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A risk is an uncertain event that could have a positive or negative effect on your
project
* This means there is a probability between 1-99% that the event could occur
Risks with positive consequences are called opportunities (Yes, risk can be
good! Stop thinking of risk as bad, and start thinking of it in terms of
probabilities!)
Types of Risk
Risk Planning this is how you plan on conducting risk management. You
wouldnt start managing your project without a plan, so why would you
approach risk management that way?
* Remember Plan the work, and work the plan? Applies to risk
management as well.
Identify Risks this is the phase where you attempt to identify most of
your risks
Plan Risk Response a course of action you will take to deal with your risks
should they go from risk to issue
Monitor & Control Risks monitoring your lists (there are two lists which I
will discuss later) of risks to enact a risk response plan, to move a risk from
one list to the other, or to remove a risk because it is no longer a risk
Risk Management Planning
Before you start dealing with risks, you should first plan on how you will handle risk on
your project
The risk tolerance of your project sponsors and stakeholders In order to gain buy-
in, you need to create a plan your sponsors can support. It is not likely they will
support a plan that is in opposition to their agenda or is out of their comfort zone
The size and value of your project there is a cost to risk management, you
shouldnt spend more on preventing the risk than the cost of the risk occurring
The methodology you will use the methodology you use is not as important as
gaining agreement and buy-in on the methodology chosen
Sources of risk risk categories; think of all possible areas or events that could
introduce risk to your project
Plan Risk Management
Project scope statement statement of what the project shall deliver and
what it should not deliver (if you dont know what the scope of your project
is, can you really identify all areas of risk?)
Project management plan the guide on how you will manage your project
Plan Risk Management
Cost Management Plan The guide on how you and your team will control
costs on the project to try to stay within budget
Schedule Management Plan The guide on how you and your team will
manage the schedule of the project
This is the phase where you work with your team to identify as many risks as
possible
Things to remember
Identify Risks cant be completed without the project scope statement and
Work Breakdown Structure (WBS)
Identify Risks happens at the onset of the project and throughout the
project
Risks can be identified at any time and during any phase of the project
Brainstorming - the free-flow of ideas on risk, done with the project team,
stakeholders, subject matter experts, and experienced resources
Root Cause Analysis Determining the cause of the risk; you might be able
to identify more risks this way or you might be able to eliminate the risk by
eliminating the cause
When analyzing your risk, you should be aware of the following risk factors
Risk Register
- List of risks
- List of potential responses
- Root causes of risks
- Updated risk categories
Perform Qualitative Risk Analysis
This is the phase where you rank the risks youve identified from Identify Risks
to come up with a list of risks you will create plans for dealing with
Things to remember
What is the probability of the risk occurring? High, medium, low? 1-10?
What is the impact if the risk does occur? High, medium, low? 1-10? What
is the financial impact, are the consequences positive or negative?
* the earlier you know about risk, the better prepared you will
be
Perform Qualitative Risk Analysis
Risk Data Quality Assessment What is the quality of the data used to
determine or assess the risk? Think about the following
Extent of the understanding of the risk
Data available about the risk
Quality of the data
Reliability & Integrity of the data
Perform Qualitative Risk Analysis
Risk Categorization Which of your categories has more risk than others?
Which of your work packages could be most affected by risk?
Risk Urgency Assessment Which of your risks could occur soon, or require
a longer planning time? Risk urgency assessment helps move these risks
more quickly through the rest of the project management process
Perform Qualitative Risk Analysis can help you determine the following
* You have two projects available and you can only complete one of them,
both projects are projected to have the same benefit, but the qualitative
risk score for one of the projects is higher than the other, would you want
to know this before you decided which project you would work on?
Perform Quantitative Risk Analysis
This is the phase of risk management where you conduct a numerical analysis
of the probability and impact of the risks with the highest risk rating score
determined from qualitative analysis
Things to remember
Things to remember
Sensitivity Analysis Which risks will have the most impact on the project?
EMV Expected Monetary Value What is the probability of the risk occurring
multiplied by the impact if the risk does occur? If the risk occurs, what could the
financial or time loss be to your project?
