Project Risk Management PMP Prep Course PMBOK 5

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Project Risk Management Definition A subset of project management that includes the processes of conducting risk management planning, identification, analysis, response planning and controlling risk on a project. PMBo. K® Guide, 5 th Edition, p. 309 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 2

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Additional Definitions RISK - an occurrence that may affect the project for good or bad. UNCERTAINTY - the absence of any information related to a desired outcome. RISK APPETITE - the degree of uncertainty an entity is willing to accept in anticipation of a reward RISK TOLERANCES - the degree, amount, or volume of risk that an organization or individual will withstand RISK THRESHOLD - a measure of uncertainty or impact at which a stakeholder may have an interest CONTINGENCY RESERVES - time or money added to the plan to handle “known unknowns” MANAGEMENT RESERVES - time or money added to the plan to handle “unknown unknowns” © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 3

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Project Risk Management Objectives Increase the probability & impact of opportunities Increase Decrease the probability & impact of threats Decrease Simple & Clear-cut goals! © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 4

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Why is Risk Management Necessary? Projects are: New, Unique Under Time Pressures Uncertain Under Budget Constraints © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 5

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Six Step Approach to Handling Project Risk 1. Make a plan that address’ steps 2 -6 in detail 2. Identify – Create a comprehensive list of risks 3. 4. 5. 6. Screen or Qualify risks for further analysis or watching, use low cost/effort tools Analyze only the screened risks and the overall project, use heavier duty numerical (a. k. a. Quantitative) tools Quantitative Plan individual responses (and contingencies) as most needed based on step number 4. Monitor the risks that have response plans and execute the responses. Use workarounds as needed. Watch for new (unplanned) risks. To hold it all together, form a risk register in step 1, update in 2 thru 6 Repeat as needed especially at phase gates or decision points. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 6

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Six Step Approach - Concepts Completely analyzing and planning responses to all risks is expensive & time consuming – not a practical approach Steps 3, 4, 5 progressively reduce the number of risk items that will have more costly resources devoted to analyzing them The risk register (formatted in step 1) is updated with new information at all other steps These steps should be repeated as appropriate, especially at project phase gates or decisions points Each step is a process © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 7

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Project Risk Management Processes 11. 1 Plan Risk Management 11. 2 Identify Risks 11. 3 Perform Qualitative Risk Analysis 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses 11. 6 Control Risks © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 8

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Plan Risk Management Process Project Management Process Groups Knowledge Area Initiating Planning Executing Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 6 Control Risks 11. 3 Perform Qualitative Risk Analysis 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 9

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 1 Plan Risk Management Definition: “The process of defining how to conduct risk management activities for a project. ” PMBo. K® Guide, 5 th Edition, p. 313 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 10

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 1. 1 Plan Risk Management Inputs 11. 1 Project Management Plan Provides baseline or current state of risk-affected areas including scope, schedule, and cost. 11. 1. 1. 2 Project Charter Provides various inputs such as high-level risks, high-level project descriptions, and high-level requirements. 11. 1. 1. 3 Stakeholder Register Lists all details related to a project’s internal and external stakeholders including an overview of their roles. 11. 1. 1. 4 Enterprise Environmental Factors Includes, but is not limited to, risk attitudes, thresholds, and tolerances that describe the degree of risk an organization, as well as individual stakeholders, will withstand. Organizational Process Assets Includes, but is not limited to, risk categories, definitions of concepts and terms, risk statement formats, standard templates, roles and responsibilities, authority levels for decision making and lessons learned. 11. 1. 1. 5 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 11

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 1. 2 Plan Risk Management Tools and Techniques 11. 1. 2. 1 Analytical Techniques A variety of techniques used to understand define the overall risk management context of the project. Examples include a stakeholder risk profile and risk scoring sheets. Expertise from groups or individuals with specialized training or knowledge in the subject area such as: Senior Management, • Project Stakeholders, • Project Managers who have worked on similar projects either via lessons learned or directly, • 11. 1. 2. 2 Expert Judgment Subject Matter Experts, • Industry groups and consultants as well as, • Professional and technical associations. • Attendees may include project team members and stakeholders and people with organizational responsibility for Risk Management. 11. 1. 2. 3 Meetings Plans for including the cost and schedule for Risk Management activities in the overall Project Plan should be developed. Assign responsibilities for Risk Management, Review of organizational templates for risk categories and management, et al. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 12

