PMP Study - Part 23 - Performing Risk Analysis
What is the process of conducting a Risk Data Quality Assessment during the Qualitative Risk Assessment process? (4 points)
1) Assess the level of understanding shown for each risk 2) Review the availability of data about each risk 3) Review the quality of data 4) Review the reliability of data
What are the three types of nodes included in a Decision Tree Analysis?
1) Decision node - represents the question you want to answer 2) Change nodes (usually a circle) - lead to quantitative data about the different possible outcomes of each options 3) End nodes (usually a triangle) - show the results of analyzing the possibilities of each option
What are the steps to performing a Decision Tree Analysis using EMV? (3 points)
1) Determine the best-case and worst-case (optimistic and pessimistic) - EMVs for the first path and add them to get a total EMV 2) Determine the expected market value of each possible outcome 3) Compare the two total EMVs to determine which option is best
What are the two forms of quantitative analysis?
1) Event-oriented - Risk events are assed by how they could impact a particular project objective - e.g. how an increase of 4% in the cost of materials could impact total project costs 2) Project-oriented - Assess how all identified risks could impact the overall success of a project - typically involves identifying how much each risk is likely to cost the project - financially or in terms of schedule delays - the risks can then be prioritized based on quantifiable data
What tools & techniques are used during the Quantitative Risk Analysis process? (6 points)
1) Interviewing experts & relevant stakeholders 2) Three-point estimates 3) Probability distribution graphs 4) Quantitative risk analysis 5) Modelling techniques 6) Expert judgement
What are the two types of models within the Quantitative Risk Analysis Modelling technique?
1) Iterative models 2) Non-iterative models
What are the different types of Continuous Distribution? (5 points)
1) Normal Distribution 2) Uniform Distribution 3) Beta Distribution 4) Triangular Distribution 5) Lognormal distribution
What are the tools and techniques used during the Qualitative Risk Analysis process? (4 points)
1) Risk probability and impact assessment 2) Risk categorisation 3) Risk data quality assessment 4) Risk urgency assessment
What are the Inputs to the Quantitative Risk Analysis process? (5 points)
1) Risk register 2) Risk management plan 3) Cost management plan 4) Schedule management plan 5) Organisational process assets
What are the Inputs to Qualitative Risk Analysis process? (4 points)
1) Risk register 2) Risk management plan 3) Project scope statement 4) Organisational process assets
What sort of updates would be required to the risk register as an output of the Qualitative Risk Assessment process? (7 points)
1) Risks ordered by priority and category 2) Near-term risks are marked as urgent 3) Risks requiring further analysis are flagged 4) Descriptions of risks and their causes may be updated 5) New risk categories or newly identified risks may be added 6) Trends for particular risks that became apparent during the analysis 7) A watchlist of low-priority risks
What inputs is used to perform a schedule-based risk analysis using an iterative modelling technique? (2 points)
1) Schedule network precedence diagrams 2) Duration estimates
What are the different methods of quantitative analysis? (3 points)
1) Sensitivity analysis 2) Expected monetary value (EMV) analysis 3) Decision Tree Analysis
What can EMV Analysis be used to assess? (2 points)
1) The expected monetary value of individual or all identified risks on a project 2) The schedule impact of individual or all identified risks on a project
What are the specific Outputs of the Quantitative Risk Analysis process to the Risk Register? (4 points)
1) The probabilistic analysis of the project 2) Probability of achieving cost and time objectives 3) A prioritized list of quantified risks 4) Any trends in analysis results over time
What are weaknesses with the EMV Analysis technique? (2 points)
1) The results of the analysis depend completely on how accurately the probability and impacts are predicted of the given risks 2) Deals with uncertainty - can help prioritize risks but can't tell which will occur or what their total cost to a project will really be
What can Decision Tree Analysis be used for? (3 points)
1) To compare the risks associated with different choices 2) To compare the costs associated with an opportunity to the costs of not taking the opportunity 3) Determine the best strategy for managing a given risk or threat
What are tornado diagrams useful for confirming? (2 points)
1) Which risks it's most important to focus on managing 2) Whether the positive impacts of various risks outweigh the negative impacts
What is Decision Tree Analysis?
