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Project Risk Management - PMBOK5

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Project risk management - PMBOK5

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Project Risk Management - PMBOK5

  1. 1. Connoisseur Solutions Project Risk Management Pankaj Sharma - Mobile No -919810996356
  2. 2. Connoisseur Solutions What is Risk?  Project risk is an uncertain event that can have a positive or a negative impact on the result  If a project risk materializes and has a negative impact on the project, it is called “Threat” to the project e.g.  Unproven technology impacting project schedule  Loosing critical resource from project  If an uncertain event has a positive impact on the project, it is called “opportunities”. E.g.  Emergence of new tool to increase productivity  New resource replacing the lost resource is a better one!  Not all risks are bad, however most of them are perceived as “Threat” to success Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  3. 3. Connoisseur Solutions Risk Vs Issue Risk  Risk is an uncertain event or event that might happen in future  Once risk is identified, its impact should be analyzed and the response plan should be prepared  Examples:  Lack of Business/Application knowledge which may impact the quality of work products Issue  Issue is an event that has already occurred  Once the impact of Issue is analyzed, the same should be resolved or escalated  Examples:  Client contact is not providing review comments on deliverables in spite of repeated reminders Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  4. 4. Connoisseur Solutions Project Risks – Key characteristics  Some of the risks are known risks e.g.  Working in a project with competitor (multi-vendor scenario)  Doing a project in a new geography (cultural differences)  Project attracting environmentalists attention  Accident during Travel  To manage “known risks”, risk response plan is prepared  Known risks are predicted / identified based on the past experience of similar projects Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  5. 5. Connoisseur Solutions Project Risks – Key characteristics  All the risks can not be predicted and such risks are known as “unknown risks”. e.g.  Natural disaster  Unknown risks cannot be managed proactively  Most of the organizations address such risks through “Business continuity” and “Disaster Recovery” plan  What is the difference between “Risk” and “Issue”? Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  6. 6. Connoisseur Solutions Project Risk Management Project Risk Management includes the processes of conducting risk management planning, identification, analysis, response planning and monitoring and control on a project. The objectives of Project Risk Management are to increase the probability and impact of positive events, and decrease the probability and impact of negative events in the project. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  7. 7. Connoisseur Solutions Project Risk Management Processes Process Process Group Plan Risks Management, Identify Risks, Perform Qualitative Risk Analysis, Perform Quantitative Risk Analysis , Plan Risk Responses Planning Control Risks Monitoring and Controlling Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  8. 8. Connoisseur Solutions Plan Risk Management Plan Risk Management is the process of defining how to conduct risk management activities for a project. The Plan Risk Management process should begin as a project is conceived and should be completed early during project planning. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  9. 9. Connoisseur Solutions Plan Risk Management Inputs Tools and Techniques Outputs  Project management plan  Project charter  Stakeholder register  Enterprise Environmental Factors  Organizational Process Assets Analytical techniques Expert Judgment Meetings  Risk management plan Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  10. 10. Connoisseur Solutions Plan Risk Management - Inputs Project Management Plan . All approved subsidiary plans and baselines should be taken into consideration in order to make the risk management plan consistent with them. The project management plan provides baseline or current state of risk- affected areas including scope, schedule and cost. Project Charter can provide various inputs such as high level risks, high – level project descriptions and high – level requirements. Stakeholder Register , which contains all details related to the project’s stakeholder , provide an overview of their role. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  11. 11. Connoisseur Solutions Plan Risk Management - Inputs Enterprise Environmental Factors include the company culture and existing systems that are dealt with and used by the project manager to run the project. The other factors that can influence this process are risk attitudes and tolerances that describe the degree of risk that an organization will withstand Organizational Process Assets that can influence this process include risk categories, common definitions of concepts and terms, risk statement formats, standard templates, roles and responsibilities, authority levels for decision making, lessons learned and stakeholder register Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  12. 12. Connoisseur Solutions Plan Risk Management -Tools and Techniques Analytical Techniques Analytical techniques are used to understand and define the overall risk management context of the project. Risk management context is a combination of stakeholder risk attitudes and the strategic risk exposure of a given project based on the overall project Context. Some of the examples of these techniques are , use of strategic risk scoring Sheets, a stakeholder risk profile analysis may be performed to grade and qualify the project stakeholder appetite and tolerance. Expert Judgment To ensure that a comprehensive risk management plan is developed expert advice should be taken from groups or individuals with specialized knowledge on the subject area. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  13. 13. Connoisseur Solutions Plan Risk Management -Tools and Techniques Meetings helps in development of the risk management plan. The meeting will consist of the project manager, project team members, selected relevant Stakeholders, and anyone other than these who will be performing the risk management Activities The following decisions can be taken at the meeting 1. Basic plans for conducting the risk management 2. Risk, cost elements and schedule activities are developed for inclusion in the project budget and schedule respectively 3. Risk contingency reserve application approaches may be established or reviewed 4. Risk management responsibilities should be assigned 5. General organizational templates for risk management will be tailored as per the project Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  14. 14. Connoisseur Solutions Plan Risk Management - Outputs Risk management plan describes the various risk management processes that will be implemented, monitored and controlled throughout the project lifecycle. It can include the following 1. Methodology – Defines the approaches, tools and the data sources that may be used to perform risk management on the project 2. Roles and Responsibilities – Defines the lead, support and risk management team membership for each type of activity in the risk management plan, assigns people to these roles and clarifies their responsibilities 3. Budgeting - Assigns resources and estimates costs needed for risk management for inclusion in the project cost baseline 4. Timing – Defines when and how often the risk management process will be performed throughout the project life cycle and establishes risk management activities to be included in the project schedule. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  15. 15. Connoisseur Solutions Plan Risk Management - Outputs 5. Risk Categories provides a structure that ensures a comprehensive process of systematically identifying risks to a consistent level of detail and contributes to the effectiveness and quality of Identify risks process. An organization can use a previously prepared categorization of typical risk. A risk breakdown structure (RBS) is one approach to providing such a structure, but it can also be addressed by simply listing the various aspects of the project. The risk categories may be revisited during the Identify risks process. A good practice is to review the risk categories during the Risk Management Planning process prior to their use in Identify risks process. Risk categories based on prior projects may need to be tailored, adjusted or extended to new situations before those categories can be used on the current project. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  16. 16. Connoisseur Solutions Plan Risk Management - Outputs Source : PMI PMBOK® Fourth Edition Risk Breakdown Structure (RBS) Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  17. 17. Connoisseur Solutions Plan Risk Management - Outputs Source : PMI PMBOK® Fourth Edition 6. Definition of Risk Probability and Impact Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  18. 18. Connoisseur Solutions Plan Risk Management - Outputs 7. Definition of Risk Probability and Impact matrix, A grid mapping of probability of happening of risk and the impact if happens, Based on the probability and impact values the risks are rated as High, Moderate and Low. 8. Revised stakeholder’s tolerance, based on the project may be revised in the risk management process. 9. Reporting formats, define how the outcomes of the risk management process will be documented , analyzed and communicated. It describes the content and format of the risk register as well as any other risk report required. 10. Tracking. Tracking documents how risk activities will be recorded for the benefit of the current project and how risk management processes will be audited. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  19. 19. Connoisseur Solutions Sources of Project Risks Project Risk Project Initiation C om m unication Human Resource Procurem ent Cost Time Q uality Scope Lifecycle and Environment Variables Expectation Feasibility Requirement Standards Time Objectives Restraints Restraints Cost Objectives Performance Services Materials Availability Productivity Ideas Directives Data Accuracy Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  20. 20. Connoisseur Solutions Identify Risks Process Risk Identification process determines which risks may affect the project and documenting their characteristics. It is an iterative process as risk can be identified at any levels in the project. Irrespective of risks having positive or negative consequences, all risks events and their consequences should be identified. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  21. 21. Connoisseur Solutions Identify Risks Inputs Tools and Techniques Outputs  Risk management plan Cost management plan  Schedule management plan  Quality management plan  Human resource management plan  Scope baseline  Activity cost estimates  Activity duration estimates  Stakeholder register Project documents  Procurement documents  Enterprise environmental factors  Organizational Process Assets  Documentation reviews  Information gathering techniques  Checklist analysis  Assumptions analysis  Diagramming techniques  SWOT analysis  Expert Judgment  Risk Register Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  22. 