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 1. 3 Plan Risk Management Outputs Methodology Approaches, tools, data sources used to manage risk. Roles and Responsibilities Define leads, team members and supporting roles; clarify responsibilities for each role. Budgeting 11. 1. 3. 1 Risk Management Plan Assign resources and estimate costs for Risk Management to include in project cost baseline. Timing When, how often to perform risk management activities. Risk categories Structure to ensure the comprehensive identification of risks through a systematic process. Can be further decomposed into a Risk Breakdown Structure (RBS). Can be based on previous projects. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 13

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 1. 3 Plan Risk Management Outputs (cont’d) Risk probability and impact scales defined These form a matrix Probability and impact matrix Tabular plot of total qualitative risk scores based on probability (vertical) and impact (horizontal) 11. 1. 3. 1 Risk Management Plan (cont’d) Revised stakeholders’ tolerances Because tolerances may be project specific Reporting formats Define content and format of Risk register and other reports. How will the outcomes of risk management be documented, analyzed and communicated? Tracking How risk activities are recorded and audited Should benefit current project, future needs and record lessons learned © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 14

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Example Set of Risk Categories Technical/Quality/Performance Unproven or complex technology Expected changes (standards, technology) Project Management Poor allocation of time and resources Inadequate project plan quality Organizational Inconsistent objectives (scope, cost, time) Lack of prioritization Inadequacy/Interruption of funding Resource conflicts External Shifting legal, regulatory, environmental requirements Labor issues Force Majeure (natural disasters, war, LOTTO) © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 15

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 1 Plan Risk Management Facts Fact: The Risk Management Plan does not address responses to individual risks – that is done in the Risk Response Plan. Fact: Organizational assets are improved by lessons learned updates. Fact: Good Risk Management depends on good communications. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 16

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Identify Risks Process Project Management Process Groups Knowledge Area Initiating Planning Executing Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 6 Control Risks 11. 3 Perform Qualitative Risk Analysis 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 17

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 2 Identify Risks Definition: “Determine which risks might affect the project and document their characteristics. ” PMBo. K® Guide, 5 th Edition, p. 319 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 18

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Risk Types Business Normal risk of doing business. Includes threats and opportunities. Threat Risk that presents a possible loss. Opportunity Risk that presents a possible gain. Pure (Insurable) Risk Known Risk Unknown Risk that presents a possible loss & no possible gain! Risks that were identified. Can be handled in a variety of ways, including contingency reserve Risks that were not identified These can not be handled proactively It is prudent to allocate management reserves for these risks © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 19

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 2. 1 Identify Risks Inputs 11. 2. 1. 1 Risk Management Plan Include roles & responsibility assignments, provision of risk management activities in the budget and schedule, and categories of risk. 11. 2 Cost Management Plan Provides processes and controls that can be used to help identify risks across the project. 11. 2. 1. 3 Schedule Management Plan Provides insight to protect time/schedule objectives and expectations which may be impacted by known (or unknown) risks. 11. 2. 1. 4 Quality Management Plan Provides a baseline of quality measures and metrics for use in identifying risks. 11. 2. 1. 5 Human Resource Provides guidance on defining, staffing, managing and releasing Management human resources. Also contains roles and responsibilities, project Plan organization charts and the staffing management plan. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 20

