What is

Risk?
 What is
•
Risk
A risk is a possibiiity of a probiem occurring on
the project having a possi ty on projects'
outcome.
• Risk can cause rework which wiii affect?
 Risk is
• Uncertain event or condition that has an effect on
at least one or more project objectives (scope,
schedule, cost, quality)
• RiSK may have one or more causesand it
has one or more impacts
• CAUSE may be requirement, assumption, constraint
or condition that creates the possibility of negative
or positive outcome.
•
UNCERTAINTY: An uncommon state of nature,
characterized by the absence of any
information related to a desired outcome.
 RISK FACTORS
• When looking at risk, one should determine:

The probabiiity that it will occur (what)

The range of possible outcomes (impact or amount at
stake)
Expected timing (when) in the project iife cycle
Anticipated frequency of risk events from that source
(how often)
 i ct i
"
k?

RISK is an uncertain
event or

its objectives.
A positive risk is sometimes
 SWOT
What is SWOT and why
study
SWOT in Project
Management
 Mana ent
Pìan

Management plan

7. Organizational 1.
Processes assets
 Risk Management Plan
Risk management is a multi-step process.
• Identify risk
• Analyze the risk and determine the frequency
• Probability of risk occurring
• Impact of risk
• Which of the risks needs a response plan
• Result:
Develop plan to reduce or avoid their impact
Identifies potentiai opportunities
Enabies to reduce rework and keep budget on track
It makes you proactive rather than reactive
Increases the likeiihood of project success
 RISK MANAGEMENT
PLANNING
A risk management plan may include:
Methodoiogy: approaches, tools, data sources
Roles and responsibilities - non-team members may be included
Budgeting for the risk management process
Timing - how often the risk process will be performed
throughout the project
Scoring and interpretation
Thresholds - a method to determine which risks wiii and will not
be acted upon
Reporting formats
Tracking
 Risks
Financia echnical Risk, xecution Risk, Contractual or Legal Risk
Commercia

10. Enterprise environmental

factors Project manager, Project team member, risk management team,
customers, subject matter experts
Absenteeism, resignation, staff pulled away by mgt,
additional staff/skills not available, Training risk, multiple
change orders
 INFORMATION-GATHERING TECHNIQUES

• Brainstorming:Usually done in a meeting where

one idea helps generate another
• Delphi technique: Described in the Scope chapter
• Interviewing:Also called expert interviewing on the
exam and consists of the team or project manager
interviewing an expert to identify risks on the project
or a specific element of work
Perf Quaii e Risk
o t Anaìysis

Outputs
1. Risk register updates
 QUALITATIVE RISK ANALYSIS

ls a suôÿectiveanalysïs of rïsks to:

— Determine whïch risk events warrant a response
— Determine the probability and impact of all risks
— Determïne whïch risks to analyze more fully in rïsk quantification or
to skip risk quantification in favor of goïng directly to risk response
planning. (This decisïon depends on many factors, ïncluding the
importance of the project and the potential efiect of the project on
the peJorming organization.)
— Document non-critical, or non-top risks
— Determine the overall risk ranking for the project
QUALITATìVE gISK ANALYSIS
 QUALITATIVE RISK ANALYSIS

• PROBABILIW AND IMPAW One of the ways to help rank risks is to

analyze the probability of a risk occurring and the effect
(or impact or consequences) of the risk on the project.
• Determine the probability of each risk occurring - usually in the
form of taking an educated guess (e.g.. Low, Medium, High
or 1 to 10)
• Determine the consequences (amount at stake, or impact) of
each risk occurring - also in the form of taking an educated
guess (e.g., Low, Medium, High or 1 to 10)
 QUALITATIVE RISK ANALYSIS

• ASSUMPTION TESTING: or What assumptions

have been made?" Before the project manager can
use the risk information collected, assumptions made
must be identified and tested. Too many unknown
guesses make the data unreliable. The
PM8OK^suggests that testing include evaluating the
stability of each assumption and consequences if
each assumption is false.
 QUALITATIVE RISK ANALYSIS

• DATA PRECISION RANKING or "How well understood is the risk?"

