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What is Project Risk?

Project Risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost and quality.

PMBOK Perspective
1 Plan Risk Management: The process of defining how to conduct risk management activities for a project 2 Identify Risks: The process of determining which risks may affect the project and documenting their characteristics. 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. 4 Perform Quantitative Risk Analysis: The process of numerically analyzing the effect of identified risks on overall project objectives.

5 Plan Risk Responses: The process of developing options and actions to enhance opportunities and to reduce threats to project objectives. 6 Control Risks: The process of implementing risks response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.

Some Risk Conditions

Risk conditions may include aspects of the projects or

organizations environment that contributes to project risk:

Immature project management practices Lack of integrated management systems Concurrent multiple projects Dependency on external participants who are outside

the direct project control Project manager is too optimist

Risk Attitude Depends Upon

Risk Appetite The degree of uncertainty an entity is willing to take on in anticipation of a reward. Risk Tolerance The degree, amount or volume of risk that an organization or stakeholder will withstand Risk Threshold Below this threshold, the company will accept the risk and above it, the organization will not tolerate the risk.

Positive Risks
What are positive Risks? Why they are called opportunities? Are they considered good ?

Positive Risk
Definition: Positive Risk
Positive risk is the chance that your objectives will produce too much of a good thing. Positive risks are deemed as undesirable despite being positive at face value

Positive Risk As An Opportunity :

Risk-taking is the process of accepting risk. Examples of risk-taking include investing, developing new products and changing business processes. Risk-taking is the basis of economic progress. It's often positive. Positive risk is different it's something you're trying to avoid.

Positive Risks
Being under budget is a good thing because the company saves money.

However, in the context of project management it's considered a planning error. You didn't really save money the project manager overestimated the project. A bridge is constructed to last 50 years. The project management team carefully monitors quality risks (the risk it won't last to the 50 year target). They also manage the positive risk that the bridge will last too long. If they discover that the bridge will last 100 years it was likely over-engineered. Your accountant points out the positive risk that if your income rises past a certain mark then tax rules will apply that will reduce your net income. An ambitious manager seeks important responsibilities. She manages the risk that she won't take on enough work to achieve recognition. She also manages the positive risk that the firm will trust her with so many responsibilities that she'll be unable to deliver.

Plan Risk Management

Inputs
All approved plans and baselines; scope, schedule & cost 2.Project Charter: contains high level risks 3. Stakeholder Register for Communications management plan 4.Enterprise environmental factors Risk attitude, threshold, tolerances 5.Organizational process assets: Risk categories, Roles & responsibilities

Tools & Techniques

Analytical Techniques Expert Judgment Meetings

Participants:
Project Manager, Selected Project Team Members, Stakeholders, those responsible to manage risk planning and execution activities

Risk Management Plan

See Next Page

Risk Management Plan

Include:
Methodology: Approaches to perform Risk Management Roles and responsibilities: Defines the lead, support and

risk management team members & their responsibilities Budgeting: Estimated Funds needed for inclusion in cost baseline and establishes protocols for application of contingency and management reserves. Timing: How often the risk process will be performed throughout the project life cycle Risk Categories: Categories a-z depending on the severity Probability & Impact: a method to determine which risks will and will not be acted upon Reporting formats: Documentation, analysis and reporting of risk whenever it will happen. Tracking: How recording of the risk will be documented for auditing and future reporting

Identify Risks
Inputs 1.Risk management plan
2.Cost management plan 3.Schedule management plan 4.Quality management plan 5. Human Resource Mgt. Plan 6.Scope baseline 7.Activity costs estimates 8.Activity duration estimates 9.Stakeholder register 10. Procurement Document 11.Project documents 12.Enterprise environmental factors Risk register List of Identified Risks List of potential Responses

Tools & Techniques

1. Documentation reviews 2. Information gathering techniques Brainstorming Delphi Technique Interviewing Root cause analysis 3. Checklist analysis 4. Assumptions analysis 5. Diagramming techniques Flowcharting Cause and effect diagram 6. SWOT Analysis 7. Expert judgment

13.Organzational process assets

Perform Qualitative Risk Analysis

Inputs
1.Risk register 2.Risk management plan 3.Project scope baseline 4.Organizational process assets