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 2. 1 Identify Risks Inputs (cont’d) Scope Baseline Contains project assumptions which should be evaluated as risk. The WBS can also be included to indentify risk at both the micro and macro level. 11. 2. 1. 7 Activity Cost Estimates Provides a quantitative assessment of the likely cost to complete scheduled activities and ideally expressed as a range, allowing a degree of cost risk to be assigned. Projections may indicate estimates are insufficient to complete an activity and pose a risk. 11. 2. 1. 8 Useful in identifying risk related to time allowances for either the Activity Duration project or activities, again using a range to assign degree of risk is Estimates useful. 11. 2. 1. 9 Stakeholder Register Ensures that key stakeholders, sponsor and customer are interviewed or otherwise participate. 11. 2. 1. 10 Project Documents Should include, at a minimum, Project Charter, Project Schedule, Schedule Network Diagrams, Issue Log, and Quality Checklist. 11. 2. 1. 6 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 21

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 2. 1 Identify Risks Inputs (cont’d) 11. 2. 1. 11 Procurement Documents If the project requires the procurement of external resources, procurement documents could become a key input. The level of detail and complexity should correspond to the value of the procurement. 11. 2. 1. 12 Enterprise Environmental Factors May include, but are not limited to: Published information and commercial databases, academic studies, published checklists, benchmarking, industry studies and risk attitudes. 11. 2. 1. 13 Organizational Process Assets May include, but are not limited to: Project files, including actual data, organizational and project process controls, risk statement formats or templates, and lessons learned. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 22

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 2. 2 Identify Risks Tools and Techniques 11. 2. 2. 1 Documentation Reviews A review of project documentation, e. g. plans, assumptions, previous project files and agreements, to identify risks. The quality of this documentation may be an indicator of risk. 11. 2. 2. 2 Information Gathering Techniques May include: Brainstorming, Delphi Technique, Interviewing, Root Cause Analysis 11. 2. 2. 3 Checklist Analysis Create checklists to assist with risk identification, based on past experiences and other project work 11. 2. 2. 4 Assumptions Analysis Uncertainty in project assumptions indicate potential areas of risk, and the validity of assumptions should be explored. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 23

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 2. 2 Identify Risks Tools and Techniques 11. 2. 2. 5 Diagramming Techniques (cont. ) Use risk diagramming techniques, including: Cause & effect diagrams Influence diagrams System or Process Flow charts 11. 2. 2. 6 SWOT Analysis Identify risks using strengths, weaknesses, opportunities, threats (SWOT). Examine where opportunities and organizational strengths offset threats and weaknesses. 11. 2. 2. 7 Expert Judgment Utilize expert judgment to identify risks, considering any bias that may be present. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 24

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 2. 3 Identify Risks Outputs 11. 2. 3. 1 Risk Register Identified Risks Potential Responses Root Causes Updated Risk Categories The Risk Register is a LIVING project artifact! © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 25

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Initiate Risk Register Identify Risks Perform Risk Analysis Plan Risk Responses Control Risks # Category Risk Potential Result Defined By Date Impact Prob Score Qualtve Impact Risk Strat Notes Owner Status Date Notes 1 Tech IT Resource Availability Unable to meet project schedule Brian 15 Jun 2 Contracts Project contract negotiate Inability to complete project goals Wendy 22 Jun 3 Cost Scope Creep Project Budget Overrun Jeff 30 Jun Note: Register Updates in © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED Amber 26

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Perform Qualitative Risk Analysis Process Project Management Process Groups Knowledge Area Initiating Planning Executing Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 6 Control Risks 11. 3 Perform Qualitative Risk Analysis 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 27

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 3 Perform Qualitative Risk Analysis Definition: “The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact. ” PMBo. K® Guide, 5 th Edition, p. 328 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 28

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 3 Perform Qualitative Risk Analysis Definitions EVENT – Something that happens, an occurrence, an outcome. PROBABILITY – How likely the event is to occur? IMPACT – The event’s impact on objectives should it occur. “POP QUIZ” Project Risk is greatest in the _____ phase of the project & why? Amount at stake is greater in the _____ phase of the project & why? © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 29

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 3 Perform Qualitative Risk Analysis Commentary QUALITATIVE approach expresses probability and/or impact using an ordinal rating system to denote order. Adjectives: high, medium, low Colors: red, yellow, green yellow Ranking 1 -10 Qualitative Approach: The Good, The Bad & The Ugly Good – it’s fast and easy to administer & understand Bad – it’s subjective, “invites” bias Ugly – it requires definitions, rules, standards, and process © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 30

