Project Risk Management PMP Study Group Risk Management
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Project Risk Management PMP Study Group Risk Management PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0
Project Risk Management Definition A subset of project management that includes the processes of conducting risk management planning, identification, analysis, response planning and monitoring and control on a project. PMBo. K® Guide, 4 th Edition, p. 273 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 2
Project Risk Management Additional Definitions RISK is “an occurrence that may affect the project for good or bad. ” UNCERTAINTY is “the absence of any information related to a desired outcome. ” RISK TOLERANCES are acceptable levels of risk or “appetite for risk” CONTINGENCY RESERVES are time or money added to the plan to handle “known unknowns” MANAGEMENT RESERVES are time or money added to the plan to handle “unknowns” PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 3
Project Risk Management Objectives Increase the probability & impact of positive events Decrease the probability & impact of negative events Simple & clear-cut goals! PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 4
Project Risk Management Why is Risk Management Necessary? Projects are: New, Unique Under Time Pressures Uncertain Under Budget Constraints PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 5
Project Risk Management 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. Screen or Qualify risks for further analysis or watching, use low cost/effort tools 4. Analyze only the screened risks and the overall project, use heavier duty numerical (a. k. a. Quantitative) Quantitative tools 5. Plan individual responses (and contingencies) as most needed based on step number 4. 6. 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 6
Project Risk Management 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 # 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 7
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 Monitor and Control Risks PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 8
Project Risk Management Plan Risk Management Process Project Management Process Groups Knowledge Area Initiating Planning Executing Monitoring & Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 3 Perform Qualitative Risk Analysis 11. 6 Monitor and Control Risks 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses Across Project Management Process Groups PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 9
Project Risk Management 11. 1 Plan Risk Management Definition: “The process of defining how to conduct risk management activities for a project. ” PMBo. K® Guide, 4 th Edition, p. 276 PMBo. K® Guide, 4 th Edition, p. 277 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 10
Project Risk Management 11. 1. 1 Plan Risk Management Inputs 11. 1 Project Scope Statement Specifically defines what is included in the project. 11. 1. 1. 2 Cost Management Plan Describes how risk budgets/contingencies/reserves will be supported. 11. 1. 1. 3 Schedule Management Plan Supports selecting a scheduling methodology, e. g. critical path. 11. 1. 1. 4 Communications Management Plan Defines how information will be shared, who is responsible and what the frequency of info sharing will be Enterprise 11. 1. 1. 5 Environmental Factors 11. 1. 1. 6 Organizational Process Assets An organization’s tolerance or attitude toward risk May include predefined approaches or templates, roles and responsibilities, authority levels, lessons learned databases PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 11
Project Risk Management 11. 1. 2 Plan Risk Management Tools and Techniques Specifically defines what is included in the project. • 11. 1. 2. 1 Planning Meetings and Analysis • • Should include: – Project Manager – Stakeholders – Selected team members – Other Risk Subject Matter Experts (SMEs) – Anyone responsible for Risk Basic Risk Management Plan gets formulated here. Tools such as Risk Matrix, Categories, etc. get defined and placed into the Risk Management Plan. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 12
Project Risk Management 11. 1. 3 Plan Risk Management Outputs • Methodology – • Roles and Responsibilities – • • Assign resources and estimate costs for Risk Management to include in project cost baseline. Timing – • Define leads, team members and supporting roles; clarify responsibilities for each role. Budgeting – Risk Management 11. 1. 3. 1 Plan Approaches, tools, data sources used to manage risk. 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 13
Project Risk Management 11. 1. 3 Plan Risk Management Outputs (cont’d) • Risk probability and impact scales defined – • Probability and impact matrix – • Risk Management 11. 1. 3. 1 Plan (cont’d) Because tolerances may be project specific Reporting formats – – • Tabular plot of total qualitative risk scores based on probability (vertical) and impact (horizontal) Revised stakeholders’ tolerances – • These form a matrix 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 14
Project Risk Management 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 Force Majeure (natural disasters, war, LOTTO) 15
Project Risk Management 11. 1 Plan Risk Management Terms & 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 16
Project Risk Management 11. 1 Plan Risk Management PMBo. K® Guide, 4 th Edition, p. 277 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 17