Tools & Techniques

1. Risk probability and impact assessment 2. Probability and impact matrix 3. Risk data quality, reliability assessment 4. Risk categorization (RBS) and area of the project affected 5. Risk urgency assessment (near term) 6. Expert judgment

Risk register updates

Assumptions Log Update

Perform Quantitative Risk Analysis

Inputs
1. Risk register 2. Risk management plan 3. Scope Baseline 4. EEF 5. OPA

Tools & Techniques

1. Data gathering and representation techniques Interviewing (3-point estimates) Probability Distribution 2. Quantitative risk analysis and modeling techniques Sensitivity Analysis (potential impact) 3. Expert judgment

Risk register updates

Probabilistic analysis of the project Probability of achieving cost and time objectives Prioritized list of quantified risks

Exercise
A company is trying to determine if prototyping is worthwhile on

the project. They have come up with the following consequences of whether the equipment works or fails when it is used. Based on the information provided below, what is the expected value of your decision?

24

Solution
PROTOTYPE 35% x $120,000 plus US$200,000 =US$242,000

Do not Prototype

70% x $450,000 = US$315,000

QUANTITATIVE RISK ANALYSIS

Is a numerical analysis of the probability and consequences (amount at stake or impacts) of the highest risks on the project to:
Determine which risk events warrant a response Determine overall project risk (risk exposure) Determine the quantified probability of meeting

project objectives - e.g., "We only have an 80% chance of completing the project within the six months required by the customer," or "We only have a 75% chance of completing the project within the $80,000 budget." Determine cost and schedule reserves Identify risks requiring the most attention Create realistic and achievable cost, schedule or scope targets

QUANTITATIVE RISK ANALYSIS

Risk quantification involves the following activities:
Further investigation into the highest risks on the

project Determination of the type of probability distribution that will be used - e.g., triangular, normal, beta, uniform or log normal distributions Interviewing experts Sensitivity analysis - determining which risks have the most impact on the project Monte Carlo simulation (simulation) - described later Decision tree analysis - described later

DECISION TREE
A decision tree takes into account future events in

trying to make a decision today.

It calculates the expected value (probability times

consequences) in more complex situations than the expected value previously presented.
It involves mutual exclusivity (previously

explained in the Quality chapter.)

MONTE-CARLO SIMULATION

Evaluates the project, not the tasks

Provides the probability of completing the project on any specific day, or for any specific amount of cost Provides the probability of any task actually being on the critical path
Provides a percent probability that each task

will be on the critical path

MONTE-CARLO SIMULATION Takes into account path convergence (places in the

network diagram where many paths converge into one task) Translates uncertainties into impacts to the total project Can be used to assess cost and schedule impacts Is usually done with a computer-based Monte Carlo program because of the intricacies of the calculations Results in a probability distribution

Plan Risk Responses

Inputs
1.Risk register 2.Risk management plan

Tools & Techniques

1. 2. 3. 4. Strategies for negative risks or threats Strategies for positive risks or threats Contingent response strategies Expert Judgment

Outputs
1. Project management plan update 2. Project document update

RISK RESPONSE PLANNING During this step: Strategies are agreed upon in advance by all parties Primary and backup strategies are selected Risks are assigned to individuals or groups to take responsibility Strategies are reviewed over the life of the project for appropriateness as more information about the project becomes known

STRATEGIES FOR Negative Risks and Threats

The choices include:
AVOID - Eliminate the threat by eliminating the

cause. Changing the Project Plan to eliminate the threat entirely. Most radical avoidance strategy is to shut the project entirely. MITIGATION Project team acts to reduce the probability of occurrence or impact of a risk and bring it down to within threshold limits.

STRATEGIES FOR Negative Risks and Threats

ACCEPT - Do nothing and say, "If it happens, it happens." Active

acceptance may involve the creation of contingency plans and passive acceptance may leave actions to be determined as needed. A decision to accept a risk must be communicated to stakeholders.
TRANSFER - Make another party responsible for the risk

through purchasing of insurance, performance bonds, warranties, guarantees or outsourcing the work.

