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Project Management

Certificate Program

1

Risk Management

Terry Skaggs ( Denver class)

[email protected]

719-783-0880

Lee Varra-Nelson (Fort Collins class)

[email protected]

970-407-9744 or 970-215-4949

mailto:[email protected]

mailto:[email protected]

Project Management

Certificate Program

2

Introduction

In this Module we will cover:

• Overview of PMI processes

• Overview of PMI knowledge areas

• Risk management

3

INITIATING PLANNING

CONTROLLING

CLOSING

EXECUTING

Project Management Process Areas

4

PMI Process Groups to Knowledge Areas

Map (PMBOK page 70)Knowledge Area Initiating Planning Execution Controlling Closing

Integration 4.1, 4.2 4.3 4.4 4.5, 4.6 4.7

Scope 5.1, 5.2, 5.3 5.4, 5.5

Time 6.1, 6.2, 6.3, 6.4,

6.5

6.6

Cost 7.1, 7.2 7.3

Quality 8.1 8.2 8.3

HR 9.1 9.2, 9.3 9.4

Communications 10.1 10.2 10.3, 10.4

Risk11.1, 11.2,

11.3, 11.4,

11.5

11.6

Procurement 12.1, 12.2 12.3, 12.4 12.5 12.6

* Notice Risk Management processes mostly all in planning process group

5

Risk Happens. . .

• We all take risks on a daily bases. . .

• Risk is in every thing we do, every action we take and every action we don’t take.

• Risks comes from different sources

• Internal to the project or external to the project

• May be known or unknown (planned/unplanned)

• Not all are bad (opportunities vs threats). . .

• Risk types:

• Business - risk of gain or loss

• Pure (insurable) risk - loss only (fire, theft, injury)

6

.

Risk Management

7

Risk management is the

systematic process of identifying,

analyzing and responding to

project risk.

Risk Management

8

11.1 Risk Management Planning

11.2 Risk Identification

11.3 Qualitative Risk Analysis

11.4 Quantitative Risk Analysis

11.5 Risk Response Planning

11.6 Risk Monitoring and Control

Risk Management Processes

9

...is the process of deciding how to

approach, plan, and execute the

risk management activities for a

project.

11.1 Risk Management Planning

10

Real World - Think book ends - Planning & Monitoring

[PwwwM] on the ends and www = (see below) and think

www = world wide web for great sources of research of

potential risks and lessons learned.

Then Think

1) Which risks apply to our project? (identification)

2) Why do we care? (analysis - qualitative & quantitative)

3) What can we do about it? (response planning)

Risk Management Processes

11

Inputs

• Enterprise Environmental Factors

• Organizational Process Assessment

• Project Scope Statement

• Project Management Plan

Risk Management Planning

12

Tools & Techniques

• Planning Meetings and Analysis

Outputs

• Risk Management Plan


13

• Methodology

• Roles & responsibilities

• Budgeting

• Timing

• Risk categories

• Definition of probability &

impact

• Probability & impact matrix

• Revised stakeholders’

tolerances

• Reporting formats

• Tracking

Elements of a Risk Management Plan

14

Methodology

Defines approach, tools and data sources that may be used to perform risk management on the project.

Example:

The project team will meet weekly to conduct a risk meeting. This meeting will determine new risks, analyze...


15

Roles and Responsibilities

Defines the lead, support and risk management

team membership for each type of activity in the

risk management plan, assigns people to these

roles, and clarifies their responsibilities.

Example:

The project manager will chair each risk meeting.

Each core team member is responsible for...


16

Budgeting

Assigns resources and estimates costs needed for

risk management for inclusion in the project cost

baseline.

Example:

The team has allocated 10% of the project budget

or $10,000 toward the risk...


17

Timing

Defines when and how often the risk management process will be performed throughout the project life cycle, and establishes risk management activities to be included in the project schedule.