In the example below, this project has an EMV of ($58,250), this means that you
need to put aside $58,250 in your risk reserve account for potential risks
Total $(58,250.00)
Perform Quantitative Risk Analysis
Decision Tree used for planning on individual risks instead of planning for
the whole project
Takes into account future events to make a decision today
Can calculate the EMV in more complex situations
Involves mutual exclusivity
Perform Quantitative Risk Analysis
Cost/Unit $27.50
Defects/10,000 units= 20
Setup Cost $200,000
Make or
Buy?
Setup Cost $0
Defects/10,000 units= 10
Cost/Unit $30
Perform Quantitative Risk Analysis
Decision Tree
Setup Cost Cost/Unit Units Needed Cost for Units Defects/Unit Defect Total Cost
Cost
Make $200,000 $27.50 500,000 $13,750,000 20/10,000 $1,375.00 $13,951,375
This is the phase of risk management where you decide how you will respond
to your most important risks
Threats
Avoid remove the cause of the risk so that it never materializes
Mitigate reduce the probability and or impact of the risk
Transfer transfer the risk to another party; usually done with insurance,
performance bonds, warranties, guarantees or outsourcing the work.
Opportunities
Exploit make sure the opportunity occurs, you can add work or make a
change to the project
Enhance increase the probability and or positive impact of the risk
Share share the opportunity with a third party to be able to take
advantage of the opportunity
Plan Risk Response
Passive acceptance preparing for the dealing with the effects of the
risk after the risk has occurred
Plan Risk Response
Secondary Risks new risks that result from the implementation of the
contingency plans for the primary risks
Plan Risk Response
Reserves
Contingency reserves - covers the cost for known unknowns
discovered during risk management; covers the residual risks. The
contingency reserve is calculated and made part of the baseline.
This is the phase of risk management where you monitor the risk list for risks
that have a higher probability of affecting your project, and the risk
watchlist for risks that could change and should either be added to the risk
list or removed from the watchlist
Things to Know
Risk audit a team of experienced project team members reviews the risk
management process and response strategies to see if youve effectively
identified the major risks on the project and developed effective strategies
for dealing with them
* the earlier you know about risk, the better prepared you will
be
Monitor and Control Risks
Things to Know
Reserve analysis has the reserve kept up with changes to the risk list?
Does the reserve still cover the costs of these risks should they occur?
Requested Changes
Recommended Corrective & Preventive Actions
Updates to the Project Management Plan
Organizational Process Assets Updates
Project Risk Management Review
Inputs
1. Project Scope Statement
2. Cost Management Plan
3. Schedule Management Plan
4. Communications Management Plan
5. Enterprise Environmental Factors
6. Organizational Process Assets
Output
1. Risk Management Plan
Project Risk Management Review
Identify Risks
Inputs
1. Risk Management Plan
2. Activity Cost Estimates
3. Activity Duration Estimates
4. Scope Baseline
5. Stakeholder Register
6. Cost Management Plan
7. Schedule Management Plan
8. Quality Management Plan
9. Project Documents
10.Enterprise Environmental Factors
11.Organizational Process Assets
Project Risk Management Review
Identify Risks
Outputs
1. Risk Register
Project Risk Management Review
Inputs
1. Risk Register
2. Risk Management Plan
3. Project Scope Statement
4. Organizational Process Assets
Outputs
1. Risk Register Updates
Project Risk Management Review
Inputs
1. Risk Register
2. Risk Management Plan
3. Cost Management Plan
4. Schedule Management Plan
5. Organizational Process Assets
Outputs
1. Risk Register Updates
Project Risk Management Review
Inputs
1. Risk Register
2. Risk Management Plan
Outputs
1. Risk Register Updates
2. Risk-Related Contract Decisions
3. Project Management Plan Updates
4. Project Document Updates
Project Risk Management Review
Inputs
1. Risk Register
2. Project Management Plan
3. Work Performance Information
4. Performance Reports
Outputs
1. Risk Register Updates
2. Organizational Process Assets Updates
3. Change Requests
4. Project Management Plan Updates
5. Project Document Updates
Project Risk Management
4. Hot Topics: Flashcards for Passing the PMP and CAPM Exams Rita
Mulcahy
Contact
Scott Reynolds
scottdreynolds@hotmail.com