PMP Lecture 8

7/25/2019 PMP Lecture 8

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AUC TechnologiesConsulting | Development | Mentoring | Training

Project Management With PMP Exam Preparation


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Agenda

Plan Risk Management

Identify Risk

Perform Qualitative Risk Analysis

Perform Quantitative Risk Analysis

Plan Risk Response


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Project Risk Management

Project risk management is the art and science of identifying,

analyzing, and responding to risk throughout the life of a project

and in the best interests of meeting project objectives

Risk management is often overlooked on projects, but it can

help improve project success by helping select good projects,

determining project scope, and developing realistic estimates


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Why Take Risks? Because of Opportunities!

OpportunitiesRisks

Try to balance risks and opportunities


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Negative Risk

A dictionary definition of risk is the possibility of loss or injury

Negative risk involves understanding potential problems that

might occur on the project and how they might impede project

success

Negative risk management is like a form of insurance; it is an

investment


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Risk Can Be Positive

Positive risks are risks that result in good things happening;

sometimes called opportunities

A more general definition of project risk is an uncertainty that

can have a negative or positive effect on meeting project

objectives

The goal of project risk management is to minimize potential

negative risks while maximizing potential positive risks


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Risk Utility Risk Tolerance

Risk toleranceaddresses the level of risk a project manager

or key stakeholder is willing to take when money at stake is

compared to the potential payoff. Its measured in terms of

the amount of satisfaction or pleasure the individual

receives from a payoff.


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Risk Utility Risk Tolerance- Classifications

Classification Description

Risk-averter Not likely to take a risk that is considered a

high risk.

Risk-seeker Prefers an uncertain outcome and may be

willing to pay a penalty to take a high risk.

Risk-neutral Tolerance to risk is proportional to the

amount of money at stake.


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A plan that documents the procedures for managing risk

throughout a project

The project team should review project documents and

understand the organizations and the sponsors approach to

risk

The level of detail will vary with the needs of the project

Descr ib ing how to approach, plan, and execu te the risk

management act iv i t ies for a pro ject


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1. Enterprise

Environmental

Factor

2. Organizational

Process Asset

3. Scope statement

4. Project Mgmt Plan

1. Planning Meeting

and analysis

1. Risk ManagementPlan

Input

Output

Tools


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Risk Management Plan Components

Component Description

Methodology Defines the tools, approaches, and data

sources that may be used to perform risk

management on the project.

Budgeting A budget for project risk management

should be established and included in

the risk management plan.

Role & Defines the lead, support, and riskResponsibility management team membership for

each type of action in the risk

management plan.


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Risk Management Plan Components

Component Description

Timing Defines how often the risk management

activities will be performed throughout

the project life cycle.

Risk categories Documentation such as risk breakdown

structures (RBSes) or categories from

previous projects will help identify and

organize risks.

Definitions of risk Risks and their probabilities are

probability & impact defined for use in

Qalitative Risk Analysis using a scale of very Unlikely to almost

certain.


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Risk Breakdown Structure

A risk breakdown structure (RBS) organizes potential

sources of risk to the project. Functioning much like a work

breakdown structure, an RBS arranges categories into a

hierarchy. This approach allows the project team to define

risk at very detailed levels.


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Risk Breakdown Structure Template

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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Identify Risk

Risk identification is the process to figure out every

possible risk that might affect your project.

Its not about how unlikely the risk is, or how bad the

impact would beit will be figure out later process

Determ in ing wh ich r isks m ight af fect the pro ject and

document ing their character is t ics


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1. Risk management plan

2. Activity cost estimates

3. Activity duration

estimates

4. Scope baseline

5. Stakeholder register6. Cost management

plan

7. Schedule management

plan

8. Quality management

plan

9. Project documents

10. Enterprise

environmental factors

11. Organizational

process assets

1. Documentati

on reviews

2. Informationgathering

techniques

3. Checklist

analysis

4. Diagramming

techniques5. SWOT

analysis

6. Expert

judgment

Input

Tools

1. Risk register

updates

Output

Identify Risk


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Identify Risk - Inputs

1.Enterprise Environmental Factors

Published Information

Commercial databases

Academic studies

Benchmarking and other Industry studies

2.Organizational Process Assets

Historical experiences


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Identify Risk Identification - Inputs