Each
risk should be rated for its precision.

— Extent of the understanding of the risk

— Data available about the risk
— Quality of the data
— Reliability and integrity of the data

• RISK RATING MATRIX In order to sort or rate rTsks so a determTnation

can be made as to which risks will move on through the risk process, a
risk rating matrTx may be used.
Perfor Quanti țve Risk
t Anaìysis
 QUANTITATIVE RISK ANALYSIS

Is a numerical analysis of the probability and consequences (amount

at stake or impacts) of the highest risks on the project to:

— Determine which risk events warrant a response

— Determine overall project risk (risk exposure)
— Determine the quantified probability of meeting project
objectives - e.g., "We only have an 8O0/’ochance of completing the
project within the six months required by the customer," or "We
only have a 75 Z*ochance of completing the project within the
O

$80,000 budget gn
— Determine cost and schedule reserves
— IdentTfy risks requiring the most attention
— Create realistic and achievable cost, schedule or scope targets
 QUANTITATIVE RISK ANALYSIS

Risk quantification involves the following activities:

— Further investigation into the highest risks on the project

— DetermTnation of the type of probability distribution that will be
used - e.g., triangular, normal, beta, unTform or log normal distributions
— Interviewing experts
— Sensitivity analysis - determTnTng whTch risks have the most impact on the
project
— Monte Carlo simulation (simulation) - descrTbed later
— Decision tree analysis - described later
 EXPECTED MONETARY VALUE
(OR EXPECTED VALUE)

• It is the product of two numbers,

— probability and

— consequences (impact or the amount at stake).

 DECISION
TREE

• A decision tree takes into account future events in

trying to make a decision today.

• It calculates the expected value (probability

times
consequences) in more complex situations than the
expected value previously presented.

• It involves mutual exclusivity (previously explained in the

Quality chapter.)
DECISION TREE
 Exercise

• A company is tryTng to determine if prototyping is worthwhile

on the project. They have come up with the followTng
consequences of whether the equipment works or fails when it
is used. Based on
the information provTded below, what is the expected value of
your decision?

x L•t„it“ l x x'' li i i i' li

y. .. i
 SOlUtíOÜ

PROTOTYPE 356x $120,000 plus

US$20O,OO0
=UO242,00O
7O6x ,000= US$315,O0O
 MONTE-CARLO SIMULATION

• Evaluates the project, not the tasks

• Provides the probability of completing the project on any
specific day, or for any specific amount of cost
• Provides the probability of any task actually being on
the
critical path
• Provides a percent probabiiity that each task will be on
the critical path
• Monte Carlo simulationis a method for iterotivelyevaluatTng a
deterministic model using sets of random numbers as inputs.
This method is often used
when the model is complex, nonlinear, or involves more than just
a couple uncertain parameters. A simulation can typically
involve over 10,000 evaluationsol the model, a task which
 an sponse
Risk s
In p uts

1. Rskzegîster
2. RÂkrrærægerrwnt
 Sample Exam Questions

• What is the most important item to address in

project team meetings?
Answer: Risk.
• How wouid risks be addressed in project
meetings?
By asking s What is the status of risks?
Any new risks? Any change to the order of
importance? "
 RISK MONITORING AND
CONTROL

This step involves managing the project according to the risk

response plan and may include the following activities:

— Keeping track of the identified rTsks

— Implementing risk responses
— LookTng for the occurrence of risk
triggers
— Monitoring resTdual risks
— identifying new risks
— Ensuring the execution of risk plans
— Evaluating the effectiveness of risk plans
— Developing new risk responses
 itor ntroJ Risks
an
[Link]œt marægemem

1. Risk register updates

2. Organizational process asset updates
3. Change requests
4. Project managemtentp an updates
Thank
you,

Any
questions