RISK MANAGEMENT

4.1 Introduction

 A major step in project planning.

 A complex process since the variables are dynamic and dependent on variety of
conditions such as: project size, project complexity, location, season of the year,
…etc.
 A Time and/or Cost contingency should be added to cover unforeseen
occurrences.
This section provides the framework and guidelines for managing project-related risks. It
includes both an in-depth narrative of the key elements of risk management as well as the
primary tools for identifying, assessing and managing risk. The philosophy and approach
to risk management are consistent with the “Project Risk Management” best practices
currently in use.

4.2 Definitions

Risk:
-“The exposure to the chance of occurrence of events adversely or favorably
affecting project objectives as a consequence of uncertainty”.
-Most definitions of risk have focused only on the downside effects associated with
risk. Therefore, risk may be defined a: “Undesirable extra cost or delay due to
factors having uncertain future outcome”.

Risk Management:
“A formal ordering process for systematically identifying, analyzing, and responding to
risk events throughout the life of a project to obtain the optimum or acceptable degree of
risk elimination or control”.

Risk Management 1 Dr. Emad Elbeltagi

Major Steps of Risk Management
1.Risk Identification.
2.Development of responses to avoid, reduce, or transfer risk.
3.Assessment of residual risks (RISK ANALYSIS).
4.Providing for residual risks in the project estimates (time and/or cost).

Risk Event

A discrete occurrence that may affect the project for better or worse is a risk event. A risk
event will have an impact on one or several of the objectives of the project. An example
could be that a key team member is reassigned off the project before his/her work is
completed. The reassignment is a “risk event.”

Effective risk management

Effective risk management is guided by a set of principles that represent current “best
practices.” Irrespective of the size or complexity of a project, the Risk Management Plan
should reflect these principles. The Risk Management Plan is part of the Project Work
Plan.

 Global Perspective: View each phase of a project as a means to the overall project
success. View each project and its success in relationship to other projects.

 Forward-Looking View: Look ahead to anticipate risks and their potential impacts.
More importantly, anticipate potential risks in time to successfully address them.

 Open Communications: Encourage a free flow of formal and informal information

to make each individual a part of effective risk management.

 Integrated Management: Integrate risk management within the overall project

management process.

 Continuous Process: Identify and manage risks routinely through all phases of the
life cycle of the project.

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 Shared Project Vision: Maintain a shared vision of the expected outcome of the
project based on common purpose, shared ownership in results, and collective
communication.

 Teamwork: Pool talents, skills, and knowledge to work cooperatively to identify and
manage project risk.

Risk management process

The purpose of this subsection is to explain the risk management process. It is important
to note that the process itself is built on a general approach that:

 Begins with project planning.

 Requires a thorough development of project concept, scope, and level of effort.

 Identifies key uncertainties and risks associated with the project.

 Examines the identified risks to mitigate their probability and impact, or to build in
risk allowances.

 Expects risk monitoring and response to be an ongoing part of the project.

Process Step Purpose

Determining which risks might affect
Risk Identification the project and documenting their
characteristics
Transforming risk data into decision-
Risk Analysis
making information
Translating risk information into
Risk Response
decisions and mitigating action plans
Monitoring residual risks, identifying
new risks, executing risk reduction
Risk Control plans, and evaluating their
effectiveness throughout the project
life cycle

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Steps Tools Steps Tools
 Monitor & manage  Project Controls Status  Identify sources of  Risk Checklist
(control) progress in Reports project risk  Fishbone Diagram
mitigating risk events  Risk Response Plans  Affinity Diagram
 Monitor for the possible  Team member  Brainstorming
onset of new risk events awareness of potential
 Mobilize to implement new risks
contingency plan when  Standing agenda item
necessary for team meetings
 Report on status of current
risks Control
 Report on emerging Identify
concerns

Respond Analyze

Steps Tools Steps Tools

 Develop a response plan  Affinity Diagram  Qualitatively evaluate probability  Table for outlining and
that can include an and impact of identified risks identifying risks
 Fishbone Diagram
amended WBS budget (+  On a case-by-case basis,
 Consequences wheel
or - ), and a schedule (+ or  Force Field Analysis quantitatively evaluate risk impact
-) to complete certain  Determine which risks require a  Various “quantitative”
project tasks  Radar Chart detailed description of a proposed methodologies
 Develop a list of triggers  Risk Response Plan action plan
to implement the Template  For risks that are not controllable by
contingency plans the project team, get agreement with
 Implement the response APMO Management, on who will
address the risk

4.3 Risk Identification

Purpose: Search for and locate sources of risks before they become a problem and
provide a preliminary assessment of their consequences.

