrence
Likelihood Class (events/year)
Fatality or multiple fatalities
Extreme expected <0.01% chance of
Not Likely (NL) occurrence
Severe injury or disability likely; or
High some potential for fatality 0.01 - 0.1% chance of
Low (L) occurrence
Lost time or injury likely; or some
potential for serious injuries; or 0.1 - 1% chance of
Moderate small risk of fatality Moderate (M) occurrence
First aid required; or small risk of 1 - 10% chance of
Low serious injury High (H) occurrence
Negligible No concern Expected (E) >10% chance of occurrence
Probability and Impact Plots
Rate each
risk on
scales
then plot
on matrix
Develop
mitigation
technique
for risks
above
tolerance
 Risk Register Update
Add
 Probability and Impact Matrix results
 Perform quality check on results
 Categorize the risks to make them easier to
handle
 Perform urgency assessment to determine
which risk need immediate attention
Risk Register
 Perform Quantitative Risk
Analysis
Inputs Tools & Techniques
 Data gathering and
Risk Register representation techniques
Risk Management  Quantitative risk analysis Outputs
Plan and modeling Risk Register
 Expert Judgment Updates
Cost Management
Plan
Schedule
Management Plan
Organizational
Process Assets

Plan Risk Identify Perform Perform Plan Risk Monitor and

Management Risks Qualitative Quantitative Responses Control Risk s
Risk Analysis Risk Analysis
 Quantitative Risk Analysis
Analyze numerically the probability and
consequence of each risk
Monte Carlo analysis popular
Decision Tree analysis on test
 Diagram that describes a decision and
probabilities associated with the choices
Expected Monetary Value Analysis (EMV)
 Expected Monetary Value (EMV)

Building
Cost Probability
Optimistic Outcome $150K 0.2 $30K
Likely Outcome $225K 0.5 $113K
Pessimistic $300K 0.3 $100K
Outcome

Expected Value $243K

 Decision Tree Analysis
Decision Decision Chance Net Path
Definition Node Node Value

Strong
65%
Demand $80
$200
EMV of New Bldg
New Node = $41.5!
Plant 35%
Weak -$30
-$120 Demand
$90
Build or
Upgrade
Plant 65%
Upgrade Strong $70
Demand
Plant $120
-$50 EMV of Upgrade
Node = $49!

Weak
35%
$10
Demand
$60
 Plan Risk Responses
Inputs Tools & Techniques
 Strategies for negative risks
or threats
Risk Register  Strategies for positive risks Outputs
or opportunities Risk Register
Updates
Risk Management  Contingent response
Plan strategy Risk-related
Contract
 Expert Judgment Decisions
Project Management
Plan Updates

Plan Risk Identify Perform Perform Plan Risk Monitor and

Management Risks Qualitative Quantitative Responses Control Risk s
Risk Analysis Risk Analysis
 Strategies
Negative Risks (or Threats)
 Avoid
 Transfer
 Mitigate
 Acceptance
Positive Risks (or Opportunities)
 Exploit
 Share
 Enhance
 Acceptance
 Monitor and Control Risks
Tools & Techniques Outputs
 Risk reassessment Risk Register
Updates
 Risk audits
Organizational
 Variance and trend analysis
Risk Register Process Assets
Inputs  Technical performance
Project Management Change Requests
measurement
Plan
 Reserve analysis
Work Performance Project Management
Information  Status meetings Plan Updates
Performance Reports
Project Document
Updates

Plan Risk Identify Perform Perform Plan Risk Monitor and

Management Risks Qualitative Quantitative Responses Control Risk s
Risk Analysis Risk Analysis