Example:

The project team will meet weekly to conduct a risk meeting. In the middle of the project, the team will…


18

Risk Categories

Provides a structure that ensures a comprehensive

process of systematically identifying risk to a

consistent level of detail and contributes to the

effectiveness and quality of Risk Identification.

Example:

The team shall use the RBS to identify risk

categories and …


19

Definition of Risk Probability and Impact

The quality and credibility of the Qualitative Risk

Analysis process requires that different levels of the

risks’ probability and impact be defined.

Example:

The team shall use a High, Medium, Low scale for

both probability and impact.


20

Probability & Impact Matrix

Risks are prioritized according to their potential

implications for meeting the project’s objectives.

Example: High B

Med C

Low A

Low Med High


(also see sample tables 5.1 Heldman book, p184 and p252 PMBOK)

21

Stakeholder Tolerance

Stakeholders’ tolerances may be revised in the

Risk Management Planning process, as they apply

to the specific project.

Example:

Stakeholder wishes to hold schedule constant and

sacrifice cost if risks occur…


22

Reporting FormatsDescribes the content and format of the risk register as well as any other risk reports required. Defines how the outcomes of the risk management process will be documented, analyzed, and communicated.

Basic Example:

RISK DESCRIPTION OWNER RESPONSE BUDGET ETC.


23

Tracking

Documents how all facets of risk activities will be

recorded for the benefit of the current project,

future needs, and lessons learned.

Example:

Risk audits will be performed once a month using a

independent survey...


24

Risk Management Plan Exercise

• Pick a new project manager

• For each plan element, describe

its use on the class project

• Create a risk management plan

for your project

Methodology Definition of risk probability & impact

Roles & responsibility Probability & impact matrix

Budgeting Revised stakeholders’ tolerances

Timing Reporting format

Risk Categories Tracking

25

11.2 Risk Identification

determines which risks might affect the

project and documents their characteristics.

26

Risk Identification

INPUTS

• Enterprise Environmental Factors

• Organizational Process Assets




27

Risk Identification

• Insurance risks (Pure Risk)

a type of risk that has a chance for a

loss.

• Business risks

a chance for profit or loss within a

business venture.

28

Risk Category Examples

Risk sources

• External unpredictable

• External predictable

• Internal (non - Technical)

• Technical

• Legal

From Max Wideman

Risk Identification

29

External Risk

Cause lies outside the project’s

control, but impacts the project

direction.

Risk Identification

30

External Risks

External Unpredictable External Predictable

Government/Regulatory Market Risks

Natural Hazards Operational

Vandalism Environmental Impacts

Sabotage Inflation/Currency changes

Political Unrest Taxation

Etc. Etc.

Risk Identification

31

Internal Non-Technical Risk

Events within the control of project management

which present uncertainty that may impact

program/project direction.

• Management

• Schedule

• Cost

• Cash Flow

• Loss of Potential

Risk Identification

32

Technical Risk

Risks relating to evaluating/using state-of-the-art

systems/processes/products that may impact

project direction and support.

• Design Risks

• Changes in Technology

• Performance

• Design

• Size & Complexity of the Project

Risk Identification

33

Legal Risks

• Licenses/Patent Rights

• Lawsuits

• Contractual failure

• Claims

• Outsider suit

• Insider suit

• Force majeure - uncontrollable event

Risk Identification

34

Tools & Techniques

• Documentation Reviews

• Information Gathering Techniques

• Checklists

• Assumptions Analysis

• Diagramming Techniques

Risk Identification

35

Information Gathering Techniques

• Brainstorming

• Delphi technique

• Interviewing

• Root Cause analysis

• Strengths, Weaknesses, Opportunities and

Threats analysis (SWOT)

Risk Identification

36

Diagramming Techniques

• Cause-and-effect

• Ishikawa or fishbone

• System or process flow charts

• Influence

• force field analysis, relationship, time

order of events

Risk Identification

37

Outputs

• Risk Register• List of identified risks

• List of potential responses

• Root cause of risk

• Updated risk categories

• Triggers

• Inputs to other processes

Risk Identification

38

Risk Identification &

Trigger Exercise

• Create a list of risks

for the class project.