Discussion: It is normal to identify a large number of potential risks. It is not

necessary to examine all of them in detail.

Tools:
- Affinity diagram
- Checklist of possible sources of risk
- Fishbone diagram

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-Main categories of sources of risks are listed with examples in the following Table.

Category Examples
Administrative Delay in possesses of site
Limited working hours
Troubles with public services
Logistical Shortage or late supply of different resources
Site remoteness problems
Communications
Construction Ground problems
Limited work space
Equipment breakdown
Physical Placing fill in dry season
High tides, temperature, etc.
River diversion in time of low flow.
Design Incompleteness
Design changes
Design errors
Financial Inflation
Exchange rate fluctuation
Availability of funds
Delay payments by client
Management Space congestion
Scheduling errors
Estimating based on standards
Errors in B.O.Q.
Contractual Contract type
Liability to others
Co-ordination of work
Political Change in local laws
Import restrictions
Use of local resources
Disasters Floods, fire, landslip, earthquakes, etc.

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4.4 Risk Analysis

Purpose: To transform risk data into decision-making information. A process which

incorporates uncertainty in a quantitative manner, using probability theory, to
evaluate the potential impact of risk.

Basic Steps of Risk Analysis

 The general approach is to identify the nature of the risk, the probability of its
occurrence, and the likely impact of its occurrence. Estimate range of risk variables.

 Not all risks need attention.

 Begin with a qualitative analysis to decide which potential risks are worth further
consideration. For most areas of potential risk, this qualitative analysis will be
sufficient to determine the type of required response.
 When it is necessary to fully understand the extent of impact of a potential risk event,
use a quantitative analysis. For example, a quantitative analysis that yields a total
dollar impact of a particular risk event can be a powerful way to gain senior
management support for adding project staff to manage the risk area.
 Choose the appropriate probability distribution which best fit risk variables,
 Define the affected activities by these risk variables, and
 Use a simulation model to evaluate the impact of risks (PERT, Monte Carlo
Simulation). This step usually includes:
1. Sensitivity Analysis.
2. Probability Analysis.

Outline for Identifying and Assessing Project Risk

Area of Potential Risk Controllable by Project Probability of Impact to Project
Team (Y, N) Occurrence (H, M, L) (H, M, L)

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There are instances when the impact of the potential risk is easy to evaluate qualitatively.
Other times, it is not so clear. In those instances, it helps to use an analytical tool such as
the “Consequences Wheel” shown in Fig. 4.1. This wheel helps the Project Team
understand the variety of ways that a risk-related event could affect project performance.

Primary Secondar
y
Secondar
y

Primary
Primary

Secondar
1. Label the type of y
risk in the center of Type of
the wheel Risk
2. Identify the primary
consequences of a
related risk event
and place in the
first circle
3. For each primary Primary
consequence,
identify in the Primary
second circle
Secondar
additional
y
consequences that
are related

Fig. 4.1: Consequence wheel

As the instructions in Fig. 4.1 suggest, begin by writing the name of the particular risk in
the center of the wheel. Then, brainstorm all of the potential consequences to the project
if this risk event occurred. These “primary” consequences become the first ring in the
wheel. Continue the analysis by taking each primary consequence and identifying the

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direct consequences of its occurrence. These “secondary” consequences become the
second ring in the wheel.

At this point, the Project Team should have all the risks identified, as well as the
probability and impact each risk carries. These risks can be inserted into the Probability-
Impact Risk Analysis Matrix (Fig. 4.2) to get a global picture of the risks, and their
impact relative to each other. Planning worksheets for the Probability-Impact Risk
Analysis Matrix are only a planning tool and not included in the Risk Response Plan. The
Probability-Impact Risk Analysis Matrix and the Risk Management Log rank the risks
according to their impacts and probability and are to be included in the Risk Response
Plan.

7 High - Low 2 High - Medium 1 High - High

HIGH

8 Medium - Low 4 Medium - Medium 3 Medium - High -

MEDIUM
Probability

9 Low - Low 6 Low - Medium 5 Low -High

LOW

LOW MEDIUM HIGH

IMPACT

Fig. 4.2: Probability-impact matrix

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Sensitivity Analysis
-A quick identification of those variables which affect mostly a performance criteria
(project time and/or cost).
-The purpose is to eliminate those risk variables which have minor impact on the
performance criteria and hence reduce problem size and effort.

