Information Technology Project
Management, Eighth Edition
Note: See the text itself for full citations.
Understand risk and the importance of good project risk
management
Discuss the elements of planning risk management and
the contents of a risk management plan
List common sources of risks on information technology
(IT) projects
Describe the process of identifying risks and create a
risk register
Discuss qualitative risk analysis and explain how to
calculate risk factors, create probability/impact matrixes,
and apply the Top Ten Risk Item Tracking technique to
rank risks
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Management, Eighth Edition Copyright 2016 2
Explain quantitative risk analysis and how to apply
decision trees, simulation, and sensitivity analysis to
quantify risks
Provide examples of using different risk response
planning strategies to address both negative and
positive risks
Discuss how to control risks
Describe how software can assist in project risk
management
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Management, Eighth Edition Copyright 2016 3
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
Purpose: help improve project success by:
◦ selecting good projects
◦ determining project scope
◦ developing realistic estimates
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Management, Eighth Edition Copyright 2016 5
Negative risk involves understanding
potential problems that might occur in the
project and how they might impede project
success
Example:
◦ Schedule Delays:
• Cause: Unanticipated resource shortages.
• Impact: Extended timelines leading to missed
deadlines.
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Management, Eighth Edition Copyright 2016 11
Positive risks are risks that result in good
things happening; sometimes called
opportunities
A 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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Management, Eighth Edition Copyright 2016 12
Example:
◦ Cost Savings:
• Cause: A vendor offers a discount, or materials
cost less than estimated.
• Impact: Project costs are reduced, freeing up
the budget for other purposes.
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Management, Eighth Edition Copyright 2016 13
Planning risk management : Deciding how to
approach and plan the risk management activities for
the project
Identifying risks: Determining which risks are likely
to affect a project and documenting the
characteristics of each
Performing qualitative risk analysis: Prioritizing
risks based on their probability and impact of
occurrence
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Management, Eighth Edition Copyright 2016 17
Performing quantitative risk analysis:
Numerically estimating the effects of risks on project
objectives
Planning risk responses: Taking steps to enhance
opportunities and reduce threats to meeting project
objectives
Controlling risk: Monitoring identified and residual
risks, identifying new risks, carrying out risk
response plans, and evaluating the effectiveness of
risk strategies throughout the life of the project
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Management, Eighth Edition Copyright 2016 18
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Management, Eighth Edition Copyright 2016 19
The main output of this process is a risk
management plan—a plan that documents the
procedures for managing risk throughout a
project
The level of detail will vary with the needs of the
project
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Management, Eighth Edition Copyright 2016 21
Methodology
Roles and responsibilities
Budget and schedule
Risk categories
Risk probability and impact
Revised stakeholders’ tolerances
Tracking
Risk documentation
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Management, Eighth Edition Copyright 2016 22
Several studies show that IT projects share some
common sources of risk
The Standish Group developed an IT success
potential scoring sheet based on potential risks
Other broad categories of risk help identify potential
risks
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Management, Eighth Edition Copyright 2016 24
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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Management, Eighth Edition Copyright 2016 25
Market risk
Financial risk
Technology risk
People risk
Structure/process risk
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Management, Eighth Edition Copyright 2016 26
A risk breakdown structure is a hierarchy of
potential risk categories for a project
Similar to a work breakdown structure (WBS)
but used to identify and categorize risks
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Management, Eighth Edition Copyright 2016 28
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Management, Eighth Edition Copyright 2016 30
Identifying risks is the process of understanding
what potential events might hurt or enhance a
particular project
tools and techniques include:
◦ Brainstorming
◦ The Delphi Technique
◦ Interviewing
◦ SWOT analysis
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Management, Eighth Edition Copyright 2016 32
Brainstorming is an oral technique by which a
group attempts to generate ideas or find a solution
for a specific problem by amassing ideas
spontaneously and without judgment
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Management, Eighth Edition Copyright 2016 34
The Delphi Technique is used to derive a
consensus among a panel of experts who make
predictions about future developments
Provides independent and anonymous input
regarding future events
Uses repeated rounds of questioning and written
responses and avoids the biasing effects possible
in oral methods, such as brainstorming
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Management, Eighth Edition Copyright 2016 35
Interviewing is a fact-finding technique for
collecting information in face-to-face, phone, e-
mail, or instant-messaging discussions
Interviewing people with similar project experience
is an important tool for identifying potential risks
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Management, Eighth Edition Copyright 2016 36
SWOT analysis (strengths, weaknesses,
opportunities, and threats) can also be used
during risk identification
Helps identify the broad negative and positive
risks that apply to a project
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Management, Eighth Edition Copyright 2016 37
The main output of the risk identification process is a list
of identified risks and other information needed to begin
creating a risk register
A risk register is:
◦ A document that contains the results of various risk
management processes and that is often displayed in a
table or spreadsheet format
◦ A tool for documenting potential risk events and related
information
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Management, Eighth Edition Copyright 2016 39
An identification number for each risk event
A rank for each risk event
The name of each risk event
A description of each risk event
The category under which each risk event falls
The root cause of each risk
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Management, Eighth Edition Copyright 2016 40
Triggers for each risk; triggers are indicators or
symptoms of actual risk events
Potential responses to each risk
The risk owner or person who will own or take
responsibility for each risk
The probability and impact of each risk occurring.