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Example of Ordinal Scale Rank Probability Impact High Risk event is very likely to occur, high probability If risk occurs, a significant impact to cost, schedule, quality, or customer satisfaction will occur Risk event is likely to occur, medium probability If risk event occurs, a moderate impact to cost, schedule, quality or customer satisfaction will occur Risk event is unlikely to occur, low probability If risk event occurs, a small impact to cost, schedule, quality, or customer satisfaction will occur Medium Low © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 31

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 3. 1 Perform Qualitative Risk Analysis Inputs 11. 3. 1. 1 Risk Management Plan 11. 3. 1. 2 Scope Baseline 11. 3 Risk Register An output from Plan Risk Management it provides: Roles and responsibilities of the Risk Management personnel Budgets Schedule of activities for Risk Management Risk categories Definitions of probability and impact Probability and impact matrix Revised stakeholder risk tolerances An input for Plan Risk Management. Simple or complex project; Recurrent or First-of-its-kind or Stateof-the-Art. . . (as defined in scope statement) – which would have more risks? This output from Identify Risks is used to access and prioritize risks. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 32

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 3. 1 Perform Qualitative Risk Analysis Inputs (cont. ) 11. 3. 1. 4 Enterprise Environmental Factors • Data or Industry Studies from similar projects previously completed • Risk databases from industry or proprietary sources 11. 3. 1. 5 Organization Process Assets • Information on prior, similar completed projects. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 33

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 3. 2 Perform Qualitative Risk Analysis Tools and Techniques Risk Probability 11. 3. 2. 1 and Impact Assessment 11. 3. 2. 2 Probability and Impact Matrix The likelihood that each specific risk will occur. The potential positive and negative impacts of the risk are also projected. Risks not likely to occur & with minimal impact (if they do) may be maintained on a watch-list for future monitoring. Provides a visual display of probability and impact products, grouped by order of priority: Low, Medium or High. Risk Data Quality 11. 3. 2. 3 Assessment An analysis of the quality of the data used to assess the risk. Examines the degree to which risk is understood; the accuracy, quality, reliability and integrity of data used to analyze risk. 11. 3. 2. 4 Risk Categorization Risks can be categorized to illustrate most vulnerable areas of the project; categories may include risk source (RBS), or area of project affected (WBS). 11. 3. 2. 5 Risk Urgency Assessment 11. 3. 2. 6 Expert Judgment A means to determine which risks need to be addressed first, not just due to high priority but possibly also due to high impact implications. Leveraging an expert’s opinion to assess the probability and impact of each risk. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 34

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 3. 3 Perform Qualitative Risk Analysis Outputs Updates to the Project Risk Register include assessments of probability and impacts risk ranking or scores 11. 3. 3. 1 Project Document Updates risk urgency information risk categorization watch lists for low probability risk or those require further analysis Updates tot he Assumptions Log. These may be incorporated into the Project Scope Statement or in a separate Assumptions Log. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 35

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Update Risk Register Identify Risks Perform Risk Analysis Category Risk Potential Result Defined By Date Tech IT Resource Availability Unable to meet project schedule Brian 2 Contracts Project contract negotiate Inability to complete project goals 3 Cost Scope Creep Project Budget Overrun # 1 Plan Risk Responses Control Risks Qualtve Impact Risk Strat Notes Owner Status Date Notes 15 Jun Mod impact to sched Wendy 22 Jun Mod impact to goals Jeff 30 Jun Signif impact to cost Impact Prob Score Note: Register Updates in Amber © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 36

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Perform Quantitative Risk Analysis Project Management Process Groups Knowledge Area Initiating Planning Executing Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 6 Control Risks 11. 3 Perform Qualitative Risk Analysis 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 37

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 4 Perform Quantitative Risk Analysis Definition: “The process of numerically analyzing the effect of identified risks on overall project objectives. ” PMBo. K® Guide, 5 th Edition, p. 333 PMBo. K® Guide, 5 th Edition, p. 334 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 38