-Procedure:
 Three values of each risk variables are to be specified: a most likely, an
optimistic, and a pessimistic.
 For each risk variable:
- Set all other risk variables at their most likely value.
- Determine a value for the performance criteria when risk variable under
consideration is set at its optimistic value.
- Determine another value for the performance criteria when risk variable
under consideration is set at its pessimistic value.
- The difference between the obtained two values of the performance criteria is
checked (subjectively).
 Two cases can be encountered:
1. The difference corresponding to a risk variable has a little effect on the
performance criteria. Then, this risk variable can be eliminated from the
probability analysis. The most likely value for this risk variable can be
used throughout the analysis.
2. A significant difference is found, and consequently this risk variable
should be included in the probability analysis.

Probability Analysis
-The purpose is to determine the effect of those risk variables which have a significant
impact on the performance criteria.

-Procedure:
 Consider the risk variables as random variables.

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  Specify the suitable probability distribution for each risk variable.
 Use a suitable simulation technique to determine the probability distribution
of the performance criteria (PERT, Monte Carlo Simulation.)

4.5 Risk Responses

Purpose: To translate risk information into decisions and mitigating action plans. To
implement those action plans.

For each project, develop a Risk Response Plan. Risk responses can be made at two
stages:
First Stage:
Develop responses to avoid, reduce, or transfer risk (before risk analysis).
Second stage:
To deal with residual risks, one of the two following approaches can be adopted:
1. Residual risks can be transferred through contractual arrangements and/or
insurance policies.
2. Cover retained risk impact by time and/or cost contingency.

Possible response options include:

Acceptance: Deciding to not change the project plan to deal with a risk or are unable to
identify any other suitable response strategy. In other words, recognize the risk, but do
not take any action because the impact or probability is small.

- Active Acceptance – Accept the risk, but include a contingency or contingency

plan to execute, should the risk occur.

- Passive Acceptance – Accept the risk, and plan no action. Deal with the risks as
they occur.

Avoidance: Changing the project plan to eliminate the risk or to protect the project
objectives from its impacts.

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 - Take an alternate approach to delivering the project.

- Use alternative technology.

Mitigation: Modifying the probability and/or consequence of an adverse risk event to an

acceptable threshold.

- Modify the project plan in such a way as to reduce the probability of the threat or
its impact (or both).

- Modify the technology to reduce probability or impact.

Transference: Shifting the consequence of a risk to another party together with the
ownership of the risk. Does not eliminate the risk, just transfers it.

- Modify the contract or agreement with contracting parties

- Purchase risk insurance

- Share the risk as in a joint venture partnership

Develop a sense of whether the potential risk is “triggered” by a particular event. For
example, the risk of not having sufficient staff at a critical point in a project is frequently
the result of one or several instances when key staff members were “temporarily”
redirected to help with other projects. Triggering events like these help to identify when it
is time to take action. That is, “What will need to be seen?” in the way of circumstances
to know that action is needed. Triggering events are recorded in the Risk Response Plan
and must be shared with the team members who will be responsible for monitoring the
onset of such events.

4.6 Risk Control

Purpose: To correct for deviations from the Risk Mitigation Plans and to provide
information on risk activities, current risks, and emerging risks. Risk control also
includes monitoring risk indicators and the effectiveness of mitigating actions. Risk
control could be done through:

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 - Risk monitoring/reporting

- Should be an ongoing activity

- Could be a standing agenda item for all project review meetings

The following questions can help determine the status of current risk activities and the
potential of emerging risks.

- Are the project assumptions still valid?

- Are policies and guidelines being followed?

- Have new risks been identified?

- Have any triggering events occurred?

- Have risk responses been implemented as planned?

- Were the resulting response actions effective? Were they recorded (to capture the
learning experience)?

- To what extent has the risk exposure changed since the last review?

Tools:

- Standing agenda for project review meetings to discuss the Risk Management
Plan and the above-mentioned questions.

- Various existing project status reports that can be part of an “early warning”
system against the onset of a risk event.
The Risk Management Process varies over the course of Capital Project Management
Cycle. The risk management process evolves through three full cycles between Project
Planning (Phase “0”) and Project Closeout.

