Project Management Risk Management

Why use quantitative risk analysis

*Determine which risk events warrant a response Determine overall project risk *Identify risks requiring the most attention Create realistic and achievable cost, schedule, and scope targets

Low Impact/Low Likelihood

Can Ignore

Risk Mitigation:Risk avoidance

Changing of the project plan to eliminate a risk

Risk assessment

Identification of the possibility for loss and an estimate of its effect

Risk Mitigation:Risk reduction

Investment of funds to reduce the risk on a project

Risk breakdown structure (RBS)

Organization of risks associated with each activity in the work breakdown structure using a similar graphical approach

Risk i =

P i * I i

Risk Mitigation:Risk sharing

Partnering with others to share responsibility for the risk activities

Valuable sources for identifying potential risks

Past experience of the project team Project experience within the company Experts in the industry (e.g., subject matter expert)

High Impact/High Likelihood

Pay Close Attention

Risk mitigation plan

Plan to reduce or eliminate loss from unexpected events

High Impact/Low Likelihood

Reduce the Impact; Have a Contingency Plan

Low Impact/High Likelihood

Reduce the likelihood

Risk Evaluation

Refers to the evaluation of risk based on the probability of occurrence and its impact on the project (potential loss)

Risk Mitigation:Risk transfer

Shifting the negative impact of an event to a party outside the project

positive correlation

There is a ______ ________ between project risk and project complexity

Reactive

_______ PMs are more confident in their ability to handle unexpected events without prior planning Make decisions and take actione in response to events

Risk averse (reluctant)

_______ PMs avoid taking risks whenever possible Prefer to be optimistic and not consider risks

Proactive

________PMs develop elaborate risk management plans Make decisions and take actions to anticipate an expected difficulty

Contingency fund$

are set aside to address unforeseen events Typically managed as a line item in the project budget

Risk

is a possibility of loss or injury

Organizational risk

is a possible loss that is associated with the business purpose of the project. ex:If price of copper drops below profit margin, then the organizational goals of the project may not be achieved

Known risk

is a risk that can be anticipated (e.g., bad weather)

Contingency plan

is an alternative method for accomplishing a project goal when a risk event has been identified

Risk event

is an occurrence that have a negative impact on the project

High risk items

may be tracked during project reviews

Low risk items

may be tracked informally

Risk management has two components:

risk assessment and risk mitigation plan