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RISK MANAGEMENT
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What is Risk Management
Project risk management is identifying, analyzing,and responding to risk(s) throughout the life of aproject in the interest of meeting project objectives.
Risk management is often overlooked in projects,but it can help improve project success by helpingselect good projects, determining project scope and
developing realistic estimates.
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Importance & Benefits from Risk Management Practices
80%
60%
47% 47% 43%35%
6%
0%
20%
40%
60%
80%
100%
Anticipa
te/av
oidproble
ms
Prev
ents
urprise
s
Improve
ability
toneg
otiate
Meet
custom
ercomm
itments
Reduc
esche
dule
slips
Redu
cecost
overruns
None
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Figure 11.1
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Definition of Risk Management
A dictionary definition of risk is the possibility of loss or injury.
Negative risk involves understanding potential problems that might occur inthe project and how they might impede project success.
Negative risk management is like a form of insurance; it is an investment.
Positive risks are risks that result in good things happening; sometimescalled opportunities.
A general definition of project risk is an uncertainty that can have a negativeor positive effect on meeting project objectives.
The goal of project risk management is to minimizepotential negative riskswhile maximizing potential positive risks.
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Risk Management (RM) Processes (6)
1. Risk management planning: Deciding how to approach and plan the riskmanagement activities for the project.
2. Risk identification: Determining which risks are likely to affect a project anddocumenting the characteristics of each.
3. Qualitative risk analysis: Prioritizing risks based on their probability andimpact of occurrence.
4. Quantitative risk analysis: Numerically estimating the effects of risks onproject objectives.
5. Risk response planning:Taking steps to enhance opportunities and reducethreats to meeting project objectives.
6. Risk monitoring and control: Monitoring identified and residual risks,identifying new risks, carrying out risk response plans, and evaluating theeffectiveness of risk strategies throughout the life of the project.
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1. Risk Management Planning
The main output of risk management planning is arisk management plana plan that documents theprocedures for managing risk throughout a project.
The project team should review project documentsand understand the organizations and the sponsorsapproaches to risk.
The level of detail will vary with the needs of theproject.
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1. RM Planning Topics
Methodology
Roles and responsibilities
Budget and schedule
Risk categories
Risk probability and impact
Risk documentation
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1. RM Planning Contingency, Fallback, Allowances
Contingency plans are predefined actions that theproject team will take if an identified risk eventoccurs.
Fallback plans are developed for risks that have ahigh impact on meeting project objectives, and areput into effect if attempts to reduce the risk are noteffective.
Contingency reserves or allowances are provisionsheld by the project sponsor or organization toreduce the risk of cost or schedule overruns to anacceptable level.
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1. RM Planning Common Risk Factors
Lack of top management commitment to the project
Failure to gain user commitment
Misunderstanding the requirement
Lack of adequate user involvement
Failure to manage end user expectation
Changing scope and objectives
Lack of required knowledge/skill in project personnel
New technology
Insufficient / inappropriate staffing
Conflict between user departments
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1. RM Planning IT Success Potential Scoring
Success Criterion Relative Importance
User Involvement 19
Executive Management support 16
Clear Statement of Requirements 15
Proper Planning 11
Realistic Expectations 10
Smaller Project Milestones 9
Competent Staff 8
Ownership 6
Clear Visions and Objectives 3
Hard-Working, Focused Staff 3
Total 100
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1. RM Planning Categories of Risk & RBS
Market risk (Business)
Financial risk
Technology risk
People risk
Organizational risk (structure/process)
A risk breakdown structure (RBS) is a hierarchy of potential riskcategories for a project.
Similar to a work breakdown structure but used to identify andcategorize risks.
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1. RM Planning
Sample Risk Breakdown Structure (RBS)
IT Project
Business Technical OrganizationalProject
Management
Competitors
Suppliers
Cash flow
Hardware
Software
Network
Executive
support
User support
Team support
Estimates
Communication
Resources
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Negative Risk Conditions To Knowledge Area
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Knowledge Area Risk Conditions
Integration Inadequate planning; poor resource allocation; poor integration
management; lack of post-project review
Scope Poor definition of scope or work packages; incomplete definition
of quality requirements; inadequate scope control
Time Errors in estimating time or resource availability; poor allocation
and management of float; early release of competitive products
Cost Estimating errors; inadequate productivity, cost, change, or
contingency control; poor maintenance, security, purchasing, etc.
Quality Poor attitude toward quality; substandard
design/materials/workmanship; inadequate quality assurance
program
Human Resources Poor conflict management; poor project organization and
definition of responsibilities; absence of leadership
Communications Carelessness in planning or communicating; lack of consultation
with key stakeholders
Risk Ignoring risk; unclear assignment of risk; poor insurance
management
Procurement Unenforceable conditions or contract clauses; adversarial relations