• Identify at least 8

risks.

• Identify the Triggers

Risk Identification

39

… is the process of assessing the

probability and impact of identified risks.

probability impact

likelihood consequence

chance effect

possibility outcome

odds

11.3 Qualitative Risk Analysis

40


Risk Monitoring & Control

Qualitative Risk Analysis

Risk Identification

Quantitative Risk Analysis

Risk Response Planning

Often

Seldom,

but sometimes


41

Inputs

• Organizational Process Assets



• Risk Register


42

Tools & Techniques

• Risk Probability & Impact Assessment

• Probability & Impact Matrix

• Risk Data Quality Assessment

• Risk Categorization

• Risk Urgency Assessment


43

Outputs• Risk Register (Updates)

• Relative ranking or priority list of project risks

• Risks grouped by categories

• List of risks requiring response in the near-term

• List of risks for additional analysis and response

• Watch lists of low priority risks

• Trends in qualitative risk analysis results


44

QUALITATIVE RISK ANALYSIS ASSESS

PROBABILITY & IMPACT EXERCISE

• Assess the probability of the risk event happening.

• Assess the impact to the project of the event happening.

• Determine what criteria you will use to prioritize

• Prioritize your list


45

…analyzes the effect of those [prioritized] risk events and assigns a numerical rating to those risks. It also presents a quantitative approach to making decisions in the presence of uncertainty.

11.4 Quantitative Risk Analysis

46

Inputs• Organizational Process Assets



• Risk Register


• Project schedule management plan

• Project cost management plan


47

Tools & Techniques• Data Gathering and Representation Techniques

• Interviewing

• Probability distributions

• Expert judgment

• Quantitative Risk Analysis & Modeling Techniques• Sensitivity Analysis

• Expected monetary value analysis

• Decision tree analysis

• Modeling & simulation


48

Sample Decision Tree Analysis Question is, do we build a new prototype or not?


Prototypo

Prototype Setup cost = $200,000

No prototype Setup cost = $0

Failure: 35% probability and

$120,000 impact

Failure: 70% probability and

$450,000 impact

Pass: no impact to project

Pass: no impact to project

Prototype .35 x $120,000=$42,000 +$200,000= $242,000

Do not prototype .70 x $450,000 = $315,000 (costs more due to rework)

Page 340 Rita Mulcahy book. Also see

p258 PMBOK for additional example

49

Expected Monetary Value


Buy Acme or

Buy Nadir

Water Pumps

Buy Acme

400 trucks

$500@

5% fail rate

$150 repair cost

$100 maintenance cost

Acme

400x$500=$200,000

Nadir

400x$485=$194,000

Maintain

(0.95)(400)($100)

Fail

(0.05)(400)($150)

Payoff EMV

$38,000

Maintain

(0.85)(400)($100)

Fail

(0.15)(400)($200)

$3,000

$34,000

$12,000

$241,000

$240,000

Buy Nadir

400 trucks

$485@

15% fail rate

$200 repair cost

$100 maintenance cost

50

Monte CarloThe Monte Carlo method is a simulation by means of random

numbers. The basic steps are:

1. Assess the range for the variables and determine

the probability distribution.

2. Select a random value for each variable.

3. Run a deterministic analysis.

4. Repeat steps 2 and 3 a number of times to

obtain probability distribution.


51

Outputs

• Risk Register (Updates)

• Probabilistic analysis of the project

• Probability of achieving cost and time

objectives

• Prioritized list of quantifies risks

• Trends in quantitative risk analysis results


52

Quantitative Risk Analysis Exercise

• Assess the amount at stake with the possibility of the

risk event happening for your top 2 risks


53

… is the process of developing options and

determining actions to enhance

opportunities and reduce threats to the

project’s objectives.