22. Connoisseur Solutions Risk Management Plan provides inputs regarding the assignment of roles and responsibilities, provision for risk management activities in the budget and schedule, and categories of risk, which are sometimes expressed in a Risk Breakdown Structure. Cost Management Plan provides processes and controls that can be used to help identify risks across the project Schedule Management Plan provides insight to project time / schedule objectives and expectations which may be impacted by risks (Known and Unknown) Quality management plan contains information related to the quality management plan which is an important input to Identify risk process as the project specific approach may generate or alleviate risk by its nature or structure Identify Risks - Inputs Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  23. 23. Connoisseur Solutions Human Resource Management Plan . The human resource management plan provides guidance on how project human resource should be defined , staffed , and eventually released. It can also contain roles and responsibilities, project organization charts, and the staffing management plan, which forms a key input to identify risk process. Scope baseline is a component of scope statement which should be evaluated as potential causes of project risk Activity Cost Estimates provide a quantitative assessment of likely cost to complete schedule activities and ideally are expressed as a range, with the width indicating the degree of risk Activity duration estimates are useful in identifying risks related to the time allowances for activities or project as a whole, with the width of the ranges of these estimates indicating the relative degree of risk. Stakeholder register contains information on stakeholders, which will be useful in interviewing the key stakeholders for their inputs to this process Identify Risks - Inputs Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  24. 24. Connoisseur Solutions Project Documents that may be useful while identifying risks are assumptions log, work performance reports, network diagrams, baselines and other project information that may be useful in identifying risks. Procurement Documents , If the project requires external procurement of resources , procurement documents become a key input to the identify Risks process. The complexity and the level of detail of the procurement documents should be consistent with the value of, and risks associated with, planned procurement. Enterprise Environmental Factors that can influence this process are published information which consists of commercial database, academic studies, published checklists, benchmarking, industry studies and risk attitudes. Organizational Process Assets that can influence this process are project files, organizational and project process controls, risk statement templates and lessons learned Identify Risks - Inputs Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  25. 25. Connoisseur Solutions Identify Risks– Tools and Techniques Documentation reviews includes structured review of the project documentation, which may include project files, project plans, assumptions, historical information, and other information from the project level as well as individual activity level. It is also essential to identify the quantity of plans and the consistency between the plans Information gathering techniques – There are five key techniques for information gathering □ Brainstorming session is conducted by a facilitator and a group of Subject Matter Expert (SMEs), who perform brainstorming and arrive at a comprehensive list of project risks. Identified risks are categorized by the type of risks. A risk breakdown structure (RBS) can be used as a framework for risk identification. □ Delphi Technique is conducted by a facilitator and a group of experts, who are given a questionnaire to fill. The results are collected and summarized and the results are again circulated to get feedback from the experts. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  26. 26. Connoisseur Solutions Identify Risks– Tools and Techniques  Interviewing is one of the main sources of risk gathering techniques where experienced project managers, stakeholders and subject matter experts are interviewed for risk identification.  Root Cause identification involves identifying the causes of risks and improves the understanding of the risk. It sharpens the definition of the risk and allows grouping risks by causes. Effective risk response can be developed if the root cause of the risk is addressed Checklist Analysis can be based on historical information gathered from previous similar projects. The lowest level of Risk Breakdown Structure (RBS) can also be used as a checklist. Checklists can be updated at the end of the project completion to add new risks, if any. Checklists are not a very much efficient method of identifying risks. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  27. 27. Connoisseur Solutions Identify Risks– Tools and Techniques Assumption Analysis reviews the validity of assumptions defined in the project to ensure that risks are not missed due to inaccuracy or incompleteness of the assumption. Assumptions are tested against their strength. The consequences that might occur if the assumptions were false are also analyzed. In such cases the assumptions are considered as risks. Diagramming Techniques may include Cause and effect diagrams also known as Ishikawa or fishbone diagrams, System or process flowcharts, and influence diagrams, which are graphical representation of situations showing causal influences SWOT Analysis examines the project from its Strengths, Weaknesses, Opportunities and Threats to identify the probable risk events. Expert Judgment involves participation of SMEs based on their previous experience and area of expertise Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  28. 28. Connoisseur Solutions Identify Risks– Outputs Risