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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Project Risk Management

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

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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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Project Risk Management

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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
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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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Plan Risk Management: Outputs

Risk Categories
Risk

Breakdown Structure

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Plan Risk Management: Outputs

Definition of Risk Probability and Impact

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Plan Risk Management: Outputs

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
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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

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Identify Risks: Inputs (contd.)

7. Schedule Management Plan 8. Quality Management Plan 9. Project Documents 10. Enterprise Environmental Factors 11. Organizational Process Assets
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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
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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
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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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Information Gathering Techniques

2. Delphi Technique

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Information Gathering Techniques

3. Interviewing

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Information Gathering Techniques

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
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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
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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
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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
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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
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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

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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%

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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
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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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Response Strategies for Threats

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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Response Strategies for Threats

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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Response Strategies for Threats

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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Plan Risk Responses: Tools & Techniques

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.

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Plan Risk Responses: Tools & Techniques

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
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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
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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
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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
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Play Time

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