PMP Preparation - 11 Risk Management

PMP Lectures Prepared By: Eng. Mohamed
ElSaadany
0. Introduction
1. Plan Risk Management
2. Identify Risks
3. Perform Qualitative Risk Analysis
4. Perform Quantitative Risk Analysis
5. Plan Risk Responses
6. Control Risks
Lecture 11 : Project Risk Management ( 1/31)
C ont ent s

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Definitions:
• Project risk is an uncertain event or condition that, if it occurs, has a
positive or negative effect on one or more project objectives.
• Through risk management you try to increase probability and impact of
opportunities, while decrease probability and impact of threats.
• Uncertainty: Lack of knowledge that reduce confidence in conclusions
• Risk Averse: Someone who doesn’t want to take risks. ‫المخاطر‬ ‫يتجنب‬
• Risk Tolerance: Area of acceptable risks
• Thresholds: The point at which risk becomes unacceptable.
Risk Factors:
• Probability : How much percent risk may occur
• Impact: Range of possible outcomes (Time – Money)
• Timing: When the risk is expected to take place
• Frequency: How often this risk is expected to happen
0 . Int roduct ion

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P r o j e c t R i s k M a n a g e m e n t
11.1 Plan Risk Management
Inputs :
 Project Management Plan
 Project Charter
 Stake Holder Register
 Enterprise Environmental Factors
 Organizational Process Assets
Tools and Techniques :
 Analytical Techniques
 Expert Judgment
 Meetings
Outputs :
 Risk Management Plan
0 1 . Plan R isk Management

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O Risk Management Plan:
• Methodology: Approaches, tools, and data sources that will be used
• Roles & responsibilities: Who will do what
Team member
Name
Role Responsibilities
Ahmed Arafa
Risk
Manager
1. Develop the risk management plan
2. Manage the risk management team.
3. Follow up that risk management activities are being done
with the valid manner in the right time.
4. Monitor contingency reserve and maintain the sufficiency
of monetary in reserve fund.
5. Report on risk management activities.
Ayman Nagy
Risk
Software
Admin
1. Administrate the risk management program.
2. Maintain and monitor the privilege of users.
Wael Samy
Risk
Engineer
1. Share in the identification of risks.
2. Develop the qualitative and quantitative analysis.

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• Budget: Estimated funds that will be needed
• Timing: When and how often risk management processes will be done
• Definitions of risk probability and impacts: Define different levels of risk
impact and probability. This will help standardize interpretations to be
compared with other projects.
Activity
2014 2015
Aug Sep Oct Nov Dec Jan Feb Mar
Risk Plan
Risks Identification
Risk Assessment
Response Plan
Project Item
Classification
Low Medium High
Time < 10% Delay 10-25% Delay > 25% Delay

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• Risk Categories: Simple list or risk breakdown structure. Can be
categorized according to the following:
 Ex1: External – Internal
 EX2(Caused by): Customer – Supplier – Cultural Differences –
Resistance to Changes – Customer’s customers.
 EX3(Source): Schedule – Cost – Quality – Scope – Resources –
Customer satisfaction

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• Stakeholders Tolerances: This should be uncovered in project initiation
• Reporting Formats: How risk management output will be analyzed and
documented.
• Tracking: How risk activities will be recorded, tracked, and audited.

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0 2 . Ident if y R isks
11.2 Identify Risks
Inputs :
 Risk Management Plan ■ Cost Management Plan
 Schedule Management Plan ■ Quality Management Plan
 Human Resource Management Plan ■ Scope Baseline
 Activity Cost Estimates ■ Activity Duration Estimates
 Stakeholder Register ■ Project Documents
 Procurement Documents
 Enterprise Environmental Factors Updates
 Organizational Process Assets Updates
 Documentation Reviews ■ Information Gathering Techniques
 Checklist Analysis ■ Assumptions Analysis
 Diagramming Techniques ■ SWOT Analysis
 Expert Judgment
Outputs :
 Risk Register

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TT Documentation Review
Including charter, plans, assumptions, contracts, and other documents.
The quality and consistency of plans is an indication for risks in the project
TT Information Gathering Techniques:
1. Brainstorming: Ideas are generated to obtain a comprehensive list of risks.
2. Delphi Technique: Experts participate anonymously till consensus.
3. Interviewing
4. Root Cause Analysis: Identify issue, determine causes, preventive action

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Lecture 11 : Project R isk Management (10/31)
TT Checklist Analysis
Developed based on historical information from past projects.
The lowest level of RBS can be used as a checklist.

