Project Risk Management

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Aron York
5 years ago
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1 Hujambo (Swahili)

2 Project Management Process Groups Initiating Planning Executing Monitoring & Controlling Closing Project 4. Integration Management 5. Scope Knowledge Areas 6. Time 7. Cost 8. Quality 9. Human Resources 10. Communications 11. Risk 12. Procurement Stakeholder Project Risk Management

3 Project Risk Management Initiating Process Group Planning Process Group Executing Process Group Monitoring & Controlling Process Group Closing Process Group 11.1 Plan Risk Management: how to proceed 11.2 Identify Risks: which risks may affect the project? 11.3 Perform Qualitative Risk Analysis: prioritize 11.4 Perform Quantitative Risk Analysis: analyze 11.5 Plan Risk Responses: reduce threats 11.6 Control Risks: implementing risk response Outputs.1 Risk management plan Outputs.1 Risk register

4 11.3 Perform Qualitative Risk Analysis What & Why? The point: Inputs Tools & Techniques Outputs.1 Risk management plan.2 Scope baseline.3 Risk register.4 Enterprise environmental factors.5 Organizational process assets.1 Risk probability and impact assessment.2 Probability and impact matrix.3 Risk data quality assessment.4 Risk categorization.5 Risk urgency assessment.6 Expert judgment.1 Project documents updates to reduce the level of uncertainty and to focus on high-priority risks to create a short list of your risks The tools: used to determine the probability used to determine the impact What is the likelihood that each specific risk will occur...

5 11.3 Perform Qualitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Scope baseline.3 Risk register.4 Enterprise environmental factors.5 Organizational process assets.1 Risk probability and impact assessment.2 Probability and impact matrix.3 Risk data quality assessment.4 Risk categorization.5 Risk urgency assessment.6 Expert judgment.1 Project documents updates Probability and Impact Matrix: Rating Risk Ratings are assigned to risks based on their assessed probability and impact To reduce bias an organization should determine the classification of high, moderate and low risk The resulting value determines the which risks require immediate response and which can be put on a watch list

6 Probability and Impact Matrix Probability Threats Opportunities / Very Low 0.10/ Low 0.20/ Moderate 0.40/ High 0.80/ Very High 0.80/ Very High 0.40/ High 0.20/ Moderate 0.10/ Low 0.05/ Very Low Impact (numerical scale) on an objective (e.g., cost, time, scope or quality) Each risk is rated on its probability of occurring and impact on an objective if it does occur. The organization's thresholds for low, moderate or high risks are shown in the matrix and determine whether the risk is scored as high, moderate or low for that objective. Figure Probability and Impact Matrix See website for an excel template

8 11.3 Perform Qualitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Scope baseline.3 Risk register.4 Enterprise environmental factors.5 Organizational process assets.1 Risk probability and impact assessment.2 Probability and impact matrix.3 Risk data quality assessment.4 Risk categorization.5 Risk urgency assessment.6 Expert judgment.1 Project documents updates Risk Data Quality Assessment: How accurate and understood is the risk information Is more research needed?

9 11.3 Perform Qualitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Scope baseline.3 Risk register.4 Enterprise environmental factors.5 Organizational process assets.1 Risk probability and impact assessment.2 Probability and impact matrix.3 Risk data quality assessment.4 Risk categorization.5 Risk urgency assessment.6 Expert judgment.1 Project documents updates Risk Categorization: Categorize risk by: - source (from the RBS) - area (from the WBS) - common root causes - other categories (such as phase) Going through this process can identify additional risks and help with response planning

10 11.3 Perform Qualitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Scope baseline.3 Risk register.4 Enterprise environmental factors.5 Organizational process assets.1 Risk probability and impact assessment.2 Probability and impact matrix.3 Risk data quality assessment.4 Risk categorization.5 Risk urgency assessment.6 Expert judgment.1 Project documents updates Risk Urgency Assessment: The risk ranking or where do I start? Are some risks so urgent, or will happen soon, that they must be dealt with immediately while others follow?

11 11.3 Perform Qualitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Scope baseline.3 Risk register.4 Enterprise environmental factors.5 Organizational process assets.1 Risk probability and impact assessment.2 Probability and impact matrix.3 Risk data quality assessment.4 Risk categorization.5 Risk urgency assessment.6 Expert judgment.1 Project documents updates Expert Judgment: Validate with those who helped identify the risk Project Documents Updates: Update the: Risk register & Assumptions log... include: List of prioritized risks with their probability & impact ratings List of near term & watch list (non critical risks) risks Risks grouped by category List of risks requiring additional analysis and response

12 Project Risk Management Initiating Process Group Planning Process Group Executing Process Group Monitoring & Controlling Process Group Closing Process Group 11.1 Plan Risk Management: how to proceed 11.2 Identify Risks: which risks may affect the project? 11.3 Perform Qualitative Risk Analysis: prioritize 11.4 Perform Quantitative Risk Analysis: analyze 11.5 Plan Risk Responses: reduce threats 11.6 Control Risks: implementing risk response Outputs.1 Risk management plan Outputs.1 Risk register Outputs.1 Project documents updates

13 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs What & Why?.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates The results of the Qualitative Risk Analysis can determine if this step is required. Proceed with it only if it is worth the time & cost required. Quantitative analysis requires significant data to process. For the exam you should know: how to investigate to find highest rated risks how to perform sensitivity analysis that the quantified risk of a project can be learned through Monetary Value Analysis (MVA) or Monte Carlo analysis

