Risk Management

	Risk Management

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Risk management must be an integral part of any project. Everything does not always happen as planned. Project risk management contains the processes for identifying, analyzing, and responding to project risk. Each process has a set of input and a set of output. Each process also has a set of tools and techniques that are used to turn the input into output.

Reference Material to Study

	- A Guide to the Project Management Body of Knowledge, Chapter 11 (2000 edition) - PMBOK Q&A, PMI, Risk Management

	Project and Program Risk Management, A Guide to Managing Project Risks and Opportunities, PMI, Edited by R. Max Wideman, 1992

	Project Management, A Managerial Approach, Meridith, Jack R. 1995, Chapter 2, 2.4

	Project Planning, Scheduling and Control, Lewis, James P., 1995

	The New Project Management, Chapter 4. Frame, J. Davidson

	Project Management: A Systems Approach to Planning, Scheduling & Controlling, Chapter 17. Kerzner

	PMP Challenge, ESI International, Risk Management

What to Study?

The PMBOK phases of Project Risk Management: Risk Management Planning, Risk Identification, Qualitative Risk Analysis, Quantitative Risk Analysis, Risk Response Planning, and Risk Monitoring and Control (Be familiar with Input, Tools and Techniques, and Output for each phase)
The three components of risk:
- Risk Event
- Probability of Risk Event
- Impact of Risk Event (Risk Event Value)
and the relationship between the components (R = P * I)
The relationship of risk and the project life cycle: the amount of uncertainty and risk is highest at the start of the project and lowest at the end of the project
The types of risk:
- Business
- Pure
- Known
- Unknown
Risk assessment using decision trees and expected monetary value
Monte Carlo Analysis

Key Definitions

Amount at Stake

The extent of adverse consequences which could occur to the project. (Also referred to as risk impact).

Business Risk

The inherent chances for both profit or loss associated with a particular endeavor.

Contingency Planning

The development of a management plan that identifies alternative strategies to be used to ensure project success if specified risk events occur.

Contingency Reserve

A separately planned quantity used to allow for future situations which may be planned for only in part ("known unknowns"). Contingency reserves are intended to reduce the impact of missing cost or schedule objectives. Contingency reserves are normally included in the project's cost and schedule baselines.

Deflection

The act of transferring all or part of a risk to another party, usually by some form of contract.

Expected Monetary Value

The product of an event's probability of occurrence and the gain or loss that will result. For example, if there is a 50% probability it will rain, and rain will result in a $100 loss, the expected monetary value of the rain event is $50 (.5 * $100).

Impact Analysis

The mathematical examination of the nature of individual risks on the project, as well as potential arrangements of interdependent risks. It includes the quantification of their respective impact severity, probability, and sensitivity to changes in related project variables, including the project life cycle.

Insurable Risk

A particular type of risk which can be covered by an insurance policy. Also referred to as a pure risk.

Management Reserve

A separately planned quantity used to allow for future situations which are impossible to predict. ("unknown unknowns") Management reserves are intended to reduce the risk of missing cost or schedule objectives. Use of management reserves requires a change to the project's cost baseline.

Mitigation

Taking steps to lessen risk by lowering the probability of a risk event's occurrence or reducing its effect should it occur.

Monte Carlo Analysis

A schedule risk assessment technique that performs a project simulation many times in order to calculate a distribution of likely results.

Opportunities

Project Risk Management

Includes the processes concerned with identifying, analyzing, and responding to project risk.

Risk Event

A discrete occurrence that may affect the project for better or worse.

Risk Identification

Determining which risk events are likely to affect the project.

Risk Management Plan

A subsidiary element of the overall project plan which documents the procedures that will be used to manage risk throughout the project. Also covers who is responsible for managing various risk areas; how contingency plans will be implemented, and how reserves will be allocated.

Risk Quantification

Evaluating the probability of risk event occurrence and effect.

Risk Response Control

Responding to changes in risk over the course of the project.

Risk Response Development

Defining enhancement steps for opportunities and mitigation steps for threats.

Threats

Total Certainty

All information is known.

Total Uncertainty

No information is available and nothing is known. By definition, total uncertainty cannot be envisaged.

Uncertainty

The possibility that events may occur which will impact the project either favorably or unfavorably. Uncertainty gives rise to both opportunity and risk.

Workaround

A response to a negative risk event. Distinguished from contingency plan in that a workaround is not planned in advance of the occurrence of the risk event.

Risk Management Processes

Risk Management Planning

Used to decide how to approach and plan the risk management activities for a project.
Input includes: The project charter, risk management policies, and WBS all serve as input to this process
Methods used: Many planning meeting will be held in order to generate the risk management plan
Output includes: The major output is the risk management plan, which does not include the response to specific risks. However, it does include methodology to be used, budgeting, timing, and other information

Risk Identification

Determining which risks might affect the project and documenting their characteristics
Input includes: The risk management plan is used as input to this process
Methods used: Documentation reviews should be performed in this process. Diagramming techniques can also be used
Output includes: Risk and risk symptoms are identified as part of this process. There are generally two types of risks. They are business risks that are risks of gain or loss. Then t here are pure risks that represent only a risk of loss. Pure risks are also known as insurable risks

Qualitative Risk Analysis

A qualitative analysis of risks and conditions is done to prioritize their affects on project objectives.
Input includes: There are many items used as input into this process. They include things such as the risk management plan. The risks should already be identified as well. Use of low precision data may lead to an analysis that is not useable. Risks are rated against how they impact the projects objectives for cost, schedule, scope, and quality
Methods used: Several tools and techniques can be used for this process. Probability and Impact will have to be evaluated
Output includes: An overall project risk ranking is produced as a result of this process. The risks are also prioritized. Trends should be observed. Risks calculated as high or moderate are prime candidates for further analysis