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 4 Perform Quantitative Risk Analysis QUANTITATIVE risk analysis is a numerical analysis of the probability and/or impact of the highest risks. e. g. : Ø 80% probability of occurrence Ø $10, 000 impact or three week delay Helps to determine the most critical risks Less subjective than qualitative More time consuming; requires estimation Substantially more valuable in developing risk response strategies and reserves © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 39

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 4. 1 Perform Quantitative Risk Analysis Inputs 11. 4. 1. 1 Risk Management Plan Provides guidelines, methods, and tools to be used in quantitative risk analysis. 11. 4. 1. 2 Cost Management Plan Provides guidelines and establishing and managing risk reserves. 11. 4. 1. 3 Schedule Management Plan Provides guidelines on establishing and managing risk reserves. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 40

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 4. 1 Perform Quantitative Risk Analysis Inputs (cont. ) 11. 4 Risk Register Used as a references point for performing quantitative risk analysis. 11. 4. 1. 5 Enterprise Environmental Factors Providing insight and context to the risk analysis, these may include: Industry studies of similar projects by risk specialists 11. 4. 1. 6 Organization Process Assets Risk Databases from industry or proprietary sources. This may include information from prior, similar completed projects. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 41

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 4. 1 Perform Quantitative Risk Analysis Tools and Techniques 11. 4. 1. 1 Data Gathering and Representation Techniques 11. 4. 1. 2 Quantitative Risk Analysis & Modeling Techniques 11. 4. 1. 3 Expert Judgment Interviewing Utilize experience & historical data to quantify probability and impact of project risks. Probability Distributions Often used in simulations to represent uncertainty in values, e. g. uniform distribution (“bell curve”) is commonly seen. Sensitivity Analysis Expected Monetary Value (EMV) Analysis Statistical concept that calculates the average outcome EMV of opportunities/threats is either positive or negative EMV (project) = (Outcome 1 x Probability 1) +. . . . . . + (Outcome n x Probability n) Common use is in a Decision Tree analysis Modeling and Simulation Often using the Monte Carlo technique A technique used in the two prior risk processes © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 42

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Sensitivity Analysis Shows which risks have the most impact. Task B Task A Start Task C Task E Finish Task D The probability of Task E starting on time decreases as the number of parallel predecessors increases. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 43

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Expected Monetary Value (EMV) Analysis EMV = Probability x Impact Risk Event Probability of X Occurrence Impact = Expected Value 1 10% $500, 000 overrun $50, 000 10 week delay 1 week delay 2 50% $100, 000 overrun $50, 000 16 week delay 8 week delay 3 75% $10, 000 overrun $7, 500 2 week delay 1. 5 week delay © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 44

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Decision Tree Analysis A diagram that graphically describes the implications of choosing one or more alternatives Incorporates probabilities of risks as well as costs or rewards of each logical path Solving a “decision tree” determines which decision has the greatest yield or expected value © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 45

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Decision Tree Example Aggressive Schedule (EMV = $4, 000) Uncertain Outcome Probability x Outcome = EMV P =. 20 x +100, 000 = + $20, 000 P =. 80 x - $20, 000 = - $16, 000 P =. 30 x - $20, 000 = - $6, 000 P =. 70 x + $10, 000 = + $7, 000 Decision X Uncertain Outcome Conservative Schedule (EMV = $1, 000) © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 46

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Rules for Dealing with Probabilities For mutually exclusive, independent events: Addition Rule: The probability of one outcome or another outcome occurring is equal to the sum of the probabilities of the outcomes occurring individually. P(A or B) = P(A) + P(B) Multiplication Rule: The probability of one outcome and another outcome occurring is equal to the product of the probabilities of the outcomes occurring individually. P(A and B) = P(A) x P(B) © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 47

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 4. 3 Perform Quantitative Risk Analysis Outputs Probabilistic analysis of the project 11. 4. 3. 1 Project Document Updates Probability of achieving cost and time objectives Prioritized list of quantified risks Trends in quantitative risk analysis results © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 48

