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
Risk management is often overlooked in projects,
but it can help improve project success by helping
select good projects, determining project scope,
and developing realistic estimates
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Management, Eighth Edition Copyright 2016 4
Study by Ibbs and Kwak shows risk has the lowest
maturity rating of all knowledge areas
A similar survey was completed with software
development companies in Mauritius, South Africa
in 2003, and risk management also had the lowest
maturity
KLCI study shows the benefits of following good
software risk management practices
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Management, Eighth Edition Copyright 2016 5
KEY: 1 = LOWEST MATURITY RATING 5 = HIGHEST MATURITY RATING
Engineering/ Telecommunications Information Hi-Tech
Knowledge Area Construction Systems Manufacturing
Scope 3.52 3.45 3.25 3.37
Time 3.55 3.41 3.03 3.50
Cost 3.74 3.22 3.20 3.97
Quality 2.91 3.22 2.88 3.26
Human Resources 3.18 3.20 2.93 3.18
Communications 3.53 3.53 3.21 3.48
Risk 2.93 2.87 2.75 2.76
Procurement 3.33 3.01 2.91 3.33
*Ibbs, C. William and Young Hoon Kwak. “Assessing Project Management Maturity,”
Project Management Journal (March 2000).
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Management, Eighth Edition Copyright 2016 6
*Source: Kulik and Weber, KLCI Research Group
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Management, Eighth Edition Copyright 2016 7
Many people around the world suffered from financial
losses as various financial markets dropped in the fall of
2008, even after the $700 billion bailout bill was passed
by the U.S. Congress
According to a global survey of 316 financial services
executives, over 70 percent of respondents believed that
the losses stemming from the credit crisis were largely
due to failures to address risk management issues
Worldwide banking and insurance sectors will spend
about $78.6 billion on risk information technologies and
services in 2015, growing to $96.3 billion by 2018
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Management, Eighth Edition Copyright 2016 8
A dictionary definition of risk is “the
possibility of loss or injury”
Negative risk involves understanding
potential problems that might occur in 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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Management, Eighth Edition Copyright 2016 9
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 10
Some organizations make the mistake of only
addressing tactical and negative risks when
performing project risk management
David Hillson, ([Link]) suggests
overcoming this problem by widening the scope of
risk management to encompass both strategic
risks and upside opportunities, which he refers to
as integrated risk management
In a 2014 paper Hillson described the importance
of good working relationships, especially between
the project sponsor and project manager
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Management, Eighth Edition Copyright 2016 11
Risk utility or risk tolerance is the amount of
satisfaction or pleasure received from a potential
payoff
◦ Utility rises at a decreasing rate for people who are risk-
averse
◦ Those who are risk-seeking have a higher tolerance for
risk and their satisfaction increases when more payoff is
at stake
◦ The risk-neutral approach achieves a balance between
risk and payoff
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Management, Eighth Edition Copyright 2016 12
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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 14
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 15
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Management, Eighth Edition Copyright 2016 16
The main output of this process is a risk
management plan—a plan that documents the
procedures for managing risk throughout a
project
The project team should review project
documents and understand the organization’s
and the sponsor’s approaches to risk
The level of detail will vary with the needs of the
project
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Management, Eighth Edition Copyright 2016 17
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 18
Contingency plans are predefined actions that the project
team will take if an identified risk event occurs
Fallback plans are developed for risks that have a high
impact on meeting project objectives, and are put into effect
if attempts to reduce the risk are not effective
Contingency reserves or allowances are provisions held
by the project sponsor or organization to reduce the risk of
cost or schedule overruns to an acceptable level;
management reserves are funds held for unknown risks
that are NOT part of the cost baseline but ARE part of the
budget and funding requirements
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Management, Eighth Edition Copyright 2016 19
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 20
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 21
Market risk
Financial risk
Technology risk
People risk
Structure/process risk
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Management, Eighth Edition Copyright 2016 22
In a 2013 survey, risk management was a high
priority, but only 66 percent of companies said they
often build it into their strategy planning decisions
Airline incidents cause concerns, especially when
lives are lot. The 2015 Germanwings crash
resulted in 150 deaths, allegedly due to the co-
pilot’s poor mental state. They responded
immediately by implementing a rule that two
people must be in the cockpit at all times and are
considering changes to medical and
physchological tests for pilots
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Management, Eighth Edition Copyright 2016 23
A risk breakdown structure is a hierarchy of
potential risk categories for a project
Similar to a work breakdown structure but used to
identify and categorize risks
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Management, Eighth Edition Copyright 2016 24
25 Information Technology Project Management, Eighth Edition
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Management, Eighth Edition Copyright 2016 26
Identifying risks is the process of understanding
what potential events might hurt or enhance a
particular project
Another consideration is the likelihood of
advanced discovery
Risk identification tools and techniques include:
◦ Brainstorming
◦ The Delphi Technique
◦ Interviewing
◦ SWOT analysis
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Management, Eighth Edition Copyright 2016 27
Brainstorming is a technique by which a group
attempts to generate ideas or find a solution for a
specific problem by amassing ideas spontaneously
and without judgment
An experienced facilitator should run the
brainstorming session
Be careful not to overuse or misuse brainstorming.