3.Project Scope Statement

Uncertainty in project assumptions

4.Risk Management Plan

Assignment of roles and responsibilities

Provision for Risk Management activities in Schedule and

Budget

Categorizing Risks5.Project Management Plan


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Identify Risk Tools & Techniques

1.Documentation Reviews

Performing structured reviews of Project artifacts

2.Information Gathering Techniques

Brainstorming

Delphi Technique

Interviewing

Root Cause Identification

SWOT Analysis


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Identify Risk Tools & Techniques

Checklist Analysis

Developing Risk identification checklist based on historical

precedence's

Assumptions Analysis

Diagramming Techniques

Cause-and-effect diagram

System or process flow charts

Influence diagrams


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Identify Risk - Output Risk Register

The output of the risk identification process is risk register

is a document that contains results of various risk

management processes, often displayed in a table or

spreadsheet format

is a tool for documenting potential risk events and related

information

Risk events refer to specific, uncertain events that may occur

to the detriment or enhancement of the project


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Sample Risk Register

Identified Risks Potential

Responses

Root Causes

Each risk that you

and team come upshould go here

Your Risk

Identificationmeetings should

always include a

discussion of how

to respond to the

risk

This is where the

result of rootcause analysis

lists


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Some risks will cause a whole lot of damage to your project

if they happen, while others will barely make a scratch

and you care much more about the risks that will have a big

impact

Prior i t izing Risks for subs equent fu r ther analys is or act ion

by assessing and combin ing their probabi l i ty or occurrence

and impact


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1. Risk register

2. Risk management plan

3. Project scopestatement

4. Organizational process

assets

1. Risk probability

and impact

assessment2. Probability and

impact matrix

3. Risk data quality

assessment

4. Risk

categorization

5. Risk urgencyassessment

6. Expert judgment

Input

Tools

1. Risk registerupdates

Output



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Perform Qualitative Risk Analysis - Inputs

1.Organizational Process Assets

Data about risks on past projects

Lessons learned knowledge base

Project Scope Statement

Projects of common or recurring type

Projects using first-of-its-type technology


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Perform Qualitative Risk Analysis - Inputs

3.Risk Management Plan

Roles and responsibilities

Budget, and schedule activities for risk management

Risk Categories

Definition of probability and impact

Probability and impact matrix

Revised stakeholders tolerance

4.Risk Register


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Qualitative Analysis Tools & Techniques

1.Risk Probability and Impact Assessment

Risk assessment by interviews

Meetings with participants

2.Probability and Impact Matrix

Risk ratings

Classification of risks as high, moderate and low

Risk Score Card


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Qualitative Analysis Tools & Techniques

3.Risk data Quality Assessment

Accuracy

Quality

Integrity of data about risk

4.Risk categorization

By sources of risk

By area of project affected

5.Risk Urgency Assessment


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Probability/Impact Matrix Template


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Probability/Impact Matrix Template

Risk Score for a Specific Risk Chart Threshold Limits

Probability Risk Score = P x I Moderate High

0.9 0.05 0.09 0.18 0.36 0.72 0.05 0.18

0.7 0.04 0.07 0.14 0.28 0.56

Set Chart Threshold Limitshere by

changing Moderateand Highlimits

to desired values.

0.5 0.03 0.05 0.10 0.20 0.40

0.3 0.02 0.03 0.06 0.12 0.24

0.1 0.01 0.01 0.02 0.04 0.08

0.05 0.10 0.20 0.40 0.80

Impact on an Objective (e.g., cost, time, or

scope)(Ratio Scale)


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Qualitative Risk Analysis - Output

Identified

Risks

PotentialResponses

RootCauses

Category Priority Urgency

Each

risk

that

you

and

team

comeup

should

go

here

Your Risk

Identificati

on

meetings

should

always

include adiscussio

n of how

to

respond

to the risk

This is

where

the

result

of root

cause

analysis lists

Source

of Risk

Project

Phase

How

Import

ant a

risk is.