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Update Risk Register Identify Risks Perform Risk Analysis Plan Risk Responses Control Risks Category Risk Potential Result Defined By Date Impact Prob Score Qualtve Impact Risk Strat Notes Owner Status Date Notes Tech IT Resource Availability Unable to meet project schedule Brian 15 Jun 0. 4 0. 6 0. 24 Mod impact to sched 2 Contracts Project contract negotiate Inability to complete project goals Wendy 22 Jun 0. 3 0. 9 0. 27 Mod impact to goals 3 Cost Scope Creep Project Budget Overrun Jeff 30 Jun 0. 8 0. 7 0. 56 Signif impact to cost # 1 Note: Register Updates in © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED Amber 49

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Plan Risk Responses Process Project Management Process Groups Knowledge Area Initiating Planning Executing Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 6 Control Risks 11. 3 Perform Qualitative Risk Analysis 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 50

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 5 Plan Risk Responses Definition: “The process of developing options and actions to enhance opportunities and reduce threats to project objectives. ” PMBo. K® Guide, 5 th Edition, p. 342 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 51

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 5. 1 Plan Risk Responses Inputs 11. 5. 1. 1 11. 5. 1. 2 Risk Management Plan Risk Register An input to multiple risk processes. Important components include roles and responsibilities, definitions, timing for reviews, and risk thresholds. Risk Register now contains a list of risks, root causes, potential responses, risk owners, symptoms and warning signs, relative risk rating, urgent risks, risks requiring further analysis, trends in qualitative analysis results and a watch list (list of low-priority risks within the Risk Register) © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 52

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 5. 2 Plan Risk Responses Tools & Techniques Avoid Change the plan to eliminate threat. Examples: Extend schedule, change strategy, reduce scope Transfer Shift impact to a third party (note: does not eliminate threat). 11. 5. 2. 1 Strategies for Negative Risks (Threats) Examples: Buy insurance, issue a contract (Cost Plus) Mitigate Lessen impact or probability of occurrence. Examples: Utilize redundancy for critical systems, NASA Accept Do nothing and address when/if it occurs. Example: Active acceptance – use contingency reserve © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 53

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Secondary and Residual Risks Secondary Risks that arise as a direct result of implementing a risk response. Example: Request new project resources to replace poor performers – what can happen? Residual Risks that remain after risk responses have been implemented. Example: You execute a risk response strategy for a project during hurricane season but a hurricane may still occur. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 54

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Strategies for Negative Risks (Threats) Situation: Company’s data center is in a hurricane zone. Risk: Loss of data center after major storm. Options: What are they? Avoidance: Transference: Mitigation: Acceptance: © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 55

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Strategies for Negative Risks (Threats) Situation: Company’s data center is in a hurricane zone. Risk: Loss of data center after major storm. Options: Avoidance Move data center Secondary Risk: longer response times Transference: Transference Insurance is only monetary it wont keep the data center up Outsource the data center & hold the contractor responsible Residual Risk: Outsourcer’s disaster recovery plan does not work Mitigation: Mitigation Create disaster recovery plans (e. g. : spare hardware for the most critical elements of the data center, or backup data center located elsewhere) Acceptance: Acceptance Passive: Do nothing now. Develop a workaround on the fly if it happens. Active: Do nothing now but have a contingency plan and the funding to implement it © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 56

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 5. 2 Plan Risk Responses Tools & Techniques (cont’d) Exploit Ensure an opportunity is realized, eliminate uncertainty. Example: Assign “A Team” to project Share Strategies for 11. 5. 2. 2 Positive Risks or Opportunities Allocate partial opportunity ownership to get “an edge”. Examples: Risk sharing partnership, joint venture Enhance Increase the probability or impacts of an opportunity. Example: Add resources to finish a task early Accept Take advantage of an opportunity if it occurs, don’t pursue. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 57

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Strategies for Positive Risks or Opportunities Homework / Self Study Situation: Define a situation Risk: Define Positive Risks (Opportunities) Options: Think about it - what are they? Exploit: Share: Enhance: Accept: © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 58