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4.7 Program Evaluation and Review Technique

Both CPM and PERT were introduced at approximately the same time and share many
similarities. Both require identification of project activities, dependency relationships,
and time estimates for each activity.
Contrary to CPM, PERT introduces uncertainty into the estimates for activity and project
durations. It is well suited for those situations where there is either insufficient
background information to specify accurately utility data (time and cost) or where project
activities require research and development.
The primary assumption of PERT can be summarized as follows:
1. Any PERT path must have enough activities to make the central limit theorem valid.
2. The mean of the distribution of the path with the greatest duration, from the initial
node to a given node, is given by the maximum mean of the duration distribution of
the paths entering the node.
3. PERT critical path is longer enough than any other path in the network.

PERT uses three time estimates for each activity. Optimistic duration (a) is the minimum
time required for an activity if exceptionally good luck is experienced. Most likely or
modal time (m) is the time required if the activity is repeated a number of times under
essentially the same conditions. Pessimistic duration (b) is the maximum time required if
unusually bad luck is experienced. The beta distribution is mostly fit construction
activities.

Using beta distribution, the expected mean time (te) is derived using Eq.1. Then, te is
used as the best available time approximation for the activity in question. The standard
deviation is given by Eq.2, and standard deviation is the square root of the variance; (ν)
(i.e., ν = σ2).
a  4m  b
te  (4.1)
6
ba
 (4.2)
6

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By adopting activity expected mean time, the critical path calculations proceed as CPM.
Associated with each duration in PERT, however, is its standard deviation or its variance.
The project duration is determined by summing up the activity expected mean time along
the critical path and thus will be an expected mean duration. Since the activities on the
critical path are independent of each other, statistical theory (central limit theory) gives
the variance of the project duration as the sum of the individual variances of these critical
path activities.
Once the expected mean time for an event (T X) and its standard deviation (σX) are
determined, it is possible to calculate the chance of meeting a specific scheduled event
time (TS). Then normal probability tables are used to determine such chance using Eq.2.4.
TS  TX
Z (4.3)
X
An equivalent form of Eq.3, given by Eq.4, enables the scheduled time for an event to be
determined based on a given risk level.
TS  TX  Z *  X (4.4)

The procedure for hand probability computations using PERT can be summarized
in the following steps:
1. Make the usual forward and backward pass computations based on a single estimate
(mean) for each activity.
2. Obtain estimates for a, m, and b for only critical activities. If necessary, adjust the

length of the critical path as dictated by the new te values based on a, m, and b.

3. Compute the variance for event x (νX) by summing the variances for the critical
activities leading to event x.
4. Compute Z using Eq.2.4 and look up the corresponding probability in the normal
curve table (Fig. 4.1 and Table 4.1).

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 -3σ -2σ -σ 0 σ 2σ 3σ

Figure 4.1: Normal distribution curve

Table 4.1: Area under the normal curve measured from the center

SD Area % from the center SD Area % from the center

0.1σ 4.0 1.6 44.5
0.2 7.9 1.7 45.5
0.3 11.8 1.8 46.4
0.4 15.5 1.9 47.1
0.5 19.2 2.0 47.7
0.6 22.6 2.1 48.2
0.7 25.8 2.2 48.6
0.8 28.8 2.3 48.9
0.9 31.6 2.4 49.2
1.0 34.1 2.5 49.4
1.1 36.4 2.6 49.5
1.2 38.5 2.7 49.6
1.3 40.3 2.8 49.7
1.4 41.9 2.9 49.98
1.5 43.3 3.0 49.99

4.8 Monte Carlo Simulation

As an alternative to the PERT procedure, a straightforward method of obtaining

information about the distribution of project completion times (as well as other schedule
information) is through the use of Monte Carlo simulation. This technique calculates sets
of artificial (but realistic) activity duration times and then applies a deterministic
scheduling procedure to each set of durations. Numerous calculations are required in this

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process since simulated activity durations must be calculated and the scheduling
procedure applied many times. For realistic project networks, 40 to 1,000 separate sets of
activity durations might be used in a single scheduling simulation. The calculations
associated with Monte Carlo simulation are described in the following section.
A number of different indicators of the project schedule can be estimated from the results
of a Monte Carlo simulation:
 Estimates of the expected time and variance of the project completion.

 An estimate of the distribution of completion times, so that the probability of meeting

a particular completion date can be estimated.