When you

Need to deal

with it


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Risk Register Assignment

Create a Risk Register of given Case Study use qualitative

risk analysis tools and list the items


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Quantitative Risk Analysis

Often follows qualitative risk analysis, but both can be done

together or separately

Large, complex project involving leading edge technologies

often require extensive quantitative risk analysis

Numerical ly assignin g the effect on overal l pro ject object ive

of ident i f ied r isks


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1. Risk register

2. Risk management

plan

3. Cost managementplan

4. Schedule

management plan

5. Organizational

process assets

1. Data

gathering andrepresentatio

n techniques

2. Quantitative

risk analysis

and modeling

techniques

3. Expertjudgment

Input

Tools

1. Risk register

updates

Output

Perform Quantitative Risk Analysis


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Quantitative Risk Analysis - Inputs

Organizational Process Asset

Information on similar risk in other projects, Risk

database and study of similar risk by specialist

Project Scope Statement

Initial Risk identification

Risk Management Plan

Roles and Responsibilities, risk categories, revised

stakeholders


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Quantitative Risk Analysis - Inputs

Risk Register

List of identified risks, Risk ranking and Risk

Categorization

Project Management Plan Project Schedule Mgt Plan

Controls Project schedule

Project Cost Mgt Plan

Controls Project budget


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Quantitative Risk AnalysisTools & Techniques

Data gathering and representation

Interviewing: Taking subjective probability and representing

that data objectively.

Probability distributions: Visually represents risk probability.

Expert judgment: Utilizes subject matter experts to validate

a particular risk.


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Quantitative Risk AnalysisTools & Techniques

Quantitative risk analysis and modeling

Sensitivity analysis: Examines how the uncertainty of a project

element affects the objective in question if the other uncertain

elements remain unchanged.

Expected monetary value analysis: Calculates the average

outcome under uncertainty.

Decision tree analysis: Evaluates possible outcomes to help the

decision-maker select the decision that provides the greatest

expected value.

Modeling and simulation: Includes cost risk analysis, which is

most commonly performed using the Monte Carlo method.


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Decision Trees and Expected Monetary Value

Decision tree is a diagramming analysis technique used to

help select the best course of action in situations in which

future outcomes are uncertain

Expected monetary value (EMV) analysisis a method of

calculating the average outcome when the future is uncertain.

(Opportunities will have positive values and risks will have

negative values.)

You can draw a decision tree to help find the EMV


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Expected Monetary Value (EMV) Example


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Decision Tree Example

90%

60%

100,000 PKR

Airline A Fare

10,000PKR

Airline B Fare

8000PKR

100,000 PKR

PIA 10000 + (90% * 0=0) + (100,000 *

10%=10000)=20,000

Air

Blue

8000 + (60% * 0=0) + (100,000 *

40%=40,000)=48,000


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Plan Risk Response

After identifying and quantifying risk, you must decide how to

respond to them

How to approach and conduct Risk Response Planning

Prepare Risk response Plan

Developing opt ions and act ions to enhance oppo rtuni t ies,

and to reduce threats to project object ives


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1. Risk register

2. Risk management

plan

1. Strategies

for negative

risks orthreats

2. Strategies

for positive

risks or

opportunities

3. Contingentresponse

Strategies

4. Expert

judgment

Input

Tools1. Risk Register

updates

2. Risk-related

contractdecisions

3. Project

management

plan updates

4. Project

document

updates

Output

Plan Risk Response


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Response Strategies for Negative Risks

Risk Avoidance Eliminate the threat by eliminating the cause

Risk Mitigation

Reduce the probability or the impact of a threat

Risk Transference

Make another party responsible for the risk throughpurchasing of insurance, performance bonds,

warranties, guaranteed or outsourcing the work


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Response Strategies for Positive Risks

Risk exploitation (the reverse of avoid) Add work or change the project to make sure the

opportunity occurs

Risk sharing

Allocate ownership of the opportunity to a third party

( forming a partnership, team or joint venture)

Risk enhancement (the reverse of mitigate)

Increase the likelihood, probability and positive impactsof the risk event


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Questions

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