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 5. 2 Plan Risk Responses Tools & Techniques (cont’d) 11. 5. 2. 3 11. 5. 2. 4 Contingent Response Strategies Expert Judgment Special Responses to be employed if triggered by events Sufficient warning is required to be effective. Example: Trigger - Missing intermediate milestone Input from any group or person relating to any actions to be taken on a specific identified risk. Specialized education, knowledge, skill, experience or training in risk responses. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 59

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 5. 3 Plan Risk Responses Outputs Schedule Management Plan Cost Management Plan Quality Management Plan 11. 5. 3. 1 Project Management Plan Updates Procurement Management Plan Human Resource Management Plan Scope Baseline Schedule Baseline Cost Baseline Risk Register Updates 11. 5. 3. 2 Project Document Updates Assumptions Log Updates Technical Documentation Updates Change Requests © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 60

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Update Risk Register Identify Risks # 1 2 3 Category Risk Potential Result Tech IT Resource Availability Unable to meet project schedule Contracts Project contract negotiate Inability to complete project goals Scope Creep Project Budget Overrun Cost Perform Risk Analysis Defined By Brian Wendy Jeff Date 15 Jun 22 Jun 30 Jun Impact 0. 4 0. 3 0. 8 Prob 0. 6 0. 9 0. 7 Plan Risk Responses Control Risks Score Qualtve Impact Risk Strat Notes Owner Status Date Notes 0. 24 Mod impact to sched Avoid, extend sched With Apprvd Sponsor Chg Rqst PM Jeff 0. 27 Mod impact to goals Transf er risk with contrct Fixed Price Cont Limits Addtl Risk PM Jeff 0. 56 Signf impact to cost Accept use Cont Resrv With Apprvd Sponsor Chg Rqst PM Jeff Note: Register Updates in © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED Amber 61

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Control Risks Process Project Management Process Groups Knowledge Area Initiating Planning Executing Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 6 Control Risks 11. 3 Perform Qualitative Risk Analysis 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 62

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 6 Control Risks Definition: “The process of implementing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks and evaluating risk process effectiveness throughout the project. ” PMBo. K® Guide, 5 th Edition, p. 349 PMBo. K® Guide, 4 th Edition, p. 349 © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 63

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 6. 1 Control Risks Inputs 11. 6. 1. 1 Project Management Plan Contains the Risk Management Plan, which provides guidance for risk monitoring and control. Contains key inputs such as identified risks and owners, agreed upon risk responses, controls to assess the effectiveness of response plans, 11. 6. 1. 2 Risk Register specific implementation actions, symptoms and warning signs of risk, residual and secondary risks, watch list of low-priority risks, time and cost contingency reserves. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 64

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 6. 1 Control Risks Inputs 11. 6. 1. 3 11. 6. 1. 4 (cont. ) Work Performance Data Performance data includes, but is not limited to, deliverable status, schedule progress and Work Performance Reports Project work performance information (over time) that includes: Variance analysis, Earned value data and costs incurred. Forecasting data © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 65

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 6. 2 Control Risks Tools & Techniques 11. 6. 2. 1 11. 6. 2. 2 11. 6. 2. 3 11. 6. 2. 4 Risk Reassessment A risk review to determine if risks are still valid, need to be updated or closed, as well as the addition of new risks. Risk Audits Execution of audits is usually specified in the Risk Management Plan for the purpose of evaluating the effectiveness of risk responses as applied to identified risks Variance and Trend Analysis Technical Performance Measurement Control processes that measure and compare planned results vs. actual results. (i. e. Earned Value Analysis) Variances in expected results may indicate the impact of threats or opportunities. Compares technical accomplishments to the schedule of technical achievement. Requires objective quantifiable measures of technical performance. i. e. transaction times; delivered defects, etc. Deviations of these may identify the technical risk encountered in the project. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 66