A common application of EMV involving representing the choice between two or more options in the form of a diagram, and using quantitative data to compare possible outcomes of each of the options
What are Modelling Techniques as used during the Quantitative Risk Analysis process?
A model is a set of rules representing real behavior - feeding data in to the model will return predictions of how a real system or scenario would respond - used to test the effects of changes
What is Expected Monetary Value (EMV) Analysis?
A quantitative risk analysis technique based on the principle that the importance of a risk to a project doesn't depend just on how much damage it could cause, it also depends on how likely it is that the risk will occur which can be used to determine the relative significance of risks, given both their possible impacts and their probabilities of occurring. EMV = impact x probability
What is an non-iterative model within the Quantitative Risk Analysis Modelling technique?
A single set of values representing the possible impacts and probabilities of each factor in an outcome is used to determine a result
What is the most useful way to represent the results of a Sensitivity Analysis?
A tornado diagram in which a bar represents each risk and the range of the impact it could have, from negative to positive impact. The length of each bar represents the relative impact of each risk - the bars are ordered in sequence from greatest impact to least (this give the diagram its characteristic "tornado" shape)
What is Uniform Distribution and how is it depicted in a Probability Distribution Graph?
All the possible outcomes between known upper and lower limits have the same probability - occurs if the range between which values can fall is known but none of these values is more probable then the other or if there is insufficient information to determine what's most probable
What are the two types of distribution used most often in project risk analysis and why?
Beta and triangular as both are useful for representing the three-point estimates established during interviews
Once a three-point estimate is obtained how is the probability calculated?
By summing the impact x probability of each of the three estimates - e.g. ((0.20 x $150,000) + (0.50 x $180,000) + (0.30 x $120,000)) = $183,000
What inputs is used to perform a cost-based risk analysis using an iterative modelling technique?
Cost estimates
How is EMV calculated?
EMV = impact x probability
What is the Quantitative Risk Analysis process used for?
Expanding on the qualitative risk analysis by evaluating risks in more detail and using more objective methods so risks can be rated numerically based on how they could affect overall project objectives
What is Risk Categorisation as used during the Qualitative Risk Assessment process?
Grouping sets of risk - usually by source, project areas or project phases - this can reveal areas of the project most exposed to risk and inform risk response planning
What is Discrete Distribution as it relates to a Probability Distribution Graph?
Includes the probabilities of a fixed number of outcomes - for example, represented in a bar chart e.g. assessing the probability of a task - like the installation of plumbing - taking from four to nine days to complete
What is Continuous Distribution as it relates to a Probability Distribution Graph?
Includes the probabilities of a full range of possible outcomes, usually represented as a curve - e.g. show the probabilities of the possible costs of a project where these costs form an unbroken range - the costs will fall between $14 and $18 million
What is Sensitivity Analysis?
Involves testing how changes in one variable affect an outcome when all other variables are kept the same. By repeating the process for each of the variables one at a time you can assess which has the greatest impact
What is the main benefit of quantitative risk analysis?
It reduces uncertainty
What is the biggest problem with Qualitative Risk Analysis?
It relies on the subjective judgment of stakeholders and so is open to bias - this may result in overlooking critical risks or focusing on improbably risks
What are Quantitative Measurements?
Measurements that are expressed as definite numeric values or quantities - e.g. a person is 6 feet and 4 inches tall
What are Qualitative Measurements?
Measurements that are typically subjective and do not have a definite numeric value that describe characteristics in relative terms - e.g. describe a person as tall , of roughly average height or short.
What is Triangular Distribution and how is it depicted in a Probability Distribution Graph?
Only three values are plotted - typically representing the best case, most likely and worst-case scenarios. The highest point isn't the same as the average value - it represents an expert's best guess - the average of the values may lie to the left or right of this point
What are probability of achieving cost and time objectives as an Output of the Quantitative Risk Analysis process?
Probability distributions - typically represented in a probability distribution graph - indicating how risks may affect specific budgetary or schedule related goals - e.g. analysis may determine a 35% chance of a project finishing by its planned completion date, or a 68% chance of completing within its planned budget
What are probabilistic analysis updates to the Risk Register as an Output of the Quantitative Risk Analysis process?
