11-PMP_Project Risk Management_PMBOK_V4.pdf

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Main Title

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PMP Examination Preparatory Course

Topic: Project Risk Management

Version 4.0



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PMP Workshop | Financial Services All work described was performed by Capgemini or a Capgemini affiliate

©2009 Capgemini - All rights reserved 1

Hot Topics

Project Risk Management

Perform Qualitative RiskAnalysis

Perform QuantitativeRisk Analysis

Monte Carlo Simulation

SWOT Analysis

Decision Tree Analysis

Risk Components

Probability/Impact Risk Rating Matrix

Risk Tolerance



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Introduction to Risk

What is RISK ?

Uncertain Events or Consequences probable of occurring during a project

Has impact on at least one project objectives (Time/Cost/Scope/Quality)

Measured by the Impact on the project

Impact can be

• Positive - Enhances Success of the project

• Negative - Threats to Project Success

Types of RISK

• Known Risks – Planning is possible

• Unknown Risks – Can’t be managed proactively, add contingencies



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Introduction to Risk

Project Risk

Varies throughout the Project life cycle

High in the concept and development phases, decreasing as work isaccomplished

Amount at stake is low in the early phases and increases as work isaccomplished

Risk Components

Risk Event

Risk Event Probability

Risk Outcome or Consequences (Amount at Stake)

Risk Event Status (Probability X Amount at Stake)



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Project Risk Management

Processes for Planning, Identifying, Analyzing, andResponding to project risk.

Objectives :

Maximizing the probability and the results of positive events

(opportunities) Minimizing the probability and consequences of events adverse to the

projects (risks)



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Controlling ClosingInitiating Planning Executing

Plan RiskManagement

Identify Risk

PerformQuantitativeRisk Analysis

PerformQualitativeRisk Analysis

Plan RiskResponse

Monitor &Control Risk

ControllingPlanning

Project Risk Management Processes



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Careful and explicit planning enhances the possibility of success of the five other risk management processes.

Careful and explicit planning enhances the possibility of success of the five other risk management processes.

Plan Risk Management

Deciding how to approach and plan the risk managementactivities for a project

Planning also important to provide sufficient resources andtime for risk management activities.



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Plan Risk Management

Inputs Tools and Techniques Outputs

Project scopestatement

Cost Management Plan

Schedule ManagementPlan

CommunicationsManagement Plan

Enterpriseenvironmental factors

Organizational processassets

Planning Meetingsand analysis

Risk ManagementPlan



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Inputs – Plan Risk Management

1. Enterprise Environmental Factors

Attitude towards Risk and Risk Tolerance of the Organization or PeopleInvolved in the project

Expressed in policy statements or Revealed in actions

2. Organizational Process Assets

Predefined approaches to Risk analysis and response

Risk Categories

Common Definition of concepts and terminologies

Standard Templates

Defined roles, responsibilities and authority levels for decision-making

Lessons Learned

Stakeholder Registers



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Inputs – Plan Risk Management

3. Project Scope Statement

Range of possibilities possible with project and its deliverables

Drives framework for Risk Management effort

4. Cost Management Plan

Referred to access details of how risk budgets, contingencies and managementreserve will be reported and accessed.

5. Schedule Management Plan Referred to access details of how schedule contingencies will be reported and

assessed.

6. Communications Management Plan

Stakeholders information

Helps to determine who will be available to share information on various riskand responses



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Tools & Techniques – Plan Risk Management

Planning Meetings and Analysis

Project team hold planning meetings to develop risk management plan.

Attendees include

• Project Manager

• Project Team Leaders

• Key Stakeholders

• Anyone responsible for planning and executing activities



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Outputs – Plan Risk Management

Risk Management Plan

The risk management plan is responsible for determining

How risks will be identified

How quantitative analysis will be completed

How qualitative analysis will be completed

How risk response planning will happen

How risks will be monitored

How ongoing risk management activities will happen throughout the

project life cycle

The Risk Management Plan does not detail the planned responses toindividual risks within the project ; this is the purpose of the risk

response plan.

