Project Risk Management PDF

Project Management Diploma – Intake 35
PROJECT RISK MANAGEMENT

Waleed El-Naggar, MBA, PMP
What is Risk
 Risk = An uncertain event or condition
that, if it occurs, has a Positive or
Negative effect on a project objective
 The severity of any risk can be defined in terms of
two parameters:
 Likelihood (Probability): The extent to which
the risk effects are likely to occur.
 Impact (Consequence): The effect that a risk
will have on the project if it occurs.
Project Risk Management Waleed El-Naggar 2
Profit vs. Risk

Project Risk Management
 The processes of conducting risk planning,
identification, analysis, response planning and
monitoring & control on a project
 Objectives:
 Increase the probability & impact of positive events
 Decrease the probability and impact of negative

events In the project
Risk Sources
 Schedule
 Tasks on the critical/near-critical path
 Optimistically estimated tasks
 Tasks reliant on external dependencies
 Resources
 Tasks with one individual working alone or many people
 Tasks using scarce resources or Under-skilled people
 Illness and turnover
 Budget
 Uncertainty of funds
 Shifts in budget priorities
 Uncertain resource costs
 Scope
 Uncertainty of new product development
 Dynamics of customer requirements
Risk Sources (another view)
INTERNAL EXTERNAL
 Financial  Economical
 Research and  Competition
Development  Social/Cultural
 Production  Regulatory
 Human Resources  Political
 Administrative
 Strategic Preference
Mapping the Processes
Process
Group Initia
PM Planning Executing Controlling Closing
tion
Knowledge Area
11. Risk 11.1 Plan Risk Management 11.6 Monitor and
11.2 Identify Risks Control Risk
11.3 Perform Qualitative

Risk Analysis
11.4 Perform Quantitative

Risk Analysis
11.5 Plan Risk Response

Major Processes
Planning Controlling
11.1
Risk
Management
Planning 11.3
Qualitative 11.5 11.6
Risk Analysis Risk Risk
11.2 Response Monitoring
Risk Planning & Control
Identification 11.4
Quantitative
Risk Analysis

11.1 Plan Risk Management
 The process of defining how to conduct risk
management activities for a project
 Important to provide sufficient resources and

time for risk management activities, and to
establish a basis for evaluating risk.
 Should be completed early during project

planning
Plan Risk Management

Plan Risk Management Data Flow Diagram

Plan Risk Management: Inputs
1. Project Scope Statement
2. Cost Management Plan
3. Schedule Management Plan
4. Communication Management Plan
5. Enterprise Environmental Factors
6. Organizational Process Assets

Plan Risk Management: Tools &
Techniques
1. Planning Meetings and Analysis
Project teams meet with stakeholders. High
level plans for risk management are defined
in these meetings

Plan Risk Management: Outputs
1. Risk Management Plan
 Methodology
 Roles and Responsibilities
 Budgeting
 Timing
 Risk Categories

 Risk Categories
 Risk Breakdown Structure

 Definition of Risk Probability and Impact

 Probability and Impact matrix
 Revised Stakeholders' Tolerance
 Reporting Formats
 Tracking

 Q: “ An uncommon state of nature, characterized by the
absence of any information related to a desired outcome”
, is a common definition for:
A. An act of God
B. An amount at stake
C. Uncertainty
D. Risk aversion
Answer C

11.2 Identify Risks
 Identify Risks is the process of determining
which risks may affect the project and
documenting their characteristics

Identify Risks Data Flow Diagram

Identify Risks: Inputs
2. Activity Cost Estimates
3. Activity Duration Estimation
4. Scope Baseline
5. Stakeholder Register
6. Cost management Plan

Identify Risks: Inputs (contd.)
8. Quality Management Plan
9. Project Documents
10. Enterprise Environmental Factors

Identify Risks: Tools & Techniques
1. Documentation Reviews
2. Checklists
3. Assumption Analysis
4. Information Gathering Techniques
5. Diagramming Techniques
6. SWOT Analysis (Strength, Weakness, Opportunities, Threats)
7. Expert Judgment

Checklists
 The advantage of a checklist is that it’s a simple and
direct approach to identify risks.
 The disadvantage of using a checklist is that the
participants may limit their risk identification to only
the risk categories on the checklists.
 Checklists are great for risk and quality management.
 At project closure, however, be certain to update the
checklists for future projects. The current project will
act as future historical information.

