PMP Lecture 8
Transcript of PMP Lecture 8
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AUC TechnologiesConsulting | Development | Mentoring | Training
Project Management With PMP Exam Preparation
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Agenda
Plan Risk Management
Identify Risk
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Plan Risk Response
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Project Risk Management
Project risk management is the art and science of identifying,
analyzing, and responding to risk throughout the life of a project
and in the best interests of meeting project objectives
Risk management is often overlooked on projects, but it can
help improve project success by helping select good projects,
determining project scope, and developing realistic estimates
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Why Take Risks? Because of Opportunities!
OpportunitiesRisks
Try to balance risks and opportunities
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Negative Risk
A dictionary definition of risk is the possibility of loss or injury
Negative risk involves understanding potential problems that
might occur on the project and how they might impede project
success
Negative risk management is like a form of insurance; it is an
investment
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Risk Can Be Positive
Positive risks are risks that result in good things happening;
sometimes called opportunities
A more general definition of project risk is an uncertainty that
can have a negative or positive effect on meeting project
objectives
The goal of project risk management is to minimize potential
negative risks while maximizing potential positive risks
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Risk Utility Risk Tolerance
Risk toleranceaddresses the level of risk a project manager
or key stakeholder is willing to take when money at stake is
compared to the potential payoff. Its measured in terms of
the amount of satisfaction or pleasure the individual
receives from a payoff.
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Risk Utility Risk Tolerance- Classifications
Classification Description
Risk-averter Not likely to take a risk that is considered a
high risk.
Risk-seeker Prefers an uncertain outcome and may be
willing to pay a penalty to take a high risk.
Risk-neutral Tolerance to risk is proportional to the
amount of money at stake.
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Plan Risk Management
A plan that documents the procedures for managing risk
throughout a project
The project team should review project documents and
understand the organizations and the sponsors approach to
risk
The level of detail will vary with the needs of the project
Descr ib ing how to approach, plan, and execu te the risk
management act iv i t ies for a pro ject
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Plan Risk Management
1. Enterprise
Environmental
Factor
2. Organizational
Process Asset
3. Scope statement
4. Project Mgmt Plan
1. Planning Meeting
and analysis
1. Risk ManagementPlan
Input
Output
Tools
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Risk Management Plan Components
Component Description
Methodology Defines the tools, approaches, and data
sources that may be used to perform risk
management on the project.
Budgeting A budget for project risk management
should be established and included in
the risk management plan.
Role & Defines the lead, support, and riskResponsibility management team membership for
each type of action in the risk
management plan.
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Risk Management Plan Components
Component Description
Timing Defines how often the risk management
activities will be performed throughout
the project life cycle.
Risk categories Documentation such as risk breakdown
structures (RBSes) or categories from
previous projects will help identify and
organize risks.
Definitions of risk Risks and their probabilities are
probability & impact defined for use in
Qalitative Risk Analysis using a scale of very Unlikely to almost
certain.
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Risk Breakdown Structure
A risk breakdown structure (RBS) organizes potential
sources of risk to the project. Functioning much like a work
breakdown structure, an RBS arranges categories into a
hierarchy. This approach allows the project team to define
risk at very detailed levels.
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Risk Breakdown Structure Template
IT Project
Business Technical OrganizationalProject
Management
Competitors
Suppliers
Cash flow
Hardware
Software
Network
Executive
support
User support
Team support
Estimates
Communication
Resources
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Identify Risk
Risk identification is the process to figure out every
possible risk that might affect your project.