The Risk Management Plan does not detail the planned responses toindividual risks within the project ; this is the purpose of the risk

response plan.



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Outputs (contd.) – Plan Risk Management

Risk Management Plan includes

Methodology – defines the approaches, tools, and data sources thatmay be used to perform risk management.

Roles & Responsibil ities – defines the lead, support, and riskmanagement team membership for each type of action in the plan

Budget – Assigns resources and estimate costs needed for riskmanagement for inclusion in cost baseline.

Timing – Describes when and how often the risk management processwill be performed throughout the project life cycle.

Risk Categories –

• Provide a structure that ensures a comprehensive process of systematicallyidentifying risk to a consistent level of detail.

• A risk breakdown structure (RBS) is one approach to providing such astructure.



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Outputs (contd..) – Plan Risk Management

Definition of Risk Probabil ity and Impact – General definitions of probability levels and impact levels are tailored to individual projects.

Probabil ity and Impact Matrix – Risk prioritization using combinationof probability and impact.

Revised Stakeholder's Tolerances – Stakeholders’ tolerances maybe revised in the Risk Management Planning process, as they apply tothe specific project.

Reporting formats – Defines how the results of the risk managementprocesses will be documented, analyzed, and communicated to theproject team and stakeholders

Tracking – Documents how all facets of risk activities will be recorded.Also defines whether and how the risk management processes will beaudited.



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Identify Risks

Determining which risks are likely to affect the project and documentingthe characteristics of each risks.

Internal risks – Things that the project team can control or influence

External risks – Things beyond the control or influence of the projectteam

Identify Risks is an iterative process because new risks evolve or becomeknow as the project progresses through its life cycle.

Identify Risks is concerned with opportunities (positive outcomes), aswell as with threats (negative outcomes).

Identify Risks is concerned with opportunities (positive outcomes), aswell as with threats (negative outcomes).



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Identify Risks

Categories :

External, unpredictable: Regulatory, etc.

External, predictable: Market risks

Internal, non-technical: Management

Technical: Design

Legal: Contractual



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Indentify Risks



Activity Cost estimates

Activity Duration estimate

Scope baseline

Stakeholder register

Cost Management plan

Schedule ManagementPlan

Quality Management Plan

Project Documents

Enterprise environmentalfactors


DocumentationReviews

Information

Gathering Techniques

Checklist analysis

Assumptions

Analysis

Diagramming Techniques

SWOT Analysis

Expert J udgment

Risk Register



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Inputs – Identify Risks

1. Enterprise Environmental Factors Published information including

commercial databases.

Academic studies or other industrystudies.

Published checklist, Benchmarking.

Risk attitudes.


Project files including actual data. Risk statement templates.

Organizational and project processcontrols.

Lessons learned.

3. Scope Baseline Uncertainty in Project Assumptions

WBS

4. Activity Cost estimates

Indicative of likely cost to complete thescheduled activity expressed as a range

Width of range is indicative of degree of risk involved

5. Activity Duration estimates Schedule estimates risks



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Inputs – Identify Risks

6. Stakeholder Register Stakeholder list/inputs

Customer interviews / participation in risk identification

7. Risk Management Plan

Assignment of Roles and Responsibilities

Provision of Risk Management Activities in the Budget and Schedule

Categories of Risks

8. Schedule Management Plan

Schedule management approach may generate or alleviate the risks

9. Quality Management Plan

Quality management approach may generate or alleviate the risks

10. Cost Management Plan Risk related to cost management approach

11. Project Documents

Assumption log, Work Performance reports, Earned Value reports, Baselines



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Tools & Techniques – Identify Risks

1. Documentation Reviews

A structured review may be performed of project documentation

2. Information-Gathering Techniques

Brainstorming – Goal is to identify comprehensive list of project risks

Delphi technique – to reach a consensus of experts

Interviewing – SME, Experienced project stakeholders Root Cause analysis

3. Checklist Analysis

Organized by Source of Risk

Not a complete and final list of Risk

Needs to be updated at the closure for future project use



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Tools & Techniques (Contd..) – Identify Risks

