11 Project Management l11

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PROJECT MANAGEMENT

Risk management part 2

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Today outline2

Quantitative Risk analysis

Risk Response Planning

Risk Monitoring and Control


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Quantitative Risk analysis3

The Quantitative Risk Analysis process analyzes the

effect of those risk events and assigns a numerical

rating to those risks

This process uses techniques such as Monte Carlosimulation and decision tree


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Quantitative Risk Analysis: Inputs, Tools & Techniques,and Outputs

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Inputs5

Organizational Process Assets

Project Scope Statement

Risk Management Plan

Risk Register

Project Management Plan


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Tools and Techniques6

1. Data Gathering and Representation Techniques:

Interviewing.

Interviewing techniques are used to quantify the probability

and impact of risks on project objectives Examples of three-point estimates for a cost estimate are shown

in figure. Documenting the rationale of the risk ranges is an

important component of the risk interview, because it can provide

information on reliability and credibility of the analysis.


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Range of Project Cost Estimates Collected During theRisk Interview

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Probability distributions

Continuous probability distributions represent the uncertainty

in values, such as durations of schedule activities and costs

of project components

Two examples of widely used continuous distributions are shown

in figure . These asymmetrical distributions depict shapes that are

compatible with the data typically developed during the project

risk analysis. Uniform distributions can be used if there is no

obvious value that is more likely than any other between

specified high and low bounds, such as in the early concept stageof design.


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Expert judgment

2. Quantitative Risk Analysis and Modeling Techniques

Sensitivity analysis

Sensitivity analysis helps to determine which risks have the most potential impact onthe project. It examines the extent to which the uncertainty of each project elementaffects the objective being examined when all other uncertain elements are held at

their baseline values. Expected monetary value analysis

Expected monetary value (EMV) analysis is a statistical concept that calculates theaverage outcome when the future includes scenarios that may or may not happen

The EMV of opportunities will generally be expressed as positive values, while thoseof risks will be negative

EMV is calculated by multiplying the value of each possible outcome by itsprobability of occurrence

and adding them together

A common use of this type of analysis is in decision tree analysis


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Decision tree analysis

Decision tree analysis is usually structured using a decision

tree diagram

that describes a situation under consideration, and the

implications of each of the available choices and possible

scenarios

Modeling and simulation

A project simulation uses a model that translates the

uncertainties specified at a detailed level of the project into

their potential impact on project objectives. Simulations are

typically performed using the Monte Carlo technique


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Outputs12

Risk Register (Updates)

Probabilistic analysis of the project.

Estimates are made of potential project schedule and cost outcomes,listing the possible completion dates and costs with their associatedconfidence levels

Probability of achieving cost and time objectives. With the risksfacing the project, the probability of achieving project objectivesunder the current plan can be estimated using quantitative riskanalysis results

Prioritized list of quantified risks. This list of risks includes those

that pose the greatest threat or present the greatest opportunityto the project

Trends in quantitative risk analysis results. As the analysis isrepeated, a trend may become apparent that leads toconclusions affecting risk responses.


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Risk Response Planning13

Risk Response Planning is the process of developing options,and determining actions to enhance opportunities andreduce threats to the project's objectives

Risk Response Planning addresses the risks by their priority,

inserting resources and activities into the budget, schedule,and project management plan, as needed.

Contingency plan or Primary and backup strategies may beselected

A fallback plan can be developed for implementation if the

selected strategy turns out not to be fully effective, or if anaccepted risk occurs

Often, a contingency reserve is allocated for time or cost.Finally


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Risk Response Planning: Inputs, Tools & Techniques, andOutputs

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Inputs15


Risk Register


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Strategies for Positive Risks or Opportunities

Three responses are suggested to deal with risks with potentially positiveimpacts on project objectives. These strategies are to exploit, share, orenhance: Exploit. This strategy may be selected for risks with positive impacts where

the organization wishes to ensure that the opportunity is realized. Thisstrategy seeks to eliminate the uncertainty associated with a particularupside risk by making the opportunity definitely happen.

Share. Sharing a positive risk involves allocating ownership to a third partywho is best able to capture the opportunity for the benefit of the project.Examples of sharing actions include forming risk-sharing partnerships, teams,special-purpose companies, or joint ventures, which can be established withthe express purpose of managing opportunities.