 The probability that a particular activity will lie on the critical path. This is of interest

since the longest or critical path through the network may change as activity durations
change.
The disadvantage of Monte Carlo simulation results from the additional information
about activity durations that is required and the computational effort involved in
numerous scheduling applications for each set of simulated durations. For each activity,
the distribution of possible durations as well as the parameters of this distribution must be
specified.
The iterative procedure of Monte Carlo Simulation can be summarized in the following
steps and flowchart
1. Consider each risk variable as a random variable, and specify a suitable probability
distribution to represent each risk variable.
2. For each risk variable affecting activities’ durations, generate a Random Number
(RN),
3. Allocate the RN to the Cumulative Probability Distribution (CPD) curve of the risk
variable, and then determine the corresponding duration of all activities affected by
that risk variable,
4. Using new durations, perform network and resource analysis,
5. For each risk variable affecting activities or resources costs, generate a RN,
6. Allocate the RN to CPD curve of the risk variable, and then determine the
corresponding costs of all activities or resources affected by that risk variable,

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 7. Using information obtained form step 3and new values of costs given in step 6,
perform cost project analysis,
8. For more iterations, go to step 2. Otherwise perform statistical analysis for the
obtained results.

4.9 RISK CONTINGENCY

-Risk contingency is an allowance decided based on the risk analysis to overcome any
unforeseen events that may increase time and/or cost. This can be easily calculated
after specifying the probability distribution of the performance criteria (Cumulative
Probability Distribution; CPD.)
-Procedure:
 Choose p; acceptable probability of project cost (time) overrun.
 Allocate p on the Cumulative Probability Distribution curve, and determine the
corresponding value; A.
 Contingency = A – B, where B is the base estimate (time, cost)

CPD
p

50%

Mean Cost Contingency Cost

Base Cost = B
Target Cost = A

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Example
 Project Network:
K

D J M

A C G L

B E H

F I

 Project Data:
Duration Risk Variables
Activity te σ
a m b Min. % Max. % No.
A 6 12 30 14 4 -50 150 1
B 8 10 20 11.33 2 -20 100 2
C 3 21 40 21.17 6.17 -86 90 3
D 6 11 40 15 5.67 -46 163 4
E 12 15 20 15.33 1.33 -20 33 5
F 6 17 21 15.83 2.50 -65 24 6
G 6 12 25 13.17 3.17 -50 100 7
H 7 14 21 14 2.33 -50 50 8
I 25 30 40 30.83 2.50 -17 33 9
J 3 12 16 11.17 2.17 -75 33 10
K 1 1 1 1 --- --- --- ---
L 7 9 12 9.17 0.83 -22 33 11
M 6 9 11 8.83 0.83 -33 32 12

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 Mean Project Duration:
-CPM analysis with activities’ durations = most likely value
-Project Duration = 63

 Sensitivity Analysis:
Risk Variable Project Duration Sensitivity
No. Lower Limit Upper Limit Index

1 57 81 24
2 63 67 4
3 57 82 25
4 63 63 0
5 63 63 0
6 63 63 0
7 63 66 3
8 63 63 0
9 58 73 15
10 63 63 0
11 63 63 0
12 63 63 0

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 PERT Analysis:
-Project Duration = 65.55 29 30
K (1)
55.72 56.72

14 29 29 40.17 30 38.83
D (15) J (11.17) M (8.83)
30.21 45.21 45.21 56.38 56.72 65.55

0 14 14 35.17 35.17 48.33 49.17 58.33

A (14) C (21.17) G (13.17) L (9.17)
0 14 14 35.17 43.21 56.38 56.38 65.55

11.33 26.67 35.17 49.17

0 11.33
E (15.33) H (14)
B (11.33)
19.84 35.17 42.38 56.38
8 19.34

11.33 27.16 35.17 65.55

F (15.83) I (30.38)
19.34 35.17 35.17 65.55

 Probability Analysis (Monte Carlo Simulation):

-No. of iterations = 10,000
-Uniform Distribution:
 Project Duration = 75
 Standard Deviation = 10.4
-Triangle Distribution:
 Project Duration = 71
 Standard Deviation = 7.8

4.10 MONTE CARLO SIMULATION

Monte Carlo Simulation Characteristics:

- Replaces analytic solution with raw computing power.

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 - Avoids need to simplify to get analytic solution
- No need to assume functional form of activity/project distributions.
- Allows determining the criticality index of an activity (Proportion of runs in
which the activity was in the critical path).
- Hundreds to thousands of simulations needed.