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 6. 2 Control Risks Tools & Techniques 11. 6. 2. 5 Reserve Analysis Measures the positive or negative impacts of project risks on budget or schedule contingency reserves, as well as the amount of remaining reserves to support remaining risks. 11. 6. 2. 6 Meetings Should provide a regular forum for Risk discussion with the team © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 67

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 6. 3 Control Risks Outputs Work Performance information Work Performance Information , as an output of Control Risks, provides a mechanism to communicate and support decision making within the project. 11. 6. 3. 2 Change Requests Recommended corrective actions may be required to support contingency plans/workarounds for known/unknown risks, a. k. a. . Recommended preventive actions are taken to reduce the probability of negative consequences of project risks. 11. 6. 3. 3 Project Management Plan Updates 11. 6. 3. 1 Should be updated if any change requests impacted the risk management processes. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 68

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 11. 6. 3 Control Risks Outputs 11. 6. 3. 4 Project Document Updates (cont. ) The Risk Register, as well as other project document updates may be required as a result for controlling risks. Risk Register updates may include: Outcomes of risk assessments, risk audits and periodic risk reviews Actual outcomes of the project’s risks and of the risk responses. The Risk Management process produces information that may be useful in future projects. 11. 6. 3. 5 Organization Process Assets Updates Other Organization Process Assets may include, but are not limited to: • Templates for the risk management plan • Templates for the Probability and Impact Matrix • Templates for the Risk Register • Risk Breakdown Structure and • Lessons Learned from the project’s risk management activities. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 69

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Update Risk Register Identify Risks # 1 2 3 Category Risk Potential Result Tech IT Resource Availability Unable to meet project schedule Contracts Project contract negotiate Inability to complete project goals Scope Creep Project Budget Overrun Cost Perform Risk Analysis Defined By Brian Wendy Jeff Date 15 Jun 22 Jun 30 Jun Impact 0. 4 0. 3 0. 8 Prob 0. 6 0. 9 0. 7 Plan Risk Responses Control Risks Score Qualtve Impact Risk Strat Notes Owner Status Date Notes 0. 24 Mod impact to sched Avoid, extend sched With Apprvd Sponsor Chg Rqst PM Jeff Projct on sched Risk Closed 31 - Oct Tech Tasks Cmplt 0. 27 Mod impact to goals Transf er risk with contrct Fixed Price Cont Limits Addtl Risk PM Jeff Cont Cmplt Risk Closed 16 - Aug Cont Cmplt 0. 56 Signf impact to cost Accept use Cont Resrv With Apprvd Sponsor Chg Rqst PM Jeff No Chg 25 - Nov Proj within revised budget Note: Register Updates in © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED Amber 70

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Risk Fact Review Risk Project Risk Response Audits Earned Value Analysis The most important item to cover at team meetings. Risk auditors examine and document the effectiveness of the risk response in avoiding, transferring, or mitigating risk occurrence as well as the effectiveness of the risk owner. Done throughout project life cycle. Used for monitoring overall project performance against a baseline plan. Deviations from the project baseline may be risk triggers. Contingency Reserves Time and money for known unknowns. Added on top of the estimate. Made part of the cost baseline. Management Reserves Time and money for unknowns. Added on top of the estimate. Made part of the project budget, not the baseline. Some organizations have policies on management reserves. Fallback Plans A plan of action if contingency plans are not effective. “Plan C” Workarounds Unplanned responses to emerging project risks that were previously accepted (passively) or unidentified. Must be documented and incorporated into the project plan and risk response plan. © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 71

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Risk Question Review When should risk management first take place? When is corrective action most costly? When is “scope” risk highest? When is “cost” risk highest? Are product defects a project risk? Who is responsible for risk? Who is accountable for risk? © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 72

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Risk Breakdown Structure (RBS) - Sample IT Project Business Technical Organizational Project Management Competitors Hardware Executive support Estimates Suppliers Software User support Communication Cash flow Network Team support Resources © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 75

Project Risk Management PMP Prep Course – PMBOK 5 th Edition – Version 5. 0 Expected Monetary Value (EMV) - Example © 2013 Long Island Chapter of the Project Management Institute ALL RIGHTS RESERVED 77