Project Risk Management Identify Risks Process Project Management Process Groups Knowledge Area Initiating Planning Executing Monitoring & Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 3 Perform Qualitative Risk Analysis 11. 6 Monitor and Control Risks 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses Across Project Management Process Groups PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 18
Project Risk Management 11. 2 Identify Risks Definition: “Determine which risks might affect the project and document their characteristics. ” PMBo. K® Guide, 4 th Edition, p. 282 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 19
Project Risk Management 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 that presents a possible loss & no possible gain! Risks that were identified. Can be handled in a variety of ways. Risks that were not identified Unknown Risk – – These can not be handled proactively It is prudent to allocate general contingency for these risks PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 20
Project Risk Management 11. 2. 1 Identify Risks Inputs 11. 2. 1. 1 Risk Management Plan Include roles & responsibility assignments, risk budget tasks and categories of risk. 11. 2 Activity Cost Estimates Provides likely cost to complete tasks; often expressed as a range. 11. 2. 1. 3 Activity Duration Estimates Provides likely time to complete tasks; often expressed as a range. 11. 2. 1. 4 Scope Baseline Uncertainty in project assumptions indicate potential areas of risk. 11. 2. 1. 5 Stakeholder Register Provides helpful information to identify key players, e. g. customer. 11. 2. 1. 6 Cost Management Plan The cost management approach may generate or alleviate risk. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 21
Project Risk Management 11. 2. 1 Identify Risks Inputs (cont’d) 11. 2. 1. 7 Schedule Management Plan The schedule management approach may generate or alleviate risk. 11. 2. 1. 8 Quality Management Plan The quality management approach may generate or alleviate risk. 11. 2. 1. 9 Project Documents Include earned value reports, network diagrams and others; helps to identify risks Enterprise 11. 2. 1. 10 Environmental Factors Can influence the risk identification process and may include: benchmarking, risk attitudes, academic studies 11. 2. 1. 11 Organizational Process Assets Can influence the risk identification process and may include: lessons learned, risk templates, project files of actual data PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 22
Project Risk Management 11. 2. 2 Identify Risks Tools and Techniques 11. 2. 2. 1 Documentation Reviews A review of project documentation, e. g. plans, contracts, to identify risks Information 11. 2. 2. 2 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 23
Project Risk Management 11. 2. 2 Identify Risks Tools and Techniques Use risk diagramming techniques including: 11. 2. 2. 5 Diagramming Techniques • • • Cause & effect diagrams Influence diagrams Flow charts 11. 2. 2. 6 SWOT Analysis Identify risks using strengths, weaknesses, opportunities, threats (SWOT) 11. 2. 2. 7 Expert Judgment Utilize expert judgment to identify risks PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 24
Project Risk Management 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! PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 25
Project Risk Management Initiate Risk Register Identify Risks Perform Risk Analysis # Category Risk Potential Result Defined By Date 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 Impact Prob Score Plan Risk Responses Qualtve Impact Risk Strat Notes Owner Monitor & Control Risks Status Date Notes Note: Register Updates in Amber PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 26
Project Risk Management Identify Risks Data Flow Diagram PMBo. K® Guide, 4 th Edition, p. 283 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 27
Project Risk Management Perform Qualitative Risk Analysis Process Project Management Process Groups Knowledge Area Initiating Planning Executing Monitoring & Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 3 Perform Qualitative Risk Analysis 11. 6 Monitor and Control Risks 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses Across Project Management Process Groups PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 28
Project Risk Management 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, 4 th Edition, p. 289 PMBo. K® Guide, 4 th Edition, p. 290 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 29
Project Risk Management 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? PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 30
Project Risk Management 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 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 31
Project Risk Management Example of Ordinal Scale Rank Probability 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 Impact 32
Project Risk Management 11. 3. 1 Perform Qualitative Risk Analysis Inputs 11. 3. 1. 1 Risk Register An output from Identify Risks. • Risk Management 11. 3. 1. 2 Plan • An output from Plan Risk Management; an input to all other Risk processes. New elements that apply to this process: Risk categories Probability and impact matrix Revised stakeholder risk tolerances – – – Project Scope 11. 3 Statement • • • 11. 3. 1. 4 Organizational Process Assets • An input for Plan Risk Management. Simple or complex project (defined in scope statement) – which would have more risks? An input for prior Risk processes. Organizational Process Assets can provide: – – Data from similar projects previously completed Risk databases from industry or alternate sources PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 33
