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A guide to passing PMP exam! series..

Project Risk ManagementKnowledge Area

Based on the PMBOK book

For a freeeBookon Project Management, and brain-friendly

notes for PMP and CAPM certification exams

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Plan Risk Management


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Plan risk management is the process to create a

plan that identifies methods of managing risks,defines risk categories, assigns right people to

handle risks, outlines risk budget, and identifies

probability and impact matrix.

As a planning activity this process is carried out

after most of the other planning exercises are

completed - such as scope, cost, schedule and

communication, because all of these need to be

studied in order to assess risks inherent in them.


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Describes how risk management is going to be

structured and performed on the project.

This plan gives you the tools to identify, assess and

manage risks: Roles and responsibilities

Risk management budget

Risk categorization such as Risk Breakdown Structure Probability and impact matrix

Stakeholders risk tolerance

Risk reporting format

Risk Management Plan


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Risk Breakdown Structure


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Identify Risks


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Diagramming Techniques Cause andEffect Diagrams

Also called Ishikawa diagrams or Fishbone

diagrams, these are used to identify potential

reasons causing an observed effect.


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Diagramming Techniques System /Process flow charts

These are used toidentify risks in

systems or the

processes defined.


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SWOT analysisis a structured planning methodmaking use of Strengths, Weaknesses,Opportunities and Threats involved in a project

and its environment, in order to make most of it.

While first two are internal factors, last two are

external (in the environment) factors. SWOTanalysis is done for the entire project from aholistic perspective.

SWOT Analysis


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SWOT Analysis

Once identified, you try

to maximize on Strengths,

capitalize Opportunities,

improve uponWeaknesses and

negate/work around the

Threats.

Image courtesy: Wikipedia
http://en.wikipedia.org/wiki/File:SWOT_en.svghttp://en.wikipedia.org/wiki/File:SWOT_en.svg


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Brainstorming is a group technique conducted

by a facilitator. Multiple groups can brainstorm

independently and identify risks. With this

exercise risk categories, scale, definitions canalso be updated.

Interviewing is quite useful as you tap into

people's understanding of the project and

issues, and unearth risks.

Information gathering techniques


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Information gathering techniques

Root cause analysisis about studying aproblem, investigating the root causes andidentifying preventive actions.

Delphi techniqueis driven by a facilitator, whosends the questionnaire to all participants. She

summarizes responses and circulates back in thegroup by removing author names, and getsfurther feedback. This iteration ends when mostof the risks are identified.


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Output - Risk Register

Risk register contains list of all identified risks,

their root causes and potential responses.


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Perform Qualitative Risk

Anal sis


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This is the process where you prioritize

risks in risk register based on analysis,

and by assessing the probability of arisk materializing and its impact on

project objectives.


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This is a tabular representation that assigns a numericalvalue to every combination of probability value and

impact value. This is maintained by your company and

you use this to assign a magnitude to the risks.

Probability and Impact Matrix


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For instance, you are preparing tea for the

guests. What are the couple of possible risks youcan think of?

adding more sugar than required, making tea

too sweet

over-boiling the tea, making it bitter


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Perform

QuantitativeRisk Analysis


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This process is done as a supporting action,to back your qualitative analysis of risks

with some solid numbers.

It may also be possible that certain risks

could not be analyzed qualitatively andhence you use quantitative risk analysis to

prioritize them.


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Probability distribution

This is used to plot range of cost and scheduleassociated with a risk.

Commonly used ones

are beta distribution

that uses two value

parameters (alphaand beta), and

triangular

distributionwhich

uses three

parameters (most-likely, best-case,

worst-case).


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Quantitative Risk Analysis andModeling Techniques

Sensitivity analysis is very useful when you want

to look at impact of the risk on just one of the

project objectives, while assuming that there isno impact on the rest of them.

Expected monetary value (EMV) analysisis

about coming up with possible scenarios to dealwith a risk and assessing how much each of

those paths will cost the project.


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Modeling and simulation translate detailed

uncertainties of the projectinto their potentialimpact on project objectives.

As an example, for plotting simulation of coin toss -

Drawing a large numberof pseudo-randomuniform variables from the interval [0,1], and

assigning values less than or equal to 0.50 as

heads and greater than 0.50 as tails, is a Monte

Carlo simulation of the behavior of repeatedly

tossing a coin. (reference: Wikipedia)


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Plan Risk Responses


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Strategies for Negative Risks(Threats)

Avoid- change project plan, adjust one or more projectobjectives such as reducing scope or changing scheduleto avoid the risk.

Transfer- transfer some or all of the risk and ownershipof response to a third party, like buying an insurance.

Mitigate- reduce the probability of risk by taking certainactions in advance, such as adding more tests around thehi-risk areas, making simpler designs, reducingcomplexity of components, having development

checklists, or assigning best resources for developing riskymodules/parts.

Accept- at times there is nothing one can do to avoid riskand project management team decides to deal with it ifand when it occurs.


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Strategies for Positive Risks(Opportunities)

Exploit - plan in such a way that you remove alluncertainties and make sure that this positive riskmaterializes for sure.