4. Assumptions Analysis

Examines the validity of assumptions

Identifies risks to the project from inaccuracy, inconsistency, or incompletenessof the assumptions

5. Diagramming techniques

Cause and effect diagrams – also known as Ishikawa or Fishbone diagrams System or process flow charts - that shows the relationship between

components and how the overall process works

Influence diagrams – graphical representation of showing causal influences,time ordering events and other relationships among variables and outputs

6. Expert J udgment

Experts with relevant experience of similar projects can help identify risks



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Tools & Techniques (Contd..) – Identify Risks

7. SWOT Analysis

Strengths

• The technology to be installed in the project has been installed by other largecompanies in our industry.

Weaknesses

• We have never installed this technology before.

Opportunities

• The new technology will allow us to reduce our cycle time for time-to-marketon new products.

• Opportunities are things, conditions, or events that allow an organization todifferentiate itself from competitors and improve its standing in themarketplace.

Threats

• The time to complete the training and simulation may overlap with productupdates, new versions, and external changes to our technology portfolio.



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Outputs – Identify Risks

Risk Register

List of Identified Risks

• Root causes of Risks

List of Potential Responses



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Question…

1. Which is not input to Identify Risk Process:

A. Historical information

B. Cost estimates

C. Product information

D. Work breakdown structure

E. Checklists



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Perform Qualitative Risk Analysis

The process of prioritizing risks for further analysis or actionsby assessing and combining their probability of occurrenceand the impact.

Qualitative risk “qualifies”the risks that have been identified in the project.

Specifically, qualitative risk analysis examines and prioritizes the risks basedon their probability of occurring and the impact on the project if the risks didoccur.

Qualitative risk analysis is a broad approach to ranking risks by priority, whichthen guides the risk reaction process.

Improves project performance by focusing on High-Priority risks.

Rapid and cost-effective means of establishing priorities for Plan RiskResponses and foundation for PerformQuantitative Risk Analysis.



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Perform Qualitative Risk Analysis



Project scopestatement


Risk register

Risk probability &impact assessment

Probability and impactmatrix

Risk data qualityassessment

Risk categorization

Risk urgencyassessment

Expert J udgment

Risk register updates.



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Inputs – Perform Qualitative Risk Analysis


Risk Database

Information on prior, similar completed projects.

2. Project Scope Statement

Kind of work determines the amount of risk

• Common or recurrent type have less risk

• State-of-the-art, first time technology, or highly complex projects have moreuncertainty.

3. Risk Management Plan – As discussed earlier

4. Risk Register

Identified Risks – Evaluation of risks identified during the Identify Risks processand their potential impacts on the project



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Tools & Techniques – Perform Qualitative Risk Analysis

Risk Probability and Impact Assessment

Risk probability - is the likelihood that a risk will occur

Probability and Impact are assessed for each risk.

Risk consequences – is the effect on project objectives if the risk event occurs;done at each risk level



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Tools & Techniques (Contd..) – Perform Qualitative Risk Analysis


Risk Probability Scale falls between 0.0 (no probability) and 1.0 certainty)

• Ordinal scale – ranked-order scale, such as very low, low, moderate, high, and very

high

• Cardinal scale – assign values to these impacts. These values are usually linear

(.1/ .3/ .5/ .7/ .9) or nonlinear (.05/ .1/ .2/ .4/ .8/)



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Tools & Techniques – Perform Qualitative Risk Analysis

Risk Data Quality Assessment

A technique to evaluate the degree to which the data is useful

• Extent of understanding of the risk

• Data available about the risk

• Quality of the data

• Reliability and integrity of the data

Risk Categorization

Sources of Risks

Area of the project Affected Project Phase

Risk Urgency Assessment

Risks requiring near-term responses may be considered more urgent to address.

