PMP Preparation - 11 Risk Management

PMP Lectures Prepared By: Eng. Mohamed ElSaadany

0. I n t roduc t ion

1. P lan R isk Management

2. Iden t i f y R isks

3. Per fo rm Qua l i ta t i ve R isk Ana lys is

4. Per fo rm Quant i ta t i ve R isk Ana lys is

5. P lan R isk Responses

6. Cont ro l R isks

Lecture 11 : Pro ject R isk Management (1 /31) Contents


Definitions:• Project risk is an uncertain event or condition that, if it occurs, has a

positive or negative effect on one or more project objectives.• Through risk management you try to increase probability and impact of

opportunities, while decrease probability and impact of threats.• Uncertainty: Lack of knowledge that reduce confidence in conclusions• Risk Averse: Someone who doesn’t want to take risks. يتجنب المخاطر• Risk Tolerance: Area of acceptable risks • Thresholds: The point at which risk becomes unacceptable.

Risk Factors:• Probability : How much percent risk may occur• Impact: Range of possible outcomes (Time – Money)• Timing: When the risk is expected to take place• Frequency: How often this risk is expected to happen

Lecture 11 : Pro ject R isk Management (2 /31) 0 . Introduct ion


P r o j e c t R i s k M a n a g e m e n t

11.1 Plan Risk Management

Inputs : Project Management Plan Project Charter Stake Holder Register Enterprise Environmental Factors Organizational Process Assets

Tools and Techniques : Analytical Techniques Expert Judgment Meetings

Outputs : Risk Management Plan

Lecture 11 : Pro ject R isk Management (3 /31) 01. P lan R isk Management


O Risk Management Plan:• Methodology: Approaches, tools, and data sources that will be used• Roles & responsibilities: Who will do what


Team member Name Role Responsibilities

Ahmed Arafa Risk Manager

1. Develop the risk management plan 2. Manage the risk management team. 3. Follow up that risk management activities are being done

with the valid manner in the right time. 4. Monitor contingency reserve and maintain the sufficiency

of monetary in reserve fund. 5. Report on risk management activities.

Ayman Nagy Risk

Software Admin

1. Administrate the risk management program. 2. Maintain and monitor the privilege of users.

Wael Samy Risk Engineer

1. Share in the identification of risks. 2. Develop the qualitative and quantitative analysis.


O Risk Management Plan:• Budget: Estimated funds that will be needed• Timing: When and how often risk management processes will be done

• Definitions of risk probability and impacts: Define different levels of risk impact and probability. This will help standardize interpretations to be compared with other projects.


Activity2014 2015

Aug Sep Oct Nov Dec Jan Feb MarRisk Plan Risks Identification Risk Assessment Response Plan

Project Item Classification

Low Medium High

Time < 10% Delay 10-25% Delay > 25% Delay


O Risk Management Plan:• Risk Categories: Simple list or risk breakdown structure. Can be

categorized according to the following: Ex1: External – Internal EX2(Caused by): Customer – Supplier – Cultural Differences –

Resistance to Changes – Customer’s customers. EX3(Source): Schedule – Cost – Quality – Scope – Resources –

Customer satisfaction



O Risk Management Plan:

• Stakeholders Tolerances: This should be uncovered in project initiation • Reporting Formats: How risk management output will be analyzed and

documented.• Tracking: How risk activities will be recorded, tracked, and audited.



Lecture 11 : Pro ject R isk Management (8 /31) 02. Ident i fy R isks

P r o j e c t R i s k M a n a g e m e n t11.2 Identify Risks

Inputs : Risk Management Plan ■ Cost Management Plan Schedule Management Plan ■ Quality Management Plan Human Resource Management Plan ■ Scope Baseline Activity Cost Estimates ■ Activity Duration Estimates Stakeholder Register ■ Project Documents Procurement Documents Enterprise Environmental Factors Updates Organizational Process Assets Updates

Tools and Techniques : Documentation Reviews ■ Information Gathering

Techniques Checklist Analysis ■ Assumptions Analysis Diagramming Techniques ■ SWOT Analysis Expert Judgment

Outputs : Risk Register


TT Documentation ReviewIncluding charter, plans, assumptions, contracts, and other documents.The quality and consistency of plans is an indication for risks in the project

Lecture 11 : Pro ject R isk Management (9 /31) 02. Ident i fy R isks

TT Information Gathering Techniques:1. Brainstorming: Ideas are generated to obtain a comprehensive list of risks.2. Delphi Technique: Experts participate anonymously till consensus.3. Interviewing4. Root Cause Analysis: Identify issue, determine causes, preventive action


Lecture 11 : Pro ject R isk Management (10/31) 02. Ident i fy R isks

TT Checklist AnalysisDeveloped based on historical information from past projects.The lowest level of RBS can be used as a checklist.



TT Diagramming Techniques:1. Fishbone: Identifying causes will identify new risks.2. System process flow charts: Shows how problem have occurred3. Influence Diagrams: Shows causal influence with time order and relations.

TT Assumptions AnalysisWhether the assumptions are valid, inaccurate, incomplete, inconsistent.

Influence Diagram



TT SWOT AnalysisS= Strength W= WeaknessO= Opportunities T= ThreatsIdentify opportunities that are result of organization strength as well as threats that are result of organization weakness

Strengths Recently, the company acquired a furniture

manufacturing company. Steel bars price is expected to decrease in this

season.

Weaknesses The company experience in marine work is very

weak. Agent in China for custom relationships is about to

bankrupt.

Opportunities Convince the project client to furnish the project

after building. Buy total quantity of steel bars in this season

Threats Slippage of time schedule because of marine work. Supplies that will be imported from Chaina may

delay.



O Risk Register:• Document the following information of identified risks:

Description, risk owner, risk category, root cause, impact on project objectives, probability of occurring, proposed responses, and current status.

• Risk register will be updated through each process of risk management.• At this point, it contains list of risks, list of potential responses, root

causes of risks, and risk categories.

ID Risk Description Root cause Proposed response

1 Lack of labors Booming in economy Increase benefits in

addition to best salary in industry

2 Delay in marine work package

Weak experience in marine work

Award marine work to a qualified subcontractor

3

4


Lecture 11 : Pro ject R isk Management (14/31) 03. Perform Qual i tat ive R isk Analys is

P r o j e c t R i s k M a n a g e m e n t11.3 Perform Qualitative risk Analysis

Inputs : Risk Management Plan Scope Baseline Risk Register Enterprise Environmental Factors Organizational Process Assets

Tools and Techniques : Risk Probability and Impact Assessment Probability and Impact Matrix Risk Data Quality Assessment Risk Categorization Risk Urgency Assessment Expert Judgment

Outputs : Project Documents Updates



TT Risk Probability and Impact Assessment:• Probability and impact are assessed for each identified risk through

meetings and interviews with stakeholders who are familiar with risk categories.

TT Probability and Impact Matrix:• A table specifies combinations of probability

and impact that lead to rate the risks as low, moderate, or high priority.

• This helps finding risks need immediate response, risks need additional analysis, and risks need to be put on the watchlist.

TT Risk Data Quality Assessment:• Before using any data , you should check that it’s accurate and integrated.



TT Risk Categorization:• Risks are grouped by sources of risk (ex: project phase, WBS, people, ..etc)• This will let you know the causes that have the most risk associated

TT Risk Urgency Assessment:• This will be applied to risks that move more quickly than others• Urgent risks may move independently to risk response planning while the

others continue through quantitative risk analysis

O Update Risk Register• Prioritized risks and their probability & impact ratings.• Risks need additional analysis• Watchlist: Non-critical risks• Note: Risk Register may be used to compare risks to other projects, and to

determine whether to continue or terminate project• Also, assumptions log will be updated through this process.


Lecture 11 : Pro ject R isk Management (17/31) 04. Perform Quant i tat ive R isk Ana lys is


11.4 Perform Quantitative Risk Analysis

Inputs : Risk Management Plan Cost Management Plan Schedule Management Plan Risk Register Enterprise Environmental Factors Organizational Process Assets

Tools and Techniques : Data Gathering and Representation Techniques Quantitative Risk Analysis and Modeling Techniques Expert Judgment

Outputs : Project Documents Updates



Purpose:• Determine which risks need response• Determine overall project risk (Risk Exposure)• Quantified probability of meeting project objectives

Ex: We have probability of 80% to finish project in the required six months• Determine cost reserve and schedule reserve

Qualitative Vs. Quantitative AnalysisQualitative Analysis Quantitative analysis

Subjective evaluation شخصي تقدير Objective and numerical موضوعي وعددي

Example of result : High risk Example of result : Impact = $ 5000

Required for all risks Not required for all risks

- May be called Risk Assessment



Probability Distribution:• Quantitative analysis utilizes computer software to model probability

distribution. • This can be depicted graphically using continuous or discrete distribution.

Continuous Probability Distribution Discrete Probability distribution

Show Uncertainties in values Show Uncertainties in Events Values are infinitely divisible Values are whole numbers Uses 3 point estimates Looks like bar chart Typically used for time/cost simulation Used for decision tree scenarios, prototypes, or tests



TT Quantitative risk analysis and modeling techniques:1. Modeling and Simulation2. Expected Monetary Value (EMV)3. Sensitivity Analysis

1- Modeling and Simulation:• Performed using Monte Carlo technique• Calculating project data many times using network diagram and estimates

to assess cost and schedule impacts• Evaluate overall risk of the project• Provide probability of completing project on specific time / specific cost• Provide probability of any activity being on critical path• Translate uncertainties into impacts to the total project• Results in probability distribution



2- Expected Monetary Value :• EMV = P x I where P=Probability and I=Impact



2- Expected Monetary Value :



3- Sensitivity Analysis:• Helps to determine which risk have the most impact on the project• It examines the extent to which uncertainty affects objective being studied• Tornado diagram is a typical display of sensitivity analysis