Share - share with a third party and get some of thebenefits of this opportunity.

Enhance- do all that is possible to increaselikelihood of this risk materialization.

Accept - just like the responses for negative risk,this is just not doing anything actively to pursue theopportunity but being prepared to take the benefitif it materializes.


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If you need a Mnemonic to remember, use this"Negative ATMA, PositivE SEA

Strategies for negativerisks are Avoid, Transfer,Mitigate and Accept; for positiverisks they areExploit, Share, Enhance, Accept.

Better still, create one of your own. Sillier it is,easier to remember!


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Output - Risk register updates

All potential responses identified for each risk

are added to the risk register. Secondary risks

(ones introduced due to application of a risk

response) are also added. Residual risks (onesremaining even after applying risk responses)

are added too.

Risk response owners, their responsibilities,categories, priorities are other data added to the

risk register.


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Risk register updates


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Monitor and Control Risks


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Monitor and Control Risks is a process tolook out for identified, residualand

secondaryrisks, to identify any new risks,

to take corrective actions when any risksmaterialize, to plan further preventive

actions when you identify trend of a new

risk, and to measure effectiveness of riskresponses.


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Residual Versus Secondary Risks

Residual risksare the smallerrisks

remaining even after identifying

responses for bigger risks.

Secondary risksare the newrisks that

come up due to responses planned to

manage risks.


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Tools and Techniques

Riskreassessment- as the project progresses you findout that some of the risks are not relevant; probabilityor priorities of few risks are changed, and new risks areidentified. All this can be found by regularly reassessing

the risks in risk register.

Riskaudits- as the word audit suggests this exercise isa methodical examination of how effectively risks have

been managed, how root causes are analyzed, whethertimely corrective or preventive actions are taken, andhow often risk reassessments are done and what hasbeen their effectiveness.


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Varianceandtrendanalysis- this is about looking atproject performance over a period of time, studyingthe trends of cost, schedule and scope variances frombaselines, and then trying to forecast whether there is

a risk of any of them going rough in near future.

Technicalperformancemeasurement- this is aboutcomparing project performance against planned

performance. For instance, if you were to complete thehigh level architecture definition by certain date andthe project did not realize this milestone, then theremay be risks in development processes that are

overlooked.


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Reserveanalysis - during Determine Budget process you usedthis tool to keep aside certain amount of contingency reserves

for realized risks. This reserve is utilized only when certain risks

materialize. You need to watch remaining reserve to see

whether it would be sufficient to deal with remaining risks.

Statusmeetings- these are the team meetings to go over risks

and strategies to manage them. This serves two purposes :

(a) team is aware of what risks may come up and so they willbe equipped to look out for symptoms,

(b) they will be able to contribute to risk mitigation strategies

and come up with good risk responses.
http://link/http://link/


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References

Project Risk Management Knowledge Area

Plan Risk Management

Identify Risks

Perform Qualitative Risk Analysis Perform Quantitative Risk Analysis

How to calculate Expected Monitory Value for a

project? Plan Risk Responses

Monitor and Control Risks
http://www.pmexamsmartnotes.com/project-risk-management-knowledge-area/http://www.pmexamsmartnotes.com/plan-risk-management/http://www.pmexamsmartnotes.com/identify-risks-process/http://www.pmexamsmartnotes.com/perform-qualitative-risk-analysis/http://www.pmexamsmartnotes.com/perform-quantitative-risk-analysis/http://www.pmexamsmartnotes.com/how-to-calculate-expected-monitory-value-for-a-project/http://www.pmexamsmartnotes.com/how-to-calculate-expected-monitory-value-for-a-project/http://www.pmexamsmartnotes.com/plan-risk-responses-process/http://www.pmexamsmartnotes.com/monitor-and-control-risks/http://www.pmexamsmartnotes.com/monitor-and-control-risks/http://www.pmexamsmartnotes.com/plan-risk-responses-process/http://www.pmexamsmartnotes.com/how-to-calculate-expected-monitory-value-for-a-project/http://www.pmexamsmartnotes.com/how-to-calculate-expected-monitory-value-for-a-project/http://www.pmexamsmartnotes.com/how-to-calculate-expected-monitory-value-for-a-project/http://www.pmexamsmartnotes.com/how-to-calculate-expected-monitory-value-for-a-project/http://www.pmexamsmartnotes.com/perform-quantitative-risk-analysis/http://www.pmexamsmartnotes.com/perform-quantitative-risk-analysis/http://www.pmexamsmartnotes.com/perform-qualitative-risk-analysis/http://www.pmexamsmartnotes.com/perform-qualitative-risk-analysis/http://www.pmexamsmartnotes.com/perform-qualitative-risk-analysis/http://www.pmexamsmartnotes.com/identify-risks-process/http://www.pmexamsmartnotes.com/plan-risk-management/http://www.pmexamsmartnotes.com/plan-risk-management/http://www.pmexamsmartnotes.com/project-risk-management-knowledge-area/


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