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TT Diagramming Techniques:
1. Fishbone: Identifying causes will identify new risks.
2. System process flow charts: Shows how problem have occurred
3. Influence Diagrams: Shows causal influence with time order and relations.
TT Assumptions Analysis
Whether the assumptions are valid, inaccurate, incomplete, inconsistent.
Influence Diagram

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TT SWOT Analysis
S= Strength W= Weakness
O= Opportunities T= Threats
Identify opportunities that are result of organization strength as well as
threats that are result of organization weakness
Strengths
 Recently, the company acquired a furniture
manufacturing company.
 Steel bars price is expected to decrease in this
season.
Weaknesses
 The company experience in marine work is very
weak.
 Agent in China for custom relationships is about to
bankrupt.
Opportunities
 Convince the project client to furnish the project
after building.
 Buy total quantity of steel bars in this season
Threats
 Slippage of time schedule because of marine work.
 Supplies that will be imported from Chaina may
delay.

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O Risk Register:
• Document the following information of identified risks:
Description, risk owner, risk category, root cause, impact on project
objectives, probability of occurring, proposed responses, and
current status.
• Risk register will be updated through each process of risk management.
• At this point, it contains list of risks, list of potential responses, root
causes of risks, and risk categories.
ID Risk Description Root cause Proposed response
1 Lack of labors Booming in economy
Increase benefits in
addition to best salary in
industry
2
Delay in marine
work package
Weak experience in
marine work
Award marine work to a
qualified subcontractor
3
4

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0 3 . Perf orm Qualit at ive R isk A nalysis
11.3 Perform Qualitative risk Analysis
Inputs :
 Scope Baseline
 Risk Register
 Risk Probability and Impact Assessment
 Probability and Impact Matrix
 Risk Data Quality Assessment
 Risk Categorization
 Risk Urgency Assessment
 Expert Judgment
Outputs :
 Project Documents Updates

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TT Risk Probability and Impact Assessment:
• Probability and impact are assessed for each identified risk through
meetings and interviews with stakeholders who are familiar with risk
categories.
TT Probability and Impact Matrix:
• A table specifies combinations of
probability and impact that lead to rate the
risks as low, moderate, or high priority.
• This helps finding risks need immediate
response, risks need additional analysis,
and risks need to be put on the watchlist.
TT Risk Data Quality Assessment:
• Before using any data , you should check that it’s accurate and integrated.

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TT Risk Categorization:
• Risks are grouped by sources of risk (ex: project phase, WBS, people, ..etc)
• This will let you know the causes that have the most risk associated
TT Risk Urgency Assessment:
• This will be applied to risks that move more quickly than others
• Urgent risks may move independently to risk response planning while the
others continue through quantitative risk analysis
O Update Risk Register
• Prioritized risks and their probability & impact ratings.
• Risks need additional analysis
• Watchlist: Non-critical risks
• Note: Risk Register may be used to compare risks to other projects, and to
determine whether to continue or terminate project
• Also, assumptions log will be updated through this process.

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0 4 . Perf orm Quant it at ive R isk A nalysis
11.4 Perform Quantitative Risk Analysis
Inputs :
 Cost Management Plan
 Schedule Management Plan
 Risk Register
 Data Gathering and Representation Techniques
 Quantitative Risk Analysis and Modeling Techniques
 Expert Judgment
Outputs :

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Purpose:
• Determine which risks need response
• Determine overall project risk (Risk Exposure)
• Quantified probability of meeting project objectives
Ex: We have probability of 80% to finish project in the required six months
• Determine cost reserve and schedule reserve
Qualitative Vs. Quantitative Analysis
Qualitative Analysis Quantitative analysis
Subjective evaluation ‫تقدير‬‫شخصي‬ Objective and numerical ‫وعددي‬ ‫موضوعي‬
Example of result : High risk Example of result : Impact = $ 5000
Required for all risks Not required for all risks
- May be called Risk Assessment

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Probability Distribution:
• Quantitative analysis utilizes computer software to model probability
distribution.
• This can be depicted graphically using continuous or discrete distribution.
Continuous Probability Distribution Discrete Probability distribution
Show Uncertainties in values Show Uncertainties in Events
Values are infinitely divisible Values are whole numbers
Uses 3 point estimates Looks like bar chart
Typically used for time/cost simulation Used for decision tree scenarios, prototypes, or tests

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TT Quantitative risk analysis and modeling techniques:
1. Modeling and Simulation
2. Expected Monetary Value (EMV)
3. Sensitivity Analysis
1- Modeling and Simulation:
• Performed using Monte Carlo technique
• Calculating project data many times using network diagram and estimates
to assess cost and schedule impacts
• Evaluate overall risk of the project
• Provide probability of completing project on specific time / specific cost
• Provide probability of any activity being on critical path
• Translate uncertainties into impacts to the total project
• Results in probability distribution

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2- Expected Monetary Value :
• EMV = P x I where P=Probability and I=Impact

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2- Expected Monetary Value :