11.5 Risk Response Planning

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Inputs


• Risk Register


55

Tools & Techniques

• Strategies for Negative Risks or Threats

• Avoidance

• Transference

• Mitigation


56

Avoidance

I do not accept this option because of the potentially unfavorable results.

• Examples:

• Screening out contractors during source

selections.

• Elimination approaches on parallel technology

programs.


57

TransferenceI will attempt to share or deflect this risk with others.

• Examples:

• Warranties

• Insurance policies

• Contracting out / types of contract

• Bond - bid, performance, payment


58

MitigationI will take the necessary measures required to

control this risk by continually re-evaluating it and

developing fall-back positions.

• Examples:

• Risk reduction milestones

• Reviews

• Risk budgeting

• Contingency planning


59

Tools & Techniques

• Strategies for Both Threats and Opportunities

• Acceptance


60

Acceptance

I know the risk exists and am aware of the consequence. I will accept the consequence if it should occur.

• Examples:

• On schedule, on cost, etc.

• Most decisions to proceed with an action

• Contingency reserve


61

Tools & Techniques

• Contingency Response Strategy

• Plans recorded for the likelihood of the

event

• Triggers identified/monitored

• Responsible individual to respond


62

Outputs


• Project Management Plan (Updates)

• Risk-Related contractual Agreements


63

• Contingency & fall back plans

• Contingency Reserves

• Level of residual risk

• Secondary risks

Risk Response Plan Contents• Identified risks

• Risk owner

• Qualitative/Quantitative analysis

• Response

• Triggers

• Actions to implement strategy

• Budget & times for responses


64

Risk Response PlanBasic Example:

RISK OWNER RESPONSE ACTIONS TO IMPLEMENT

CONTINGENCY


65

Mitigation Versus Contingency

Mitigation plans

• Forward looking

• Designed to prevent risk from occurring

Contingency plans

• Designed to respond to risk once it

occurs


66

Risk Reserves

• Management Reserve

•Project Contingency Reserve


67

Team Exercise (if time allows)

• Break into your teams

• Pick new PM (20 min. exercise)

• Identify top 5 risks on your project

and create a risk response plan.

• PM to report results


68

• … is the process of identifying, analyzing and planning for newly arising risks, • keeping track of the identified risks and those on the watchlist, • reanalyzing existing risks, monitoring trigger conditions for contingency plans,• monitoring residual risks, and • reviewing the execution of risk responses while evaluating their effectiveness.

11.6 Risk Monitoring & Control

69

Inputs


• Risk Register

• Approved Change Requests

• Work Performance Information

• Performance Reports


70

Tools & Techniques

• Risk Reassessment

• Risk Audits

• Variance & Trend Analysis

• Technical Performance Measurement

• Reserve Analysis

• Status Meetings


71

Outputs


• Requested Changes

• Recommended Corrective Actions

• Recommended Preventive Actions

• Organizational Process Assets (Updates)

• Project Management Plan (Updates)


72


Exercise

• You have a new potential risk

affecting your

project. (Make it – Shelve it)

• Step through the entire risk

methodology for this new risk


Project Management

Certificate Program

73

Summation

• Risk Management is mostly a planning process

• Risk Management uses Progressive Elaboration

• Risk Management is often not done (but should be)

• Project complexity drives Risk Management effort

• Risk Management ownership: the client

• The Project Managers job is to provide motivation,

focus and organization to risk management

• The Project Manager ensure Risk Management

documentation

Project Management

Certificate Program

74

Assignment for Next Week

• Read PMBOK Chapter 12

(Procurement)

• Read page 387 – 394 in Kim

Heldman (black & white) book

• Read ONLY - Creating the contract

exercise 9.1 (p. 777-780), Heldman

book

• COMPLETE exercise 11.2 (p. 816 -

820) Closing a Project or Phase and

review your answers on page 821 &

822 in Heldman book.

Project Management

Certificate Program

75

Congratulations!!