Its not about how unlikely the risk is, or how bad the
impact would beit will be figure out later process
Determ in ing wh ich r isks m ight af fect the pro ject and
document ing their character is t ics
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1. Risk management plan
2. Activity cost estimates
3. Activity duration
estimates
4. Scope baseline
5. Stakeholder register6. Cost management
plan
7. Schedule management
plan
8. Quality management
plan
9. Project documents
10. Enterprise
environmental factors
11. Organizational
process assets
1. Documentati
on reviews
2. Informationgathering
techniques
3. Checklist
analysis
4. Diagramming
techniques5. SWOT
analysis
6. Expert
judgment
Input
Tools
1. Risk register
updates
Output
Identify Risk
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Identify Risk - Inputs
1.Enterprise Environmental Factors
Published Information
Commercial databases
Academic studies
Benchmarking and other Industry studies
2.Organizational Process Assets
Historical experiences
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Identify Risk Identification - Inputs
3.Project Scope Statement
Uncertainty in project assumptions
4.Risk Management Plan
Assignment of roles and responsibilities
Provision for Risk Management activities in Schedule and
Budget
Categorizing Risks5.Project Management Plan
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Identify Risk Tools & Techniques
1.Documentation Reviews
Performing structured reviews of Project artifacts
2.Information Gathering Techniques
Brainstorming
Delphi Technique
Interviewing
Root Cause Identification
SWOT Analysis
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Identify Risk Tools & Techniques
Checklist Analysis
Developing Risk identification checklist based on historical
precedence's
Assumptions Analysis
Diagramming Techniques
Cause-and-effect diagram
System or process flow charts
Influence diagrams
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Identify Risk - Output Risk Register
The output of the risk identification process is risk register
is a document that contains results of various risk
management processes, often displayed in a table or
spreadsheet format
is a tool for documenting potential risk events and related
information
Risk events refer to specific, uncertain events that may occur
to the detriment or enhancement of the project
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Sample Risk Register
Identified Risks Potential
Responses
Root Causes
Each risk that you
and team come upshould go here
Your Risk
Identificationmeetings should
always include a
discussion of how
to respond to the
risk
This is where the
result of rootcause analysis
lists
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Perform Qualitative Risk Analysis
Some risks will cause a whole lot of damage to your project
if they happen, while others will barely make a scratch
and you care much more about the risks that will have a big
impact
Prior i t izing Risks for subs equent fu r ther analys is or act ion
by assessing and combin ing their probabi l i ty or occurrence
and impact
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1. Risk register
2. Risk management plan
3. Project scopestatement
4. Organizational process
assets
1. Risk probability
and impact
assessment2. Probability and
impact matrix
3. Risk data quality
assessment
4. Risk
categorization
5. Risk urgencyassessment
6. Expert judgment
Input
Tools
1. Risk registerupdates
Output
Perform Qualitative Risk Analysis
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Perform Qualitative Risk Analysis - Inputs
1.Organizational Process Assets
Data about risks on past projects
Lessons learned knowledge base
Project Scope Statement
Projects of common or recurring type
Projects using first-of-its-type technology
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Perform Qualitative Risk Analysis - Inputs
3.Risk Management Plan
Roles and responsibilities
Budget, and schedule activities for risk management
Risk Categories
Definition of probability and impact
Probability and impact matrix
Revised stakeholders tolerance
4.Risk Register
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Qualitative Analysis Tools & Techniques
1.Risk Probability and Impact Assessment
Risk assessment by interviews
Meetings with participants
2.Probability and Impact Matrix
Risk ratings
Classification of risks as high, moderate and low
Risk Score Card
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Qualitative Analysis Tools & Techniques
3.Risk data Quality Assessment
Accuracy
Quality
Integrity of data about risk
4.Risk categorization
By sources of risk
By area of project affected
5.Risk Urgency Assessment
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Probability/Impact Matrix Template
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Probability/Impact Matrix Template
Risk Score for a Specific Risk Chart Threshold Limits
Probability Risk Score = P x I Moderate High
0.9 0.05 0.09 0.18 0.36 0.72 0.05 0.18
0.7 0.04 0.07 0.14 0.28 0.56
Set Chart Threshold Limitshere by
changing Moderateand Highlimits
to desired values.
0.5 0.03 0.05 0.10 0.20 0.40
0.3 0.02 0.03 0.06 0.12 0.24
0.1 0.01 0.01 0.02 0.04 0.08
0.05 0.10 0.20 0.40 0.80
Impact on an Objective (e.g., cost, time, or
scope)(Ratio Scale)
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Qualitative Risk Analysis - Output
Identified
Risks
PotentialResponses
RootCauses
Category Priority Urgency
Each
risk
that
you
and
team
comeup
should
go
here
Your Risk
Identificati
on
meetings
should
always
include adiscussio
n of how
to
respond
to the risk
This is
where
the
result
of root
cause
analysis lists
Source
of Risk
Project
Phase
How
Import
ant a
risk is.