14 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Enterprise Environmental Factors such as: Industry studies of similar projects Risk databases from industry or proprietary sources

15 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Data Gathering and Representation Techniques: Interviewing: to determine the probability and impact of risks on a project with the goal of performing a 3 point analysis. Range of Project Cost Estimates WBS Element Low Most Likely High Design $4M $6M $10M Build $16M $20M $35M Test Total Project $11M $31M $15M $41M $23M $68M PMBOK p. 336

16 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Data Gathering and Representation Techniques: Probability distributions: processing the data from the interviews using Triangular or Beta Distribution calculations

17 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Quantitative Risk Analysis and Modeling Techniques: Sensitivity analysis (tornado diagram): helps to determine which risks have the most potential impact on the project

18 Tornado diagram: compares the relative importance and impact of variables that have a high degree of uncertainty to those that are more stable Risk 1 Risk 2 Risk 3 Risk 4 Risk 5 KEY Negative Impact Positive Impact Risk 6-15,000-10,000-5, ,000 10,000 15,000 20,000 Figure Example of Tornado Diagram PMBOK p. 338

19 list data vertically with the largest bar on top Rita p. 423

20 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Quantitative Risk Analysis and Modeling Techniques: Expected monetary value analysis (EMV): calculates the expected monetary value of risk Expected Monetary Value = probability x impact EMV = P x I

21 EMV = P x I Exam questions will ask What is the expected monetary value of: Calculating the expected monetary value using a Decision Tree a decision tree takes into account future events in making a decision is mutually exclusive (the answer is one or the other) For the exam: costs can appear anywhere in the diagram not just at the end do not be confused by what the diagram looks like but rather what information it provides

23 Rita p. 425

25 Rita p. 426

26 Decision Definition Decision Node Chance Node Net Path Value Decision to be Made Input: Cost of Each Decision Output: Decision Made Input: Scenario Probability, Reward if it Occurs Output: Expected Monetary Value (EMV) Computed: Payoffs minus Costs along Path Build New Plant (Invest $120M) 60% Strong Demand ($200M) $80M $80M = $200M $120M Build or Upgrade? $36M =.60 ($80M) +.40 ( $30M) EMV (before costs) of Build New Plant considering demand 40% Weak Demand ($90M) -$30M $30M = $90M $120M Decision EMV = $46M (the larger of $36M and $46M) Decision Node Chance Node End of Branch Upgrade Plant (Invest $50M) $46M =.60 ($70M) +.40 ($10M) EMV (before costs) of Upgrade Plant considering demand 60% 40% Strong Demand ($120M) Weak Demand ($60M) $70M $70M = $120M $50M $10M $10M = $60M $50M Note 1: The decision tree shows how to make a decision between alternative capital strategies (represented as decision nodes ) when the environment contains uncertain elements (represented as chance nodes ). Note 2: Here, a decision is being made whether to invest $120M US to build a new plant or to instead invest only $50M US to upgrade the existing plant. For each decision, the demand (which is uncertain, and therefore represents a chance node ) must be accounted for. For example, strong demand leads to $200M revenue with the new plant but only $120M US for the upgraded plant, perhaps due to capacity limitations of the upgraded plant. The end of each branch shows the net effect of the payoffs minus costs. For each decision branch, all effects are added (see shaded areas) to determine the overall Expected Monetary Value (EMV) of the decision. Remember to account for the investment costs. From the calculations in the shaded areas, the upgraded plant has a higher EMV of $46M also the EMV of the overall decision. (This choice also represents the lowest risk, avoiding the worst case possible outcome of a loss of $30M). Figure Decision Tree Diagram PMBOK p. 339

27 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Quantitative Risk Analysis and Modeling Techniques: Modeling and simulation: a program (Monte Carlo) that simulates the project For the exam know that the Monte Carlo analysis: - is done by computer because of the complexity of the calculations - evaluates the overall risk of the project - determines the probability of completing the project on a specific day or at a specific cost

28 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Quantitative Risk Analysis and Modeling Techniques: For the exam know that the Monte Carlo analysis: calculates the probability of an activity being on the critical path takes into account places of path convergence translates uncertainty into impact can be used to assess cost & schedule impact results in a probability distribution

29 11.4 Perform Quantitative Risk Analysis Inputs Tools & Techniques Outputs.1 Risk management plan.2 Cost management plan.3 Schedule management plan.4 Risk register.5 Enterprise environmental factors.6 Organizational process assets.1 Data gathering and representation techniques.2 Quantitative risk analysis and modeling techniques.3 Expert judgment.1 Project documents updates Project Documents Updates: Prioritized list of quantified risks Initial amount of contingency time and cost required Possible realistic and achievable completion dates I am 75% sure... Trends appearing from the quantitative analysis

30 Project Risk Management Initiating Process Group Planning Process Group Executing Process Group Monitoring & Controlling Process Group Closing Process Group 11.1 Plan Risk Management: how to proceed 11.2 Identify Risks: which risks may affect the project? 11.3 Perform Qualitative Risk Analysis: prioritize 11.4 Perform Quantitative Risk Analysis: analyze 11.5 Plan Risk Responses: reduce threats 11.6 Control Risks: implementing risk response Outputs.1 Risk management plan Outputs.1 Risk register Outputs.1 Project documents updates

31 Q&A

52 Kwaheri (Swahili)