Enhance. This strategy modifies the 'size' of an opportunity by increasingprobability and/or positive impacts, and by identifying and maximizing keydrivers of these positive-impact risks


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Strategy for Both Threats and Opportunities

Acceptance: A strategy that is adopted because it is seldompossible to eliminate all risk from a project. This strategyindicates that the project team has decided not to change

the project management plan to deal with a risk, or isunable to identify any other suitable response strategy.

This strategy can be either passive or active Passive acceptance requires no action, leaving the project team to

deal with the threats or opportunities as they occur

The most common active acceptance strategy is to establish acontingency reserve, including amounts of time, money, orresources to handle known-or even sometimes potential, unknown-threats or opportunities.


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Contingent Response Strategy

Some responses are designed for use only if certain

events occur. For some risks, it is appropriate for the

project team to make a response plan that will only beexecuted under certain predefined conditions, if it is

believed that there will be sufficient warning to

implement the plan. Events that trigger the contingency

response, such as missing intermediate milestones orgaining higher priority with a supplier, should be

defined and tracked.


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Outputs20

Risk Register (Updates) with:

Identified risks, their descriptions, area(s) of the project (e.g.,WBS element) affected, their causes (e.g., RBS element),and how they may affect project objectives

Risk owners and assigned responsibilities Outputs from the Qualitative and Quantitative Risk Analysis

processes, including prioritized lists of project risks andprobabilistic analysis of the project

Agreed-upon response strategies Specific actions to implement the chosen response strategy

Symptoms and warning signs of risks' occurrence


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Budget and schedule activities required to implement the chosenresponses

Contingency reserves of time and cost designed to provide forstakeholders' risk tolerances

Contingency plans and triggers that call for their execution

Fallback plans for use as a reaction to a risk that has occurred, and theprimary response proves to be inadequate

Residual risks that are expected to remain after planned responses havebeen taken, as well as those that have been deliberately accepted

Secondary risks that arise as a direct outcome of implementing a riskresponse

Contingency reserves that are calculated based on the quantitativeanalysis of the project and the organization's risk thresholds.


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Project Management Plan (Updates)

Risk-Related Contractual Agreements


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Risk Monitoring and Control23

Risk Monitoring and Control is the process of

identifying, analyzing, and planning for newly

arising risks, keeping track of the identified risks

and those on the watchlist, reanalyzing existingrisks, monitoring trigger conditions for contingency

plans, monitoring residual risks, and reviewing the

execution of risk responses while evaluating their

effectiveness


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Risk Monitoring and Control: Inputs, Tools & Techniques,and Outputs

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Inputs25


Risk Register

Approved Change Requests

Work Performance Information

Performance Reports


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Tools and Techniques26

Risk Reassessment

Risk Audits

Risk audits examine and document the effectiveness of

risk responses in dealing with identified risks and theirroot causes, as well as the effectiveness of the riskmanagement process.

Variance and Trend Analysis

Technical Performance Measurement Reserve Analysis

Status Meetings


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Outputs27

Risk Register (Updates)

Requested Changes

Recommended Corrective Actions

Recommended Preventive Actions

Organizational Process Assets (Updates)

Project Management Plan (Updates)


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Exercise28

You are planning the installation of hardware and softwarethroughout your company. After your risk managementefforts to eliminate and reduce risks, you are left with thefollowing risks that remain on the project. How much reservewould be needed for time on the project?A. A 25 percent probability of a 4-day delay in receiving

customer approval

B. A 10 percent probability that the equipment installation willtake 40 days less than planned

C. A 50 percent probability that two computers will need to be

returned for poor quality, causing a 20 day delayD. A 30 percent probability that a certain expert will become

available to work on the project, resulting in a 9-day savingsdue to increased productivity


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Solution29

A. This is a risk, so we add 25 percent X 4 days (+ 1day)

B. This is an opportunity, so we subtract 10 percent X

40 days (- 4 days)C. This is a risk, so we add 50 percent X 20 days (+

10 days)

D. This is an opportunity, so we subtract 30 percent X

9 days (- 3 days) The reserve is therefore +1 4 + 10 3, or 4

days.

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11 Project Management l11