Monte Carlo Simulation Process:

- Set the duration distribution for each activity.

- No functional form of distribution assumed.
- Could be joint distribution for multiple activities.
- Iterate: for each “trial” (“realization”)
- Sample random duration from each distributions
- Find critical path & durations with standard CPM; Record these results
- Report recorded results Report recorded results.
- Duration distribution
- Per--node criticality index (% runs where critical)

Network Example

Activity Optimistic Most likely Pessimistic Expected Standard

time, a time, m time, b value, d deviation, s
A 2 5 8 5 1
B 1 3 5 3 0.66
C 7 8 9 8 0.33
D 4 7 10 7 1
E 6 7 8 4 0.33
F 2 4 6 5 0.66
G 4 5 6 5 0.33

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Summary of Simulation Runs for Example Project

Run Activity Duration Critical Completion

Number A B C D E F G Path Time
1 6.3 2.2 8.8 6.6 7.6 5.7 4.6 A-C-F-G 25.4
2 2.1 1.8 7.4 8.0 6.6 2.7 4.6 A-D-F-G 17.4
3 7.8 4.9 8.8 7.0 6.7 5.0 4.9 A-C-F-G 26.5
4 5.3 2.3 8.9 9.5 6.2 4.8 5.4 A-D-F-G 25.0
5 4.5 2.6 7.6 7.2 5.3 5.6 A-C-F-G 23.0
6 7.1 0.4 7.2 5.8 7.2 2.8 5.2 A-C-F-G 22.3
7 5.2 4.7 8.9 6.6 6.1 4.6 5.5 A-C-F-G 24.2
8 6.2 4.4 8.9 4.0 7.3 3.0 4.0 A-C-F-G 22.1
9 2.7 1.1 7.4 5.9 6.7 2.9 5.9 A-C-F-G 18.9
10 4.0 3.6 8.3 4.3 7.9 3.1 3.1 A-C-F-G 19.7
7.1

Project Duration Distribution

Then the probability that a project ends in a specific time (t) equals number of times the
project finished in less than or Equal to t divided by the total number of replications. For
example, the probability that the project ends in 20 weeks or less is:

P( ≤ 20 ) = 13 / 50 = 26%.

Criticality Index

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Criticality index is defined as the proportion of runs in which the activity was in the
critical path. PERT assumes binary (either 100% or 0%).

4.11 EXERCISES

1. All of the following are factors in the assessment of project risk EXCEPT:\
a. Risk event.
b. Risk probability.
c. Amount at stake.
d. Insurance premiums.

2. If a project has a 60% chance of a US $100,000 profit and a 40% chance of a

LE100,000 loss, the expected monetary value for the project is:
a. LE100,000 profit.
b. LE60,000 loss.
c. LE20,000 profit.
d. LE40,000 loss.

3. If a risk event has a 90% chance of occurring, and the consequences will be
LE10,000, what does LE9,000 represent?
a. Risk value.
b. Present value.
c. Expected monetary value.
d. Contingency budget.

4. All of the following are ALWAYS input to the risk management process
EXCEPT:
a. Historical information.
b. Lessons learned.
c. Work breakdown structure.
d. Project status reports.

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5. Purchasing insurance is BEST considered an example of risk:
a. Mitigation.
b. Transfer.
c. Acceptance.
d. Avoidance.

6. Workarunds are determined during which risk management process:

a. Identify Risks.
b. Perform Quantitative Risk Analysis.
c. Plan Risk Responses.
d. Monitor and Control Risks.

7. During which risk management process is a determination to transfer a risk made?

a. Identify Risks.
b. Perform Quantitative Risk Analysis.
c. Plan Risk Responses.
d. Monitor and Control Risks.

8. Monte Carlo analysis is used to:

a. Get an indication of the risk involved in the project.
b. Estimate an activity’s length.
c. Simulate the order in which activities occur.
d. Prove to management that extra staff is needed.

9. Watchlist is an output of which risk management process?

a. Plan Risk Responses.
b. Perform Quantitative Risk Analysis.
c. Perform Qualitative Risk Analysis.
d. Plan Risk Management.

10. Which of the following MUST be an agenda item at all team meeting?

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 a. Discussion of project risks.
b. Status of current activities.
c. Review of project problem.
d. Identification of new activities.