Expert J udgment

Probability / Impact Risk Metrics Definition



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Outputs – Perform Qualitative Risk Analysis

Risk Register (updates)

Relative ranking or Priority list of Project Risks

Risks Grouped by Categories

Causes of risks / project areas requiring particular attention

Risks requiring response in the near-term

Risks for additional analysis and response

Watch list of low priority risks

Trends in Qualitative Risk Analysis results



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Perform Quantitative Risk Analysis

Measuring numerically the effect of identified risk on overall projectobjectives.

Analyses effect of risk events and assigns numerical rating to those risks

to evaluate aggregate effect of all risks impacting project.

Perform Quantitative analysis is a more time-consuming process ascompared to Qualitative analysis, and is therefore also moreexpensive.

Perform Quantitative analysis is a more time-consuming process ascompared to Qualitative analysis, and is therefore also more

expensive.



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There are several goals of quantitative risk analysis:

To ascertain the likelihood of reaching project success

To ascertain the likelihood of reaching a particular project objective

To determine the risk exposure for the project

To determine the likely amount of the contingency reserve needed for theproject

To determine the risks with the largest impact on the project

To determine realistic time, cost, and scope targets

This process Should be repeated after Plan Risk response and Monitor andControl Risks to determine if overall risk has been satisfactorily decreased.

Generally this is done after perform qualitative analysis. In some cases thisprocess may not be required to develop effective risk responses.



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Risk register


Cost management plan

Schedule managementplan


Data gathering andrepresentation

techniques Quantitative risk

analysis and modelingtechniques

Expert J udgment

Risk register updates.



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Inputs – Perform Quantitative Risk Analysis

1. Risk Register - As discussed earlier

2. Risk Management Plan - As discussed earlier

3. Cost Management Plan – As discussed earlier

4. Schedule Management Plan – As discussed earlier

5. Organizational Process Assets - As discussed earlier

T l & T h i P f Q i i Ri k A l i



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Tools & Techniques – Perform Quantitative Risk Analysis

1. Data Gathering and Representation Techniques

Interviewing

• With project stakeholders and subject-matter experts to quantify the probability and

consequences of risks on project objectives. Refers to Historic data too.• The information needed depends upon the type of probability distributions that will be

used

• Documenting rationale of risk ranges and assumptions behind them.

Probability Distributions

• Continuous probability distributions represent the uncertainty in values, such asdurations of schedule activities and costs of project components.

• Discrete distributions can be used to represent uncertain events, such as the outcomeof a test or a possible scenario in a decision tree.

T l & T h i ( td ) P f Q tit ti Ri k A l i



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Tools & Techniques (contd.) – Perform Quantitative Risk Analysis

2. Quantitative Risk Analysis and Modeling Techniques Sensitivity Analysis

• Helps to determine which risks have the most potential impact on the project.

• Tornado Diagram is one typical display of sensitivity analysis, useful for comparing

relative importance and impact of variables. Expected Monetary Value Analysis

• Calculates the average outcome when the future includes scenarios that may or may nothappen

• EMV of opportunities are expressed as positive values, while those of threats will benegative.


• Use of a diagram that describes a decision under consideration and the implications of choosing one or another of the available alternatives.

• Solving the decision tree indicates which decision yields the greatest expected valuewhen all the uncertain implications, costs, rewards, and subsequent decisions arequantified

T l & T h i ( td ) P f Q tit ti Ri k A l i



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0.5

0.5

What is the probabili ty that Project B willbe selected and will be successful?

Example

Answer: 0.35

Project A

0.6

0.4

Success

Failure

Project B

0.7

0.3

Success

Failure

Tools & Techniq es (contd ) Perform Q antitati e Risk Anal sis



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Decision Trees

Decide not to pursue$ 0

ProductionSuccessfulProbabil ity = 0.7

High DemandProbabili ty =0.3$ 550,000

Production Unsuccessful

Probabil ity = 0.3Terminate = - $ 200,000

Decide topursue

Low DemandProbabil ity = 0.7- $100,000

Expect Value of Pursuing Project A0.7 x 0.3 x $ 550,000 = $ 115,500

0.7 x 0.7 x –

$ 100,000 = –

$ 49,0000.3 x – $ 200,000 = – $ 60,000

$ 6,500The expected value of Project A is $6,500.The expected value of not proceeding is $0.

