RISK MANAGEMENT

Chapter 7

Copyright ©2016 Pearson Education, Inc.

 CHAPTER 7
LEARNING OBJECTIVES
After completing this chapter, you should be able to:
1. Define project risk.
2. Recognize four key stages in project risk management
and the steps necessary to manage risk.
3. Understand five primary causes of project risk and four
major approaches to risk identification.
4. Recognize four primary risk mitigation strategies.
5. Explain the Project Risk Analysis and Management
(PRAM) process.

Copyright ©2016 Pearson Education, Inc. 7-2

 PMBOK CORE CONCEPTS

Project Management Body of Knowledge (PMBoK) covered

in this chapter includes:
1. Plan Risk Management (PMBoK 11.1)
2. Identify Risks (PMBoK 11.2)
3. Perform Qualitative Risk Analysis (PMBoK 11.3)
4. Perform Quantitative Risk Analysis (PMBoK 11.4)
5. Plan Risk Responses (PMBoK 11.5)
6. Control Risks (PMBoK 11.6)

Copyright ©2016 Pearson Education, Inc. 7-3

 QUESTIONS TO CONSIDER IN RISK
MANAGEMENT
 What is likely to happen (the probability and
impact)?
 What can be done to minimize the probability or
impact of these events?
 What cues will signal the need for such action
(i.e., what clues should I actively look for)?
 What are the likely outcomes of these problems
and my anticipated reaction?

Copyright ©2016 Pearson Education, Inc. 7-4

 RISK MANAGEMENT

Risk management – the art and science of identifying,

analyzing, and responding to risk factors throughout the
life of a project and in the best interest of its objectives.

Project risk – an uncertain event or condition that, if it

occurs, has a positive or negative effect on one or more
project objectives such as scope, schedule, cost, or
quality.

Risk = (Probability of Event) * (Consequences of Event)

Copyright ©2016 Pearson Education, Inc. 7-5
 RISK VERSUS AMOUNT AT STAKE:
CHALLENGE IN RISK MANAGEMENT
(FIGURE 7.2)

Copyright ©2016 Pearson Education, Inc. 7-6

 FOUR STAGES OF RISK MANAGEMENT

1. Risk identification

2. Analysis of probability and consequences

3. Risk mitigation strategies

4. Control and documentation

Copyright ©2016 Pearson Education, Inc. 7-7

 RISK CLUSTERS

Financial  Execution
Technical  Contractual or legal
Commercial risk

Common Types of Risks

• Absenteeism • Skills unavailable
• Resignation • Ineffective training
• Staff pulled away • Specs incomplete
• Time overruns • Change orders
Copyright ©2016 Pearson Education, Inc. 7-8
 RISK FACTOR IDENTIFICATION

Brainstorming meetings

Expert opinion

Past history

Multiple (or team based) assessments

Copyright ©2016 Pearson Education, Inc. 7-9

 RISK BREAKDOWN STRUCTURE (RBS)
(FIGURE 7.4)

Copyright ©2016 Pearson Education, Inc. 7-10

 RISK IMPACT MATRIX
(FIGURE 7.5)

Copyright ©2016 Pearson Education, Inc. 7-11

 PROJECT RISK SCORING

1. Use project team’s consensus to determine the score for each

Probability of Failure category: Maturity (Pm), Complexity
(Pc), and Dependency (Pd).
2. Calculate overall probability.

Pm  Pc  Pd
Pf 
3
3. Use project team’s consensus to determine the score for each
Consequence of Failure category: Cost (Cc), Schedule (Cs),
Reliability (Cr), and Performance (Cp).

Copyright ©2016 Pearson Education, Inc. 7-12

 PROJECT RISK SCORING
4. Calculate Cf by adding the four categories and dividing by 4:
Cc  Cs  Cr  C p
Cf 
4
5. Calculate Overall Risk factor for the project by using the
formula:

RF  Pf  C f  ( Pf )(C f )
Rule of Thumb:
Low Risk RF < 0.30
Medium Risk RF = 0.30 to 0.70
High Risk RF > 0.70

Copyright ©2016 Pearson Education, Inc. 7-13

 RISK MITIGATION STRATEGIES

 Accept  Other Mitigation

Strategies
 Minimize
 Mentoring
 Share  Cross training
 Transfer  Control and
 Contingency Reserves Documentation
 Task contingency  Change management
 Managerial contingency
 Insurance

Copyright ©2016 Pearson Education, Inc. 7-14

 CONTROL & DOCUMENTATION

Helps managers classify and codify risks, responses, and

outcomes

Change management report system answers:

 What?
 Who?
 When?
 Why?
 How?

Copyright ©2016 Pearson Education, Inc. 7-15

 PROJECT RISK ANALYSIS &
MANAGEMENT (PRAM)
PRAM presents a generic methodology that can be applied to
multiple project environments, and encompasses the key
components of project risk management.

Key Features of PRAM

 Risk management follows a life cycle.
 Risk management strategy changes over the
project life cycle.
 Synthesized, coherent approach

Copyright ©2016 Pearson Education, Inc. 7-16

 NINE PHASES OF
RISK ASSESSMENT
1. Define
2. Focus
3. Identify
4. Structure
5. Clarify ownership of risks
6. Estimate
7. Evaluate
8. Plan
9. Manage
Copyright ©2016 Pearson Education, Inc. 7-17
 SUMMARY

1. Define project risk.

2. Recognize four key stages in project risk
management and the steps necessary to
manage risk.
3. Understand five primary causes of project risk
and four major approaches to risk identification.
4. Recognize four primary risk mitigation
strategies.
5. Explain the Project Risk Analysis and
Management (PRAM) process.
Copyright ©2016 Pearson Education, Inc. 7-18
Copyright ©2016 Pearson Education, Inc. 7-19