11. Assuming that the ends of a range of estimate +/- 3ơ from the mean, which of the
following range estimates involves the LEAST risk?
a. 30 days, plus or minus 5 days.
b. 22 – 30 days.
c. Optimistic = 26 days, most likely = 30 days, pessimistic = 33 days.
d. Mean of 28 days.

12. Risks will be identified during which risk management Process(es)?

a. Perform Quantitative Risk Analysis and Identify Risks.
b. Identify Risks and Monitor and Control Risks.
c. Perform Qualitative Risk Analysis and Monitor and Control Risks.
d. Identify Risks.

13. What should be done with risks on the watchlist?

a. Document them for historical use on other projects.
b. Document them and revisit during project monitoring and controlling.
c. Document them and set them aside because they are already covered in your
contingency plan.
d. Document them and give them to the customer.

14. Risk tolerances are determined in order to help:

a. The team rank the project risks.
b. The project manager estimates the project.
c. The team schedule the project.
d. Management know how other managers will act on the project.

Risk Management 25 Dr. Emad Elbeltagi

15. Purchasing insurance is BEST considered an example risk:
a. Mitigation.
b. Transfer.
c. Acceptance.
d. Avoidance.

16. Outputs of Plan Risk Responses process include:

a. Residual risks, fallback plans and contingency reserves.
b. Risk triggers, contracts and a risk list.
c. Secondary risks, process updates and risk owners.
d. Contingency plans, project management plan updates and change requests.

17. During which risk management process is a determination to transfer a risk

made?
a. Identify risks.
b. Perform Quantitative Risk Analysis.
c. Plan Risk Responses.
d. Monitor and Control Risks.

18. A watchlist is an output of which risk management process?

a. Plan Risk Response.
b. Perform Quantitative Risk Analysis.
c. Perform Qualitative Risk Analysis.
d. Plan Risk Management.

19. During project executing, a team member identifies a risk that I not in the risk
register. What should you do?
a. Get further information on how the team member identified the risk, because
you already performed a detailed analysis and did not identify the risk.
b. Disregard the risk, because risks were identified during project planning.
c. Inform the customer about the risk.

Risk Management 26 Dr. Emad Elbeltagi

 d. Analyze the risk.

20. You identified a technical risk in your project and assigned a contingency for that.
Planning contingency reserves is part of which risk response strategy?
a. Active risk mitigation
b. Passive risk avoidance
c. Passive risk acceptance
d. Active risk acceptance

21. Recently, you were assigned to manage a project for your company. You have
constructed a network diagram depicting various activities in the project. In
addition, you asked various managers and subordinates to estimate the amount of
time they would expect each activity to take. Their responses (in days) were as
follows:

Duration (days)
Activity Optimistic Most likely Pessimistic
(a) (m) (b)
A 4 7 10
B 8 10 14
C 3 6 7
D 2 4 6
E 7 8 9

10
A C

D 40
5
B E
35

a. Compute the mean and variance in time for each activity.

b. Determine the critical path and the expected length of the critical path.

Risk Management 27 Dr. Emad Elbeltagi

 c. Assume that the time required to complete a path is normally distributed. What
is the probability of completing the critical path in less than 17 days?
d. If you wanted to be at least 95 percent sure of completing the project on time,
what schedule durations would you quote?

22. Consider the project given in the next table. Find the probability that the project
will be completed within 70 and 80 days. What is the project expected duration
corresponding to 70% assurance.

Duration (days)
Activity Optimistic Most likely Pessimistic Dependencies
(a) (m) (b)
A 10 16 22 -
B 24 32 42 -
C 22 32 40 A
D 12 16 21 B
E 20 25 35 C, D
F 13 16 19 A, B

23. The opposite Table shows the summary of a 10-simulation runs for a given
project. The run number, the critical path and the project completion time are
shown in the table below. Determine:
 The probability of completing the project in 30 days.
 The probability of completing the project in 23 days.
 Draw the cumulative probability distribution curve of the project duration.
 What is the criticality index of activities A and D.

Risk Management 28 Dr. Emad Elbeltagi

 Run Critical Completion
Number Path Time
1 A-C-F-G 25.4
2 A-D-F-G 16.4
3 A-C-F-G 29.5
4 A-D-F-G 25.0
5 A-C-F-G 23.0
6 A-C-F-G 22.3
7 A-C-F-G 24.2
8 A-C-F-G 22.1
9 A-C-F-G 18.9
10 A-C-F-G 19.7

Risk Management 29 Dr. Emad Elbeltagi