ÎProceeding is lucrative option.

Tools & Techniques (contd ) Perform Quantitative Risk Analysis



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Modeling and Simulation

Uses a model or copy of the system to analyze the behavior or performance of thesystem


• “Perform”project many times to provide a statistical distribution of calculated results

• Uses results to quantify the risk of various schedule alternatives, different projectstrategies, different paths through the network.

• Can be used to assess the range of possible cost options

Days After Project Start

0

1020

30

4050

60

708090

100

110 120 130 140 150 160 170 180 190 200

C u m u l a t i v e P r o b a b i l i t y

Tools & Techniques (contd ) Perform Quantitative Risk Analysis



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3. Expert J udgment –

− Subject matter experts internal or external to the organization, such as engineering

or statistical experts, validate data and techniques.− Interpretation of data

− Tools evaluation for performing quantitative analysis given organization culture

Outputs Perform Quantitative Risk Analysis



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Outputs – Perform Quantitative Risk Analysis

Risk Register updates -

Probabilistic Analysis of the project

• Forecasts potential project schedule and cost results,• Lists the possible completion dates or project duration and costs with their

associated confidence levels

Probability of achieving cost and time objectives

• Under the current project plan and with the current knowledge of the risksfacing the project

Prioritized list of quantified risks

• Risks that pose greatest threat or present the greatest opportunity to the

project together with a measure of their impact

Trends in Quantitative Risk Analysis results

• As analysis is repeated, a trend of results may become apparent

Question



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Question..

Q. Tools and techniques used in Risk Quantification include:

A. Expected monetary value

B. Sensitivity Analysis

C. Decision trees

D. Simulation

E. All of the above

Plan Risk Responses



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Plan Risk Responses

Process of developing options and determining actions to enhanceopportunities and reduce threats to the project’s objectives

Planning for Risk Responses must be

Appropriate to the severity of the risk,

Cost effective in meeting the challenge,

Timely to be successful, Realistic within the project context,

Agreed upon by all parties involved, and

Owned by a responsive person

Plan Risk Responses



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Plan Risk Responses


Risk management plan

Risk register

Strategies for negativerisks or threats

Strategies for positiverisks or opportunities

Contingent responsestrategies

Expert J udgment

Risk register updates

Risk related contract

decisions

Project managementplan updates

Project document

updates

Inputs – Plan Risk Responses



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Inputs Plan Risk Responses

1. Risk Management Plan – As discussed earlier


Tools & Techniques – Plan Risk Responses



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Tools & Techniques Plan Risk Responses

1. Strategies for Negative Risks or Threats

• Avoid - Changing the project management plan to eliminate the threat posed by anadverse risk, to isolate the project objectives from the risk’s impact, or to relax theobjective that is in jeopardy.

• Transfer - Shifting the negative impact of a threat along with ownership of theresponse, to a third party.

• Mitigate - Reduction in the probability and/or impact of an adverse risk event to anacceptable threshold.

• Accept -This strategy indicates that the project team has decided not to change theproject management plan to deal with a risk, or is unable to identify any other suitableresponse strategy.

2. Strategies for Positive Risks or Opportunities

• Exploit - Eliminate the uncertainty associated with a particular upside risk by makingthe opportunity definitely happen.

• Share - Allocating ownership to a third party who is best able to capture theopportunity for the benefit of the project.

• Enhance - Modifies the “size”of an opportunity by increasing probability and/or

positive impacts, and by identifying and maximizing key drivers of these positive-impact risks

• Accept - Accepting opportunity is being willing to take advantage of it, if it comes on,but not actively pursuing it.

Tools & Techniques (contd.) – Plan Risk Responses



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q ( ) p

3. Contingent Response Strategies

Some responses are designed to execute only if certain events occur.

For some risks it is appropriate for project team to make a response plan which

will be executed under certain predefined conditions.