BaseUnits Labor Cost Material Cost Total Cost Result

250 Units $ 30 $ 50 $ 20’000 - -

Quantity Change

Scenario (1-1)Increase 50 Units

300 Units $ 30 $ 50 $24’000 + 20 % Lower Limit

Scenario (1-2)Decrease 30 Units

220 Units $ 30 $ 50 $ 17’600 - 12 % Upper Limit

Labor Cost Change

Scenario (2-1)Labor cost $ 40

250 Units $ 40 $ 50 $ 22’500 +12.5 % Lower Limit

Scenario (2-2)Labor cost $ 25

250 Units $ 25 $ 50 $ 18’750 - 6.25 % Upper Limit



O Update Risk Register• Risk accommodation: Amount of contingency time/cost reserve needed• Probability of achieving project cost and time objectives

Ex: 80% to complete on project time, or 70% to complete within budget• Completion date/cost with confidence level

Ex: 70% confidence to finish on May 17th

• Prioritized list of quantified risks

ID

Risk Description Root cause Proposed response Ranking

(Priority) Category Additional Analysis

Urgency

Watchlist

1 Lack of labors Booming in economy

Increase benefits in addition to best salary in

industryMedium Resources Not required Yes No

2Delay in

marine work package

Weak experience in marine work

Award marine work to a qualified subcontractor High Schedule Required No No

3

4


Lecture 11 : Pro ject R isk Management (25/31) 05. P lan R isk Responses


11.5 Plan Risk Responses

Inputs : Risk Management Plan Risk Register

Tools and Techniques : Strategies for Negative Risks or Threats Strategies for Positive Risks or Opportunities Contingent Response Strategies Expert Judgment

Outputs : Project Management Plan Updates Project Documents Updates



Identify Risks

Qualitative analysis

Quantitative Analysis

Minor Risks

Plan Response(Contingency Plan)

Watch ListAcceptanceMitigation

Residual Risks

OK Secondary Risks

Positive(Reserve)

NegativeNo Reserve



Definitions:• Risk Trigger: A sign which provides warning that risk is about to occur

• Contingency Plan: Planned response to be performed when trigger happened

• Fallback Plan: Plan to be used when planned response prove ineffective

• Residual Risk: Risk remains after acceptance

• Secondary Risk: A direct result of implementing a risk response

• Workaround: Unplanned response developed to deal with occurrence of

unanticipated risk events.

• Contingency Reserve: Funds or time allocated by PM for known-unknowns

• Management Reserve: Funds or time allocated by top management for

unknown-unknowns .



TT Strategies For Threats1. Avoid: Eliminate cause. Ex: Removing work package2. Mitigate: Reduce probability or impact. Ex: Choose better supplier3. Transfer: Make another party in responsibility. Ex: Contract and insurance.4. Accept: This could be positive or negative acceptance

• Negative Acceptance : Just document the risk• Positive Acceptance: Allocate reserve for the risk (Money / Time)

TT Strategies For Opportunities1. Exploit: Ensure opportunity happen. Ex: Use experienced PM to finish early2. Enhance: Increase Probability / Impact. Ex: Select reliable vendor3. Share: Allocate ownership of opportunity to a third party. Ex: Joint Venture4. Accept: Willing to take opportunity if it comes but not pursuing it عى�ال تس

لهاNote for Questions: When trigger occurred, implement response plan


Lecture 11 : Pro ject R isk Management (29/31) 06. Contro l R isks

P r o j e c t R i s k M a n a g e m e n t11.6 Control Risks

Inputs : Project Management Plan ■ Risk Register Work Performance Data ■ Work Performance Reports

Tools and Techniques : Risk Reassessment Risk Audits Variance and Trend Analysis Technical Performance Measurement Reserve Analysis Meetings

Outputs : Work Performance Information Change Requests Project Management Plan Updates Project Documents Updates Organizational Process Assets Updates



TT

Monitor & Control Risk• Look for occurrence of risk triggers• Monitor residual risks• Evaluate effectiveness of risk management plan• Collect / communicate risk status• Determine if assumptions still valid• Recommend corrective actions• Use contingency reserves

Risk ReassessmentPeriodically review risk management plan and risk register and adjust them

as required . Also, close risks that are outdated.

TT Risk AuditAuditors will ask you to prove that you have identified all the risks, you have

plans for each major risk, and risk owner is prepared to take action.



TT Variance and Trend AnalysisVariance may indicate Impact of threats and opportunities

TT Technical Performance MeasurementEx: Weight, capacity, or no. of defects. Calculating deviation will make you

able to forecast a success degree in achieving scope.

TT Reserve Analysis• compare amount of reserves remaining to amount of risk remaining• Note that contingency reserve may only used to handle impact of risk that

it was set aside for. If risk didn’t occur, reserve returned to the company• Asking for addition reserve indicates that PM has not properly planned

Education

PMP Preparation - 11 Risk Management