Probability distributions - typically represented in a probability distribution graph - indicating how risks may affect the overall success of a project in terms of its total cost and completion date and provides statistics about the project's possible outcomes, in terms of cost and time - e.g. a cumulative cost chart can be used to illustrate what the budget constraints will need to be
Which is done first, Quantitative or Qualitative Risk Analysis?
Qualitative Risk Analysis
What is Beta Distribution and how is it depicted in a Probability Distribution Graph?
Represents the probabilities of all values between specified minimum and maximum values - the most likely value is at the top of the curve (the shape of the curve is determined using mathematical methods)
What is Lognormal Distribution and how is it depicted in a Probability Distribution Graph?
Results if the logarithm of a variable has a normal distribution - values are skewed to the right side of an average - or median - value. Occurs in specific cases where the factors that affect a variable have a multiplicative effect on its values - e.g. weight and blood pressure values for a human population have a lognormal distribution
What is the Output of the Qualitative Risk Assessment process?
Risk register updates
What is meant by a prioritised list of quantified risksas an Output of the Quantitative Risk Analysis process?
Risks prioritised within risk categories in order of their possible impacts and statistical probabilities from most to least significant
Why are the cost and schedule management plans important Inputs to the Quantitative Risk Analysis process?
The controls that will be used to manage cost and schedule as many project risks are related to cost and activity duration estimates and budget and schedule overruns
What is Normal Distribution and how is it depicted in a Probability Distribution Graph?
The highest point is the average value - all other values fall symmetrically on either side of this point to create a bell shape - the further values move away from an average the less likely they are to occur
What is a Three-Point estimate?
The most useful starting point for quantitative risk analysis and contains the basic information needed to be obtained from experts incorporating an optimistic - or best - view, an estimate of what's most likely, and a pessimistic - or worst - view of how events may unfold
What information related to a three-point estimate is important to record?
The rationale for the estimates and any assumptions on which they are based - these provide insight about the reliability and accuracy of the estimates
What is the best way to avoid bias during Qualitative Risk Analysis?
The risk management plan must clearly define probability and impact scales to ensure a consistent approach for measuring probability and impacts
What is an iterative model within the Quantitative Risk Analysis Modelling technique?
The same "what if" scenario is played out repeatedly, each time with a different, randomly chosen set of possible values for the variables that may affect its outcome - in theory repeating the process many times gives this model the characteristic of accuracy - the more times random values are chosen and used, the closer the model is to simulating random probability in real life. The output of the simulation is a prediction of how risks may impact cost or schedule objectives - usually in the form of a probability distribution graph
How is Risk Impact assessed during a Risk Probability and Impact Assessment?
The team determines the potential effect of each risk on a project, typically in relation to schedule, cost or performance objectives and then record these findings using the same scale used for probability - either ordinal or cardinal - as defined in the risk management plan
How is Risk Score recorded during a Risk Probability and Impact Assessment?
The team uses a probability and impact matrix (part of the risk management plan) to complete this equation and determine what priority level a risk's overall score represents. The impact matrix has probability scores down one side and possible impact ratings - for both threats and opportunities - along the bottom. The connecting cells show the combined scores, and their shading identifies the associated priority levels
How is Risk Probability assessed during a Risk Probability and Impact Assessment?
The team uses expert judgment to estimate how likely it is that each risk will occur and then record these findings using the scale defined in the risk management plan or one that is already available in the organization - the scale may be ordinal or cardinal
What is the Risk Urgency Assessment technique used for during the Qualitative Risk Assessment process?
To assess how quickly a risk should be dealt with by prioritizing risks based primarily on timing - risks that could occur soon are seen as more urgent than those that may occur later on
What is the purpose of a risk probability and impact assessment?
To assign a combined probability-impact rating to each risk - then prioritize risks based on the relative levels of threat or opportunity they represent
What is the Risk Data Quality Assessment technique used for during the Qualitative Risk Assessment process?
To ensure the information gathered and assessed as part of the risk quality process is not inaccurate, biased or incomplete as otherwise the results of the qualitative analysis will be unreliable
What is the objective of Qualitative Risk Analysis?
To prioritize risk according to their probability and impact and to compare the results against risk tolerance levels - these levels are related to project constraints and time frames