When you
Need to deal
with it
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Risk Register Assignment
Create a Risk Register of given Case Study use qualitative
risk analysis tools and list the items
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Quantitative Risk Analysis
Often follows qualitative risk analysis, but both can be done
together or separately
Large, complex project involving leading edge technologies
often require extensive quantitative risk analysis
Numerical ly assignin g the effect on overal l pro ject object ive
of ident i f ied r isks
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1. Risk register
2. Risk management
plan
3. Cost managementplan
4. Schedule
management plan
5. Organizational
process assets
1. Data
gathering andrepresentatio
n techniques
2. Quantitative
risk analysis
and modeling
techniques
3. Expertjudgment
Input
Tools
1. Risk register
updates
Output
Perform Quantitative Risk Analysis
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Quantitative Risk Analysis - Inputs
Organizational Process Asset
Information on similar risk in other projects, Risk
database and study of similar risk by specialist
Project Scope Statement
Initial Risk identification
Risk Management Plan
Roles and Responsibilities, risk categories, revised
stakeholders
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Quantitative Risk Analysis - Inputs
Risk Register
List of identified risks, Risk ranking and Risk
Categorization
Project Management Plan Project Schedule Mgt Plan
Controls Project schedule
Project Cost Mgt Plan
Controls Project budget
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Quantitative Risk AnalysisTools & Techniques
Data gathering and representation
Interviewing: Taking subjective probability and representing
that data objectively.
Probability distributions: Visually represents risk probability.
Expert judgment: Utilizes subject matter experts to validate
a particular risk.
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Quantitative Risk AnalysisTools & Techniques
Quantitative risk analysis and modeling
Sensitivity analysis: Examines how the uncertainty of a project
element affects the objective in question if the other uncertain
elements remain unchanged.
Expected monetary value analysis: Calculates the average
outcome under uncertainty.
Decision tree analysis: Evaluates possible outcomes to help the
decision-maker select the decision that provides the greatest
expected value.
Modeling and simulation: Includes cost risk analysis, which is
most commonly performed using the Monte Carlo method.
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Decision Trees and Expected Monetary Value
Decision tree is a diagramming analysis technique used to
help select the best course of action in situations in which
future outcomes are uncertain
Expected monetary value (EMV) analysisis a method of
calculating the average outcome when the future is uncertain.
(Opportunities will have positive values and risks will have
negative values.)
You can draw a decision tree to help find the EMV
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Expected Monetary Value (EMV) Example
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Decision Tree Example
90%
60%
100,000 PKR
Airline A Fare
10,000PKR
Airline B Fare
8000PKR
100,000 PKR
PIA 10000 + (90% * 0=0) + (100,000 *
10%=10000)=20,000
Air
Blue
8000 + (60% * 0=0) + (100,000 *
40%=40,000)=48,000
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Plan Risk Response
After identifying and quantifying risk, you must decide how to
respond to them
How to approach and conduct Risk Response Planning
Prepare Risk response Plan
Developing opt ions and act ions to enhance oppo rtuni t ies,
and to reduce threats to project object ives
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1. Risk register
2. Risk management
plan
1. Strategies
for negative
risks orthreats
2. Strategies
for positive
risks or
opportunities
3. Contingentresponse
Strategies
4. Expert
judgment
Input
Tools1. Risk Register
updates
2. Risk-related
contractdecisions
3. Project
management
plan updates
4. Project
document
updates
Output
Plan Risk Response
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Response Strategies for Negative Risks
Risk Avoidance Eliminate the threat by eliminating the cause
Risk Mitigation
Reduce the probability or the impact of a threat
Risk Transference
Make another party responsible for the risk throughpurchasing of insurance, performance bonds,
warranties, guaranteed or outsourcing the work
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Response Strategies for Positive Risks
Risk exploitation (the reverse of avoid) Add work or change the project to make sure the
opportunity occurs
Risk sharing
Allocate ownership of the opportunity to a third party
( forming a partnership, team or joint venture)
Risk enhancement (the reverse of mitigate)
Increase the likelihood, probability and positive impactsof the risk event
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Questions