Project Risk Management 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. 11. 3. 2. 3 Expert Judgment An analysis of the quality of the data used to assess the risk, due to the potential for being subjective and open to bias. 11. 3. 2. 4 Risk Categorization Risks can be categorized to illustrate most vulnerable areas of the project; categories may include risk source (RBS), 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 34
Project Risk Management 11. 3. 3 Perform Qualitative Risk Analysis Outputs 11. 3. 3. 1 Risk Register Updates • Relative ranking or prioritization of risks (NEW) • Risks grouped by category • Causes of risks requiring special attention (NEW) • Risks requiring response in the near-term (NEW) • Risks requiring further analysis and response (NEW) – Quantitative risk analysis & response planning • Watch-lists of low priority risks (NEW) • Trends in qualitative analysis results (NEW) PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 35
Project Risk Management Update Risk Register Identify Risks Perform Risk Analysis Plan Risk Responses Category Risk Potential Result Defined By Date Tech IT Resource Availability Unable to meet project schedule Brian 15 Jun Mod impact to sched 2 Contracts Project contract negotiate Inability to complete project goals Wendy 22 Jun Mod impact to goals 3 Cost Scope Creep Project Budget Overrun Jeff 30 Jun Signif impact to cost # 1 Impact Prob Score Qualtve Impact Risk Strat Notes Owner Monitor & Control Risks Status Date Notes Note: Register Updates in Amber PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 36
Project Risk Management Perform Qualitative Risk Analysis Data Flow Diagram PMBo. K® Guide, 4 th Edition, p. 290 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 37
Project Risk Management Perform Quantitative Risk Analysis Project Management Process Groups Knowledge Area Initiating Planning Executing Monitoring & Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 3 Perform Qualitative Risk Analysis 11. 6 Monitor and Control Risks 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses Across Project Management Process Groups PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 38
Project Risk Management 11. 4 Perform Quantitative Risk Analysis Definition: “The process of numerically analyzing the effect of identified risks on overall project objectives. ” PMBo. K® Guide, 4 th Edition, p. 294 PMBo. K® Guide, 4 th Edition, p. 295 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 39
Project Risk Management 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 40
Project Risk Management 11. 4. 1 Perform Quantitative Risk Analysis Inputs 11. 4. 1. 1 Risk Register Was an input and output to Perform Qualitative Risk Analysis 11. 4. 1. 2 Risk Management Plan An input to multiple risk processes 11. 4. 1. 3 Cost Management Plan An input to multiple risk processes 11. 4 Schedule Management Plan An input to Plan Risk Management and Identify Risks 11. 4. 1. 5 Organizational Process Assets An input to the three prior risk processes: • Plan Risk Management • • Identify Risks Perform Qualitative Analysis PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 41
Project Risk Management 11. 4. 1 Perform Quantitative Risk Analysis Tools and Techniques • Data Gathering and 11. 4. 1. 1 Representation Techniques 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 use Monte Carlo technique – Quantitative Risk Analysis & 11. 4. 1. 2 Modeling Techniques • 11. 4. 1. 3 Expert Judgment A technique used in the two prior risk processes PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 42
Project Risk Management 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 43
Project Risk Management Expected Monetary Value (EMV) Analysis EMV = Probability x Impact Risk Event Probability of Occurrence X Impact = Expected Value 1 10% $500, 000 overrun 10 week delay $50, 000 1 week delay 2 50% $100, 000 overrun 16 week delay $50, 000 8 week delay 3 75% $10, 000 overrun 2 week delay $7, 500 1. 5 week delay PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 44
Project Risk Management 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 45
Project Risk Management Decision Tree Example Probability (P) Aggressive Schedule (EMV = $4, 000) Uncertain Outcome multiplied by x P =. 20 Outcome EXPECTED MONETARY = VALUE +100, 000 = + $20, 000 Decision X Uncertain Outcome Conservative Schedule (EMV = $1, 000) P =. 80 x - $20, 000 = - $16, 000 P =. 30 x - $20, 000 = - $6, 000 P =. 70 x + $10, 000 = + $7, 000 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 46
Project Risk Management 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) PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 47
Project Risk Management 11. 4. 3 Perform Quantitative Risk Analysis Outputs 11. 4. 3. 1 Risk Register Updates • Probabilistic analysis of the project • Probability of achieving cost and time objectives • Prioritized list of quantified risks • Trends in quantitative risk analysis results PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 48
Project Risk Management Update Risk Register Identify Risks Perform Risk Analysis Plan Risk Responses Category Risk Potential Result Defined By Date Impact Prob Score Qualtve Impact 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 Risk Strat Notes Owner Monitor & Control Risks Status Date Notes Amber 49