4. Expert J udgment

Expert inputs for handling a risk event or planning for responding to risk event

Outputs – Plan Risk Responses



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p p

1. Risk Register updates A description of the risk, what area of the project it may affect, the causes of the risk, and

its impact on project objectives

The identities of the risk owners and their assigned responsibilities

The outputs of qualitative and quantitative analysis

Agreed upon response strategy.

The actions necessary to implement the responses

The budget and schedule for risk responses

Both the contingency and fallback plans

Residual Risks and Secondary Risks

Contingency Reserves

2. Risk Related Contractual decisions

Such as agreements for insurance, services, and other items as appropriate, can beprepared to specify each party’s responsibility for specific risks, should they occur.

Outputs – Plan Risk Responses



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p p

3. Project Management Plan updates

All sections of project management plan needs to be revisited and updated as applicable asper changes required as per risk response planning or information that was made availableas part of risk response.

• Schedule management plan

• Cost Management Plan

• Procurement management plan

• Human resource management plan

• Quality management plan

• Work breakdown structure

• Cost performance baseline• Schedule baseline

4. Project Document updates

Assumption log updates – As new information is available as part of risk response ,

assumption log needs to be revisited. Technical documentation update – technical approaches and physical deliverables might

change as per risk response planned., so this needs to be updated.

Question..



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Q. Purchasing insurance is BEST considered an example of risk:

A. mitigation.B. transfer.

C. acceptance.

D. avoidance.

Monitor & Control Risks



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The process of

Keeping track of the identified risks

Monitoring residual risks

Identifying new risks

Ensuring the Implementation of risk response plans

Evaluating their effectiveness in reducing risk

In addition, used to determine if: Project assumptions are still valid

Risk management policies and procedures are being followed

Contingency reserve of cost or schedule should be modified in alignment withcurrent risk assessment.

Monitor & Control Risks



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Project managementplan

Risk register

Work performanceinformation

Performance reports

Risk assessments

Risk audits

Variance and trendanalysis

Technicalperformance

measurement

Reserve analysis

Status meetings

Risk register updates

Organizational process

assets updates

Change requests

Project managementplan updates

Project documentupdates

Inputs - Monitor and Control Risks



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1. Project Management Plan - As discussed earlier


3. Work Performance Information –Deliverables status

Schedule progress

Cost incurred

4. Performance Reports –

Variance analysis

Earned value analysis

Forecasting data

Tools & Techniques - Monitor & Control Risks



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1. Risk Reassessment

Identification of new risks and reassessment of identified risks and closing of outdated ones.

2. Risk Audits

Examine and document the effectiveness of risk responses

Examine and document the effectiveness of the Risk management Process

3. Variance and Trend Analysis

Earned Value Analysis

4. Technical Performance Measurement

Compares technical accomplishments during project execution to the project plan schedule of technical achievement

5. Reserve Analysis

Compares amount of contingency reserves remaining to amount of risk remaining at any timein the project, to determine if the contingency reserve is adequate

6. Status Meetings

Should be an agenda item in periodic status meetings

Outputs – Monitor and Control Risks



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1. Risk Register updates

• Outcome of risk reassessments, risk audits and periodic risk reviews

• Closing risks that are no longer applicable

• Part of Project Closure Documents

2. Change requests

• Managed through Integrated Change Control Process

• Recommended corrective action

• Recommended preventive action

3. Organizational Process Assets updates

• Templates changes including probability and impact matrix and risk register.

• Risk breakdown structure and lessons learned from project risk management activities.

4. Project Management Plan Updates

• Approved changes requests impacting risk management process gets updated

5. Project document Updates –

• Same as Plan risk responses process

Question….



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Q. Workarounds are determined during which riskmanagement process?

A. Risk identificationB. Quantitative risk analysis

C. Risk response planning

D. Risk monitoring and control

Project Risk Management - Recap



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Perform Qualitative RiskAnalysis

Perform QuantitativeRisk Analysis


SWOT Analysis


Risk Components


Review Questions Time



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Review Questions



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