PM-ks-C11-projRiskMgmt-essays
78. Explain the basic steps involved in performing a Monte Carlo analysis.
ANSWER: (1) Collect the most likely, optimistic, and pessimistic estimates for the variables in the model. For example, if you are trying to determine the likelihood of meeting project schedule goals, the project network diagram would be your model. You would collect the most likely, optimistic, and pessimistic time estimates for each task. Notice that this step is similar to collecting data for performing PERT estimates. However, instead of applying the same PERT weighted average formula, you perform the following steps in a Monte Carlo simulation. (2) Determine the probability distribution of each variable. What is the likelihood of that variable falling between the optimistic and most likely estimates? For example, if an expert assigned to do a particular task provides a most likely estimate of ten weeks, an optimistic estimate of eight weeks, and a pessimistic estimate of fifteen weeks, you then ask what the probability is of completing that task between eight and ten weeks. The expert might respond that there is a 20 percent probability. (3) For each variable, such as the time estimate for a task, select a random value based on the probability distribution for the occurrence of the variable. For example, using the above scenario, you would randomly pick a value between eight weeks and ten weeks 20 percent of the time and a value between ten weeks and fifteen weeks 80 percent of the time. (4) Run a deterministic analysis or one pass through the model using the combination of values selected for each one of the variables. For example, the one task described above might have a value of 12 on the first run. All of the other tasks would have one random value assigned to them on that first run, also, based on their estimates and probability distributions. (5) Repeat Steps 3 and 4 many times to obtain the probability distribution of the model's results. The number of iterations depends on the number of variables and the degree of confidence required in the results, but it typically lies between 100 and 1,000. Using the project schedule as an example, the final simulation results will show you the probability of completing the entire project within a certain time period.
75. List and briefly describe the major processes involved in risk management.
ANSWER: Planning risk management involves deciding how to approach and plan risk management activities for the project. The main output of this process is a risk management plan. Identifying risks involves determining which risks are likely to affect a project and documenting the characteristics of each. The main outputs of this process are a risk register, risk report, and project documents updates. Performing qualitative risk analysis involves prioritizing risks based on their probability of occurrence and impact. After identifying risks, project teams can use various tools and techniques to rank risks and update information in the risk register. The main outputs are project documents updates. Performing quantitative risk analysis involves numerically estimating the effects of risks on project objectives. The main outputs of this process are project documents updates. Planning risk responses involves taking steps to enhance opportunities and reduce threats to meeting project objectives. Using outputs from the preceding risk management processes, project teams can develop risk response strategies that often result in change requests, updates to the project management plan and project documents. Implementing risk responses, just as it sounds, involves implementing the risk response plans. Outputs include change requests and project documents updates. Monitoring risk involves monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project. The main outputs of this process include work performance information, change requests, and updates to the project management plan, project documents, and organizational process assets.
76. List and briefly describe four methods for identifying risks.
ANSWER: Brainstorming: technique by which a group attempts to generate ideas or find a solution for a specific problem by amassing ideas spontaneously and without judgment. This approach can help the group create a comprehensive list of risks to address later in the qualitative and quantitative risk analysis processes. An experienced facilitator should run the brainstorming session and introduce new categories of potential risks to keep the ideas flowing. After the ideas are collected, the facilitator can group and categorize the ideas to make them more manageable. Delphi technique: approach to gathering information that helps prevent some of the negative group affects found in brainstorming is the Delphi Technique. The basic concept of the Delphi Technique is to derive a consensus among a panel of experts who make predictions about future developments. The Delphi Technique uses repeated rounds of questioning and written responses, including feedback to earlier-round responses, to take advantage of group input, while avoiding the biasing effects possible in oral panel deliberations. To use the Delphi Technique, you must select a panel of experts for the particular area in question. Interviewing: fact-finding technique for collecting information in face-to-face, phone, e-mail, or instant-messaging discussions. Interviewing people with similar project experience is an important tool for identifying potential risks. Root cause analysis: used to identify the root cause of a problem or opportunity; often results in identifying even more potential risks for a project. SWOT analysis: analysis of strengths, weaknesses, opportunities, and threats, which is often used in strategic planning; used during risk identification by having project teams focus on the broad perspectives of potential risks for particular projects. Applying SWOT to specific potential projects can help identify the broad risks and opportunities that apply in that scenario.
79. What are the basic response strategies for negative risks? Describe each strategy.
79. What are the basic response strategies for negative risks? Describe each strategy. ANSWER: Risk avoidance or eliminating a specific threat, usually by eliminating its causes. Of course, not all risks can be eliminated, but specific risk events can be. For example, a project team may decide to continue using a specific piece of hardware or software on a project because they know it works. Other products that could be used on the project may be available, but if the project team is unfamiliar with them, they could cause significant risk. Using familiar hardware or software eliminates this risk. Risk acceptance or accepting the consequences should a risk occur. For example, a project team planning a big project review meeting could take an active approach to risk by having a contingency or backup plan and contingency reserves if they cannot get approval for a specific site for the meeting. On the other hand, they could take a passive approach and accept whatever facility their organization provides. Risk transference or shifting the consequence of a risk and responsibility for its management to a third party. For example, risk transference is often used in dealing with financial risk exposure. A project team may purchase special insurance or warranty protection for specific hardware needed for a project. If the hardware fails, the insurer must replace it within an agreed-upon period of time. Risk mitigation or reducing the impact of a risk event by reducing the probability of its occurrence. Suggestions for reducing common sources of risk on information technology projects were provided at the beginning of this chapter. Other examples of risk mitigation include using proven technology, having competent project personnel, using various analysis and validation techniques, and buying maintenance or service agreements from subcontractors. Risk escalation or notifying a higher level authority. If the risk is outside of the scope of the project or the proposed response is outside of the project manager's authority, it would make sense to escalate the risk to a higher-level manager within the organization.
77. Explain decision trees and expected monetary value.
ANSWER: A decision tree is a diagramming analysis technique used to help select the best course of action in situations in which future outcomes are uncertain. A common application of decision tree analysis involves calculating expected monetary value. Expected monetary value (EMV) is the product of a risk event probability and the risk event's monetary value. To create a decision tree, and to calculate expected monetary value specifically, you must estimate the probabilities, or chances, of certain events occurring. Probabilities are normally determined based on expert judgment. To calculate the expected monetary value (EMV) for each project, multiply the probability by the outcome value for each potential outcome for each project and sum the results. Because the EMV provides an estimate for the total dollar value of a decision, you want to have a positive number; the higher the EMV, the better. Using EMV helps account for all possible outcomes and their probabilities of occurrence, thereby reducing the tendency to pursue overly aggressive or conservative risk strategies.