Assumption Analysis
 Examining the assumptions to see what risks
may stem from false assumptions
 Examining assumptions is about finding the

validity of the assumptions.
 Examining the assumptions also requires a

review of assumptions across the whole project
for consistency
Testing Asumptions
Assumptions are weighed using two factors:
 Assumption stability: How reliable is the

information that led to this assumption?
 Assumption consequence What is the effect

on the project if this assumption is false?

Information Gathering Techniques
1. Brainstorming

2. Delphi Technique

3. Interviewing

4. Root-cause Analysis

Diagramming Methods
1. Cause and Effect Diagram (Ishikawa)

Diagramming Methods
2. System or process flow charts

Diagramming Methods
3. Influence Diagram

SWOT Analysis

Identify Risks: Outputs
 Risk Register
 List of identified risks
 List of potential responses

Risk Register Example

Definitions
 Trigger: indications that a risk has occurred
or is about to occur.
 Workaround: a response to a negative risk
that has occurred. (not planned in advance).
 Contingency plan: backup plan. What shall
we do if the risk occurs.

Quiz
Risk tolerances are determined in order to help:
A. The team rank the project risks
B. The project manager estimate the project
C. The team schedule the project
D. Management know how other managers will act

to the project
Answer A
11.3 Perform Qualitative Risk Analysis
 The process of prioritizing risks for further
analysis or action by assessing and combining
their probability of occurrence and impact

11.3 Perform Qualitative Risk Analysis
Data Flow Diagram

Perform Qualitative Risk Analysis: Inputs
1. Risk Register
3. Project Scope Statement

Perform Qualitative Risk Analysis: Tools &
Techniques
1. Risk Probability and Impact Assessment

Perform Qualitative Risk Analysis: Tools &
Techniques
2. Risk Data Quality Assessment
3. Risk Categorization
4. Risk Urgency Assessment
5. Expert Judgment

Perform Qualitative Risk Analysis: Outputs
1. Risk Register Updates
 Relative ranking or priority list of project risks
 Risks grouped by categories
 Causes of risk or project areas requiring

particular attention
 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

11.4 Perform Quantitative Risk
Analysis
 The process of numerically analyzing the
effect of identified risks on overall project
objectives.
 Quantitative analysis is performed on risks
that have been prioritized by the qualitative
risk analysis process as potentially and
substantially impacting the project's
competing demands.
11.4 Perform Quantitative Risk
Analysis Data Flow Diagram

Perform Quantitative Risk Analysis:
Inputs
1. Risk Register
3. Cost Management Plan

Tools & Techniques
1. Data Gathering and Representation
Techniques
 Interviewing
 Probability Distribution

Tools & Techniques
2. Quantitative Risk Analysis and Modeling
Techniques
 Sensitivity analysis
 Expected monetary value analysis
 Modeling and Simulation
3. Expert Judgment
Sensitivity Analysis
 A deterministic modeling technique used to test the
impact of a change in a value of independent
variable on a dependent valuable
 A method of assessing the relative impact of a

change in a factor (variable) on the project
objective
 It is also called “what if analysis”

Sample Sensitivity Analysis

Decision Tree

Simulation
100
90
80
Cumulative Probability
70
60
50
40
30
20
10
0
110 120 130 140 150 160 170 180 190 200
Days After Project Start

Exercise
Purchase: 17,500 70%
80,000
65,000
30%
30,000
47,500
70%
Subcontract: 15,000 75,000
50,000
30%
25,000

Outputs
 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

Quiz
If a project has a 60% chance of a US $ 100,000 profit
and a 40% chance of a US $ 100,000 loss, the expected
monetary value for the project is :
a. $ 100,000 profit
b. $ 60,000 loss
c. $ 20,000 profit
d. $ 40,000 loss
Answer: C

11.5 Plan Risk Responses
 The process of developing options and actions
to enhance opportunities and to reduce
threats to project objectives.

11.5 Plan Risk Responses Data Flow
Diagram

Plan Risk Responses: Inputs
 Risk Register
 Risk Management Plan

Plan Risk Responses: Tools &
Techniques
1. Strategies for negative risks or threats
 Avoid
 Transfer
 Mitigate
 Accept

Response Strategies for Threats
 Avoidance:
 Risk prevention
 Changing the plan to eliminate a risk by avoiding
the cause/source of risk
 Protect project from impact of risk
 Examples:
 Change the implementation strategy
 Do it ourselves (do not subcontract)
 Reduce scope to avoid high risk deliverables
 Adopt a familiar technology or product

 Mitigation
 Seeks to reduce the impact or probability of the risk event
to an acceptable threshold
 Be proactive: Take early actions to reduce
impact/probability and don’t wait until the risk hits your
project
 Examples:
 Staging - More testing - Prototype
 Redundancy planning
 Use more qualified resources

 Transfer
 Shift responsibility of risk consequence to another party
 Does NOT eliminate risk
 Most effective in dealing with financial exposure
 Examples:
 Buy/subcontract: move liabilities
 Selecting type of Procurement contracts: Fixed Price
 Insurance: liabilities + bonds + Warranties
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 Acceptance
 Used when project plan cannot be changed &
other risk response strategy cannot be used
 Active Acceptance
 Develop a contingency plan to execute if the risk occur
 Contingency plan = be ready with Plan B
 Passive Acceptance
 Deal with the risks as they occur = No Plan B prepared
 Contingency allowance/ reserve

 Established amount of reserve (e.g.: time and/or money) to
account for the identified known risks.
 Amount is decided based on probability and impact
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Techniques
2. Strategies for Positive Risks or Opportunities
 Exploit: Ensure opportunity is realized
 Ex: Assigning organization most talented resources
to the project to reduce cost lower than planned.
 Share: Allocating some or all of the ownership to
third part best able to capture the opportunity
 Ex: Joint ventures, special-purpose companies
 Enhance: Increase the probability and/or the
positive impact of the opportunity
 Ex: Adding more resources to finish early
 Accept: Welling to take advantage of opportunity if it
comes, but not actively pursuing it.
Techniques
 Contingent Response Strategies
 Expert Judgment

Plan Risk Responses: Outputs
 Risk-Related Contract Decisions
 Project management Plan Updates
 Project Documents Updates

 Assumptions log updates
 Technical documentation updates

Quiz
Purchasing insurance is BEST considered an
example of risk:
a. Mitigation
b. Transference
c. Acceptance
d. Avoidance
Answer B

Risk reserves
 Contingency Reserve
 Known Unknowns – expectable risks
 Accounts for:
 Amounts dedicated for contingency plans identified in the
risk management process
 Residual risks that we decided to put aside when
developing the risk management plan
 Management Reserve
 Unknown Unknowns – un-expectable risks
 Accounts for items that we did not or could not identify in
the risk management process
Monitor and Control Risks
 The process of implementing risk response
plans, tracking identified risks, monitoring
residual risks, identifying new risks, and
evaluating risk process effectiveness
throughout the project.

Monitor and Control Risks Data Flow Diagram

Monitor and Control Risks: Inputs
1. Risk Register
2. Project Management Plan
3. Work Performance Information
4. Performance Reports

Monitor and Control Risks: Tools &
Techniques
 Risk Assessment
 Risk audits
 Variance and Trend Analysis
 Technical Performance Measurement
 Reserve Analysis
 Status Meetings
Monitor and Control Risks: Outputs
 Organizational Process Updates
 Change Requests
 Recommended corrective actions
 Recommended preventive actions
 Project management Plan Updates
 Project Document Updates

Quiz
What should be done with a non- critical Risk?
a. Document them for historical use on other
projects
b. Document them and revisit during project
execution
c. Document them and set them aside because
they are already covered in your contingency
plans
d. Document them and give them to the customer
Answer B
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Project Management Diploma – Intake 35

PROJECT RISK MANAGEMENT

Project Risk Management Waleed El-Naggar 3

 Decrease the probability and impact of negative

11. Risk 11.1 Plan Risk Management 11.6 Monitor and

11.2 Identify Risks Control Risk

11.3 Perform Qualitative

11.4 Perform Quantitative

11.5 Plan Risk Response

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 Important to provide sufficient resources and

 Should be completed early during project

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2. Cost Management Plan

3. Schedule Management Plan

4. Communication Management Plan

5. Enterprise Environmental Factors

6. Organizational Process Assets

Project teams meet with stakeholders. High

level plans for risk management are defined

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 Roles and Responsibilities

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 Probability and Impact matrix

 Revised Stakeholders' Tolerance

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2. Activity Cost Estimates

3. Activity Duration Estimation

6. Cost management Plan

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8. Quality Management Plan

10. Enterprise Environmental Factors

11. Organizational Process Assets

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4. Information Gathering Techniques

6. SWOT Analysis (Strength, Weakness, Opportunities, Threats)

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 Examining assumptions is about finding the

 Examining the assumptions also requires a

 Assumption stability: How reliable is the

 Assumption consequence What is the effect

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 List of identified risks

 List of potential responses

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