The status of each risk
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Management, Eighth Edition Copyright 2016 41
• No.: R44
• Rank: 1
• Risk: New customer
• Description: We have never done a project for this organization
before and don’t know too much about them. One of our company’s
strengths is building good customer relationships, which often leads
to further projects with that customer. We might have trouble working
with this customer because they are new to us.
• Category: People risk
• Etc.
42
Information Technology Project Management, Eighth Edition
Assess the likelihood and impact of identified
risks to determine their magnitude and priority
Risk quantification tools and techniques
include:
◦ Probability/impact matrixes
◦ The Top Ten Risk Item Tracking
◦ Expert judgment
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Management, Eighth Edition Copyright 2016 43
A probability/impact matrix or chart lists the
relative probability of a risk occurring on one side of
a matrix or axis on a chart and the relative impact of
the risk occurring on the other
List the risks and then label each one as high,
medium, or low in terms of its probability of
occurrence and its impact if it did occur
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Management, Eighth Edition Copyright 2016 45
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Management, Eighth Edition Copyright 2016 46
Top Ten Risk Item Tracking is a qualitative risk
analysis tool that helps to identify risks and
maintain an awareness of risks throughout the life
of a project
Establish a periodic review of the top ten project
risk items
List the current ranking, previous ranking, number
of times the risk appears on the list over a period
of time, and a summary of progress made in
resolving the risk item
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Management, Eighth Edition Copyright 2016 48
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Management, Eighth Edition Copyright 2016 49
Often follows qualitative risk analysis, but both can
be done together
Large, complex projects involving leading edge
technologies often require extensive quantitative
risk analysis
Main techniques include:
◦ Decision tree analysis
◦ Simulation
◦ Sensitivity analysis
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Management, Eighth Edition Copyright 2016 52
A decision tree is a diagramming analysis
technique used to help select the best course of
action in situations in which future outcomes are
uncertain
Estimated monetary value (EMV) is the product of
a risk event probability and the risk event’s
monetary value
You can draw a decision tree to help find the EMV
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Management, Eighth Edition Copyright 2016 53
Because the EMV provides an estimate for the total dollar value of a decision,
you want to have a positive number; the higher the EMV, the better.
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Management, Eighth Edition Copyright 2016 54
Simulation uses a representation or model of a
system to analyze the expected behavior or
performance of the system
Monte Carlo analysis simulate the possible
outcomes of uncertain events
the most common applications of Monte Carlo
analysis is analyzing risks related to cost and
schedule.
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Management, Eighth Edition Copyright 2016 56
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Management, Eighth Edition Copyright 2016 58
Sensitivity analysis is a technique used to show the
effects of changing one or more variables on an
outcome
For example, many people use it to determine what
the monthly payments for a loan will be given
different interest rates or periods of the loan, or for
determining break-even points based on different
assumptions
Spreadsheet software, such as Excel, is a common
tool for performing sensitivity analysis
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Management, Eighth Edition Copyright 2016 60
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Management, Eighth Edition Copyright 2016 61
After identifying and quantifying risks, you must
decide how to respond to them
Four main response strategies for negative risks:
◦ Risk avoidance
◦ Risk acceptance
◦ Risk transference
◦ Risk mitigation
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Management, Eighth Edition Copyright 2016 62
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Management, Eighth Edition Copyright 2016 63
Risk exploitation
Risk sharing
Risk enhancement
Risk acceptance
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Management, Eighth Edition Copyright 2016 64
Involves executing the risk management process to
respond to risk events and ensuring that risk
awareness is an ongoing activity performed by the
entire project team throughout the entire project
Workarounds are unplanned responses to risk events
that must be done when there are no contingency plans
Main outputs of risk control are:
◦ Work performance information
◦ change requests
◦ updates to the project management plan, other project
documents, and organizational process assets
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Management, Eighth Edition Copyright 2016 66
Risk registers can be created in a simple Word or
Excel file or as part of a database
More sophisticated risk management software, such
as Monte Carlo simulation tools, help in analyzing
project risks
You can purchase add-ons for Excel and Project
2013 to perform simulations
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Management, Eighth Edition Copyright 2016 67
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
Main processes include:
◦ Plan risk management
◦ Identify risks
◦ Perform qualitative risk analysis
◦ Perform quantitative risk analysis
◦ Plan risk responses
◦ Control risks
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Management, Eighth Edition Copyright 2016 69