Project Risk Management 11. 4 Perform Quantitative Risk Analysis PMBo. K® Guide, 4 th Edition, p. 295 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 50
Project Risk Management Plan Risk Responses Process Project Management Process Groups Knowledge Area Initiating Planning Executing Monitoring & Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 3 Perform Qualitative Risk Analysis 11. 6 Monitor and Control Risks 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses Across Project Management Process Groups PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 51
Project Risk Management 11. 5 Plan Risk Responses Definition: “The process of developing options and actions to reduce threats and enhance opportunities to project objectives. ” PMBo. K® Guide, 4 th Edition, p. 301 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 52
Project Risk Management 11. 5. 1 Plan Risk Responses Inputs 11. 5. 1. 1 Risk Register Risk Management 11. 5. 1. 2 Plan • Was an input and output to Perform Qualitative Risk Analysis. • Risk Register now contains a list of risks and risk analysis information. • An input to multiple risk processes. • Important components include roles and responsibilities, definitions, timing for reviews, and risk thresholds. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 53
Project Risk Management 11. 5. 2 Plan Risk Responses Tools & Techniques • • Strategies for 11. 5. 2. 1 Negative Risks (Threats) • • 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). – 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 54
Project Risk Management 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 55
Project Risk Management 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: PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 56
Project Risk Management 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 57
Project Risk Management 11. 5. 2 Plan Risk Responses Tools & Techniques (cont’d) • • Strategies for 11. 5. 2. 2 Positive Risks (Opportunities) • • Exploit – Ensure an opportunity is realized, eliminate uncertainty. – Example: Assign “A Team” to project Share – 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 58
Project Risk Management Strategies for Positive Risks (Opportunities) Homework / Self Study Situation: Define a situation Risk: Define Positive Risks (Opportunities) Options: Think about it - what are they? Exploit: Share: Enhance: Accept: PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 59
Project Risk Management 11. 5. 2 Plan Risk Responses Tools & Techniques (cont’d) Contingent 11. 5. 2. 3 Response Strategies • Special Responses to be employed if triggered by events • Sufficient warning is required to be effective. • Example: Trigger - Missing intermediate milestone • 11. 5. 2. 4 Expert Judgment • Input from any group or person relating to any actions to be taken on a specific identified risk. Knowledge, skill, experience or training in risk responses. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 60
Project Risk Management 11. 5. 2 Plan Risk Responses Outputs 11. 5. 3. 1 11. 5. 3. 2 Risk Register Updates Risk Related Contract Decisions Project 11. 5. 3. 3 Management Plan Updates • Rick Response Strategies for prioritized risks • Triggers, symptoms and warning signs • Budget and schedule activities (related) • Contingency plans and associated triggers • Secondary and Residual Risks, if applicable • To transfer risk, as applicable. • Provides input to the Plan Procurements Process. • Schedule Management Plan • Cost Management Plan • Quality Management Plan • Procurement Management Plan • Human Resource Management Plan • Work Breakdown Structure (WBS) • Schedule Baseline • Cost Performance Baseline PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 61
Project Risk Management 11. 5. 2 Plan Risk Responses Outputs • 11. 5. 3. 4 Project Document Updates Assumptions Log Updates – • (cont’d) May be part of Scope Statement or separate. Technical Documentation Updates – Update any new technical approaches. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 62
Project Risk Management Update Risk Register Identify Risks # 1 2 3 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 Category 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 Score Plan Risk Responses Qualtve Impact Risk Strat Notes With Apprvd Sponsor Chg Rqst Owner 0. 24 Mod impact to sched Avoid, extend sched 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 Monitor & Control Risks Status Date Notes PM Jeff Amber 63
Project Risk Management 11. 5 Plan Risk Responses PMBo. K® Guide, 4 th Edition, p. 302 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 64
Project Risk Management Monitor and Control Risks Process Project Management Process Groups Knowledge Area Initiating Planning Executing Monitoring & Controlling Closing 11. 1 Plan Risk Management 11. 2 Identify Risks 11. Project Risk Management 11. 3 Perform Qualitative Risk Analysis 11. 6 Monitor and Control Risks 11. 4 Perform Quantitative Risk Analysis 11. 5 Plan Risk Responses Across Project Management Process Groups PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 65
Project Risk Management 11. 6 Monitor and 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, 4 th Edition, p. 308 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 66