Quantitative Risk Analysis

Used to measure the probability and consequences of risks and estimate their implications for project objectives.
Input includes: The risk management plan is used as input to this process. The list of prioritized risks is also used
Methods used: Interviewing is a key technique used in this process. Other forms of analysis are used too. Objectives of this process include the determination of the probability of reaching the project’s objectives
Output includes: A prioritized list of quantified risks is produced as a result of this process. A probability analysis of the project is produced as well

Risk Response Planning

Used to develop procedures and techniques to enhance opportunities and reduce threats from risk to the project's objectives.
Input includes: Opportunities to pursue or ignore risks are the input for this process
Methods used: There are four different techniques used for responding to risk. We will cover each technique in this course
Output includes: The output includes a risk response plan and contingency plans. A contingency plan is applied to identified risks that arise during the project. A fall-back plan is developed if the risk has high impact, or if the strategy might not be fully effective. Contingency allowance accounts for known risks. Risks that arise as a result of implementing the contingency plan are called secondary risks. Contractual agreements may also be created as a result of this process

Risk Monitoring and Control

Used to monitor risks, identify new risks, execute risk reduction plans, and evaluate their effectiveness throughout the project life cycle.
Input includes: Input to this process includes the risk management plan, risk identification and analysis, and scope changes
Methods used: Audits should be used in this process to ensure that risks are still risks as well as discover other conditions that may arise. Reviews should also be used
Output includes: Output includes work-around plans, corrective action, project change requests, as well as other items

Risk Management Concepts

Expected Monetary Value

A Risk Quantification Tool
EMV is the product of the risk event probability and the risk event value
Risk Event Probability: An estimate of the probability that a given risk event will occur
Risk Event Value:
- An estimate of the gain or loss that will be incurred if the risk event does occur
- Risk event values must reflect both tangibles and intangibles in order to compare risks. (Otherwise, the risks are not equivalent)
EMV is generally used in further analysis such as decision trees

Decision Trees

A diagram that depicts key interactions among decisions and associated chance events as understood by the decision maker.
Can be used in conjunction with EMV since risk events can occur individually or in groups and in parallel or in sequence.

Scope of Project Risk Management: (reference I-2) in Risk Management Book from PMI

Scope of project risk management lies somewhere between the two extremes of total certainty and total uncertainty
Spectrum: Total Uncertainty, General Uncertainty, Specific Uncertainty, and Total Certainty
Spectrum: Unknown Unknowns (no information), Known Unknowns (partial information), and Knowns (complete information)
Management Reserves handle unknown unknowns while contingency reserves handle known unknowns

Categories of Risk Response

Avoidance
- Eliminate a specific threat, usually by eliminating the cause.
- Examples: Don't do the project; or do the project in a different way such that the risk is no longer a risk
Mitigation
- Reduce the expected monetary value of a risk event by reducing the probability of occurrence or reducing the risk event value (impact of the risk)
- Example: Using proven technology to lessen the probability that the product will not work
- Mitigation includes transferring the risk by buying insurance.
Acceptance
- Accepting the consequences of the risk.
- Acceptance can be active: Developing a contingency plan should the risk occur
- Acceptance can be passive: Accepting a lower profit is some activities overrun

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[1] Risk Management Processes
[2] Terminology
[3] Risk Management Processes
[4] Types of Risk
[5] Contingency Planning
[6] Types of Risk
[7] Risk Management
[8] Risk Management
[9] Risk Management Processes
[10] Risk Management
[11] Contingency Planning
[12] Types of Risk
[13] Tools and Techniques
[14] Tools and Techniques
[15] Risk Management
[16] Risk Evaluation
[17] Risk Evaluation
[18] Documentation
[19] Risk Criteria
[20] Risk Management
[21] Risk Management Processes
[22] Risk Management
[23] Risk Management Processes
[24] Tools and Techniques
[25] Tools and Techniques
[26] Tools and Techniques
[27] Tools and Techniques
[28] Project Life Cycle
[29] Types of Risk
[30] Types of Risk
[31] Contracting
[32] Risk Management
[33] Risk Management
[34] Risk Management
[35] Risk Management
[36] Risk Management Processes
[37] Risk Management Processes
[38] Terminology
[39] Tools and Techniques
[40] Tools and Techniques
[41] Insurance
[42] Project Selection
[43] Risk Management Processes
[44] Contingency Planning
[45] Project Life Cycle
[46] Contingency Planning
[47] Tools and Techniques
[48] Tools and Techniques
[49] Tools and Techniques
[50] Tools and Techniques
[51] Types and Techniques
[52] Types of Risk
[53] Risk Management Processes
[54] Tools and Techniques
[55] Tools and Techniques
[56] Terminology
[57] Terminology
[58] Terminology
[59] Terminology
[60] Risk Management
[61] Contingency Planning
[62] Contracting
[63] Contracting
[64] Contracting
[65] Risk Assessment
[66] Risk Management Processes
[67] Evaluation
[68] Risk Management Processes
[69] Terminology
[70] Terminology
[71] Risk Management
[72] Risk Management
[73] Impact Analysis
[74] Tools and Techniques
[75] Risk Management Processes
[76]
[77] Risk Assessment
[78] Risk Management Processes
[79] Tools and Techniques
[80] Tools and Techniques
[81] Documentation
[82] Tools and Techniques
[83] Contracting
[84] Contracting
[85] Warranties
[86] Contracting
[87] Contracting
[88] Insurance
[89] Contracting
[90] Contracting
[91] Risk Management
[92] Risk Management Processes
[93] Contracting
[94] Risk Management Processes
[95] Types of Risk

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Document Last Updated/Generated: 02/02/2019 07:28:49

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