◦ Psychology literature shows that individuals produce a
greater number of ideas working alone than they do
through brainstorming in small, face-to-face groups
◦ Group effects often inhibit idea generation
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Management, Eighth Edition Copyright 2016 28
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 29
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 30
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 31
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
Risk events refer to specific, uncertain events that may
occur to the detriment or enhancement of the project
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Management, Eighth Edition Copyright 2016 32
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 33
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 34
• 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.
35
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 36
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
Can also calculate risk factors:
◦ Numbers that represent the overall risk of specific events
based on their probability of occurring and the
consequences to the project if they do occur
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Management, Eighth Edition Copyright 2016 37
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Management, Eighth Edition Copyright 2016 38
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Management, Eighth Edition Copyright 2016 39
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 40
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Management, Eighth Edition Copyright 2016 41
A watch list is a list of risks that are low priority,
but are still identified as potential risks
Qualitative analysis can also identify risks that
should be evaluated on a quantitative basis
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Management, Eighth Edition Copyright 2016 42
The story of the Titanic is known throughout the
world, and on April 15, 2012, people
acknowledged the 100th anniversary of the
Titanic’s sinking
A recent article in PMI’s Virtual Library explains
how to avoid “the Titanic factor” in your projects by
analyzing the interdependence of risks
For example, the probability of one risk event
occurring might change if another one
materializes, and the response to one risk event
might affect another
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Management, Eighth Edition Copyright 2016 43
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 44
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 45
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Management, Eighth Edition Copyright 2016 46
Simulation uses a representation or model of a
system to analyze the expected behavior or
performance of the system
Monte Carlo analysis simulates a model’s
outcome many times to provide a statistical
distribution of the calculated results
To use a Monte Carlo simulation, you must have
three estimates (most likely, pessimistic, and
optimistic) plus an estimate of the likelihood of the
estimate being between the most likely and
optimistic values
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Management, Eighth Edition Copyright 2016 47
1. Assess the range for the variables being
considered
2. Determine the probability distribution of each
variable
3. For each variable, select a random value based on
the probability distribution
4. Run a deterministic analysis or one pass through
the model
5. Repeat steps 3 and 4 many times to obtain the
probability distribution of the model’s results
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Management, Eighth Edition Copyright 2016 48
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Management, Eighth Edition Copyright 2016 49
Excel is a common tool for performing quantitative
risk analysis
General Motors using simulation for forecasting its
net income, predicting structural costs and
purchasing costs of vehicles, and determining the
company’s susceptibility to different kinds of risk
Procter & Gamble uses it to model foreign
exchange risk
Simulation can also be used on agile projects
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Management, Eighth Edition Copyright 2016 50
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 51
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Management, Eighth Edition Copyright 2016 52
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 53
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Management, Eighth Edition Copyright 2016 54
Risk exploitation
Risk sharing
Risk enhancement
Risk acceptance
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Management, Eighth Edition Copyright 2016 55
It’s also important to identify residual and
secondary risks
Residual risks are risks that remain after all of
the response strategies have been implemented
Secondary risks are a direct result of
implementing a risk response
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Management, Eighth Edition Copyright 2016 56
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 57
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 58
Unlike crisis management, good project risk
management often goes unnoticed
Well-run projects appear to be almost effortless, but
a lot of work goes into running a project well
Project managers should strive to make their jobs
look easy to reflect the results of well-run projects
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Management, Eighth Edition Copyright 2016 59
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 60