Project Risk Management 11. 6. 1 Monitor and Control Risks Inputs 11. 6. 1. 1 Risk Register 11. 6. 1. 2 Project Management Plan 11. 6. 1. 3 Work Performance Information 11. 6. 1. 4 Performance Reports • • Was an input and output to Plan Risk Responses. Contains the Risk Management Plan, an output of Plan Risk Management and an input to all other Risk processes. • Includes deliverable status, schedule progress & costs incurred. • Project work performance information (over time) that includes: – Variance analysis, Earned value data, Forecasting data PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 67
Project Risk Management 11. 6. 2 Monitor and Control Risks Tools & Techniques 11. 6. 2. 1 Risk Reassessment • • 11. 6. 2. 2 Risk Audits Variance and Trend 11. 6. 2. 3 Analysis Technical 11. 6. 2. 4 Performance Measurement • • A risk review to determine if risks are still valid, need to be updated, can be closed or are new and must be added. Executed as specified in the Risk Management Plan for the Purpose of evaluating the effectiveness of risk responses as applied to identified risks A means to measure planned vs. actual results. Variances in expected results may indicate the impact of threats or opportunities. A gauge of a project’s technical success by evaluating entities like transaction times and storage capacity. Deviations of these may identify the technical risk encountered in the project. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 68
Project Risk Management 11. 6. 2 Monitor and Control Risks Tools & Techniques • 11. 6. 2. 5 Reserve Analysis 11. 6. 2. 6 Status Meetings • 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. Should provide a regular forum for Risk discussion with the team PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 69
Project Risk Management 11. 6. 1 Monitor and Control Risks Outputs • Typical updates during this process may include: – – 11. 6. 3. 1 Risk Register Updates – – • Organizational 11. 6. 3. 2 Process Asset Updates – 11. 6. 3. 3 Change Requests • Identification of new risks or changes to any risk values: probability, impact, priority or ownership Determination that risks can be closed and the subsequent release of any associated reserves. Results or effectiveness of risk responses, which can be used for future risk planning and analysis. Leverage Risk data collected from the six processes to support future projects by recording values from: – • Results of risk reassessments, audits and periodic reviews Risk management plan, probability and impact matrix, risk register, risk breakdown structure Lessons learned from project risk management activities May be required to support contingency plans/workarounds for known/unknown risks, a. k. a. recommended corrective action. Recommended preventive actions are taken to reduce the probability of negative consequences of project risks. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 70
Project Risk Management 11. 6. 1 Monitor and Control Risks Outputs Project 11. 6. 3. 4 Management Plan Updates 11. 6. 3. 5 • Should be updated if any change requests impacted the risk management processes. Project Document Updates PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 71
Project Risk Management Update Risk Register Identify Risks # 1 2 3 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 Category 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 Score Plan Risk Responses Qualtve Impact Risk Strat Notes With Apprvd Sponsor Chg Rqst 0. 24 Mod impact to sched Avoid, extend sched 0. 27 Mod impact to goals Transf er risk with contrct Fixed Price Cont Limits Addtl Risk 0. 56 Signf impact to cost Accept use Cont Resrv With Apprvd Sponsor Chg Rqst Note: Register Updates in PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 Monitor & Control Risks Owner Status Date Notes PM Jeff Projct on sched Risk Closed 31 Oct Tech Tasks Cmplt 16 Aug Cont Cmplt PM Jeff Cont Cmplt Risk Closed No Chg 25 Nov Proj within revised budget Amber 72
Project Risk Management 11. 6 Monitor and Control Risks PMBo. K® Guide, 4 th Edition, p. 309 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 73
Project Risk Management Risk Fact Review Risk Project Risk Response Audits Earned Value Analysis Contingency Reserves 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. • • Management Reserves • • • Time and money for known unknowns. Added on top of the estimate. Made part of the cost baseline. 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. PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 74
Project Risk Management 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? PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 75
Project Risk Management Sample Risk Documents PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 76
Project Risk Management Cause & Effect Diagram PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 77
Project Risk Management 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 PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 78
Project Risk Management Probability Impact Matrix - Sample PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 79
Project Risk Management Expected Monetary Value (EMV) - Example PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 80
Project Risk Management Risk Register Sample – US Army Website PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0 81
Project Risk Management Good Luck!! PMP Prep Course – Project Risk Management - PMBOK 4 th Edition – Version 1. 0
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