Exercise
For each strategy described, determine the name of its strategy. Remember to include

mitigate probability and mitigate impact.

Solution

Sample Exam Questions

What do you do with non-critical risks?
Answer: Document and revisit periodically.

Would you select only one risk response strategy?

Answer: No, you can choose a combination of choices.

What risk management activities are done during the

executing phase of the project?

Answer: Watching out for non-critical risks that become

more important.

Sample Exam Questions

What is the most important item to address in project

team meetings?
Answer: Risk.

How would risks be addressed in project meetings? By asking, "What is the status of risks? Any new risks? Any change to the order of importance? "

Strategies for Positive Risks or Opportunities

Exploit:
This is a point where the organization wishes to ensure that the opportunity is realized. The strategy seeks to eliminate the uncertainty associated and ensures that opportunity has happened

Enhance:

Increase the positive impacts of the opportunity

With other teams and projects / portfolios Recognition but not pursuing it further

Share

Accept

Contingent Response Strategies

Alternate ways of doing things
Create sufficient warning to implement plan

RISK MONITORING AND CONTROL

This step involves managing the project according to the risk response plan and may include the following activities:
Keeping track of the identified risks Implementing risk responses

Looking for the occurrence of risk triggers

Monitoring residual risks Identifying new risks Ensuring the execution of risk plans Evaluating the effectiveness of risk plans Developing new risk responses

Monitor and Control Risks

Inputs
1.Risk register 2.Project management plan 3.Work performance information 4.Performance reports

Tools & Techniques

1. Risk reassessment 2. Risk audits 3. Variance and trend analysis 4. Technical performance measurement 5. Reserve analysis 6. Meetings

Outputs
1. 2. 3. 4. 5. Work performance information Organizational process asset updates Change requests Project management plan updates Project document updates

Which is the most important tool & technique in Control Risk and why?
Risk Assessment
Risk Audit Variance & Trend Analysis Technical Performance Measurement Reserve Analysis Meetings

Change Requests
Recommended Corrective Actions These are activities that realign the performance of the project work with the project management plan. This includes contingency plans and workarounds

Recommended Preventive Actions

These are activities that ensure that future performance

of the project work is aligned with the project management plan.

MCQs

1 The Three attributes of project risk are _________, ___________ and ___________.
1.
2.

3.
4. 5.

What might happen, who it happens to, and how much will it cost Notification, frequency of relevant events, probability of occurrence Risk cost, quality, control Quality, risk planning, total number of risk events Risk event, probability occurrence, the amount at stake

2: A risk is defined as what might happened to the

____________ of the project

1.
2. 3. 4. 5.

assessment detriment schedule cost scope

3: When is the project's amount at stake the lowest

conceptual 2. design 3. close-out 4. implementation
1.

4: What is the most accurate method of obtaining project information that can reduce the amount of risk?
1. 2. 3. 4. 5.

Observations on the current project Determining the risk by using brainstorming techniques The use of historical data from previous projects that were similar in nature Sensitivity analysis Delphi technique.

5: Which of the following fit the category of external risks?

Project delays, budget under-runs, movement of city utilities 2. Regulatory, currency changes, taxation 3. Natural disasters, regulatory, design 4. Inflation, design, social impact
1.

6: Decision trees are best used for

Determining the interaction of the amount at stake and the expected value 2. Association of the probabilities with the risk events 3. An illustration of how to see the interactions between decisions and the associated events 4. A flow chart which determines the standard deviation of the risk event
1.

7: The total amount of risk that is calculated for a project is found by

Multiplying the sum of each the risk times the amount at stake 2. Calculating the cumulative sum of the probability for each risk and multiplying this value times the consequence of occurrence of the risk events 3. Cannot be calculated since all risks are not know 4. The amount of project reserves available
1.

8: A situation in which one of two or more risk events will follow an act, but the precise nature of these events may not be known and the probabilities of their occurring cannot be objectively assigned, is the definition of
1. 2.

3.
4. 5.

certainty uncertainty risk risk adversity None of the above.

Answers:
1: 2: 3: 4: 5: 6: 7: 8: 5 2 1 3 2 3 2 2

Thank you,

Any questions?