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3- Sensitivity Analysis:
• Helps to determine which risk have the most impact on the project
• It examines the extent to which uncertainty affects objective being studied
• Tornado diagram is a typical display of sensitivity analysis
Base
Units Labor Cost Material Cost Total Cost Result
250 Units $ 30 $ 50 $ 20’000 - -
Quantity
Change
Scenario (1-1)
Increase 50 Units
300 Units $ 30 $ 50 $24’000 + 20 %
Lower
Limit
Scenario (1-2)
Decrease 30 Units
220 Units $ 30 $ 50 $ 17’600 - 12 %
Upper
Limit
Labor Cost
Change
Scenario (2-1)
Labor cost $ 40
250 Units $ 40 $ 50 $ 22’500 +12.5 %
Lower
Limit
Scenario (2-2)
Labor cost $ 25
250 Units $ 25 $ 50 $ 18’750 - 6.25 %
Upper
Limit

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O Update Risk Register
• Risk accommodation: Amount of contingency time/cost reserve needed
• Probability of achieving project cost and time objectives
Ex: 80% to complete on project time, or 70% to complete within budget
• Completion date/cost with confidence level
Ex: 70% confidence to finish on May 17th
• Prioritized list of quantified risks
ID
Risk
Description
Rootcause
Proposed
response
Ranking
(Priority)
Category
Additional
Analysis
Urgency
Watchlist
1 Lack of labors
Booming in
economy
Increase benefits in
addition to best salary in
industry
Medium Resources Not required Yes No
2
Delay in
marine work
package
Weak
experience in
marine work
Award marine work to a
qualified subcontractor
High Schedule Required No No
3
4

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0 5 . Plan R isk R esponses
11.5 Plan Risk Responses
Inputs :
 Risk Register
 Strategies for Negative Risks or Threats
 Strategies for Positive Risks or Opportunities
 Contingent Response Strategies
 Expert Judgment
Outputs :
 Project Management Plan Updates

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Identify Risks
Qualitative analysis
Quantitative Analysis
Minor
Risks
Plan Response
(Contingency Plan)
Watch List
AcceptanceMitigation
Residual Risks
OK
Secondary
Risks
Positive
(Reserve)
Negative
No Reserve

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Definitions:
• Risk Trigger: A sign which provides warning that risk is about to occur
• Contingency Plan: Planned response to be performed when trigger happened
• Fallback Plan: Plan to be used when planned response prove ineffective
• Residual Risk: Risk remains after acceptance
• Secondary Risk: A direct result of implementing a risk response
• Workaround: Unplanned response developed to deal with occurrence of
unanticipated risk events.
• Contingency Reserve: Funds or time allocated by PM for known-unknowns
• Management Reserve: Funds or time allocated by top management for
unknown-unknowns .

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TT Strategies For Threats
1. Avoid: Eliminate cause. Ex: Removing work package
2. Mitigate: Reduce probability or impact. Ex: Choose better supplier
3. Transfer: Make another party in responsibility. Ex: Contract and insurance.
4. Accept: This could be positive or negative acceptance
• Negative Acceptance : Just document the risk
• Positive Acceptance: Allocate reserve for the risk (Money / Time)
TT Strategies For Opportunities
1. Exploit: Ensure opportunity happen. Ex: Use experienced PM to finish early
2. Enhance: Increase Probability / Impact. Ex: Select reliable vendor
3. Share: Allocate ownership of opportunity to a third party. Ex: Joint Venture
4. Accept: Willing to take opportunity if it comes but not pursuing it ‫ال‬‫تسعى‬‫لها‬
Note for Questions: When trigger occurred, implement response plan

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0 6 . C ont rol R isks
11.6 Control Risks
Inputs :
 Project Management Plan ■ Risk Register
 Work Performance Data ■ Work Performance Reports
 Risk Reassessment
 Risk Audits
 Variance and Trend Analysis
 Technical Performance Measurement
 Reserve Analysis
 Meetings
Outputs :
 Work Performance Information
 Change Requests
 Project Management Plan Updates
 Organizational Process Assets Updates

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TT
Monitor & Control Risk
• Look for occurrence of risk triggers
• Monitor residual risks
• Evaluate effectiveness of risk management plan
• Collect / communicate risk status
• Determine if assumptions still valid
• Recommend corrective actions
• Use contingency reserves
Risk Reassessment
Periodically review risk management plan and risk register and adjust them
as required . Also, close risks that are outdated.
TT Risk Audit
Auditors will ask you to prove that you have identified all the risks, you have
plans for each major risk, and risk owner is prepared to take action.

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TT Variance and Trend Analysis
Variance may indicate Impact of threats and opportunities
TT Technical Performance Measurement
Ex: Weight, capacity, or no. of defects. Calculating deviation will make you
able to forecast a success degree in achieving scope.
TT Reserve Analysis
• compare amount of reserves remaining to amount of risk remaining
• Note that contingency reserve may only used to handle impact of risk that
it was set aside for. If risk didn’t occur, reserve returned to the company
• Asking for addition reserve indicates that PM has not properly planned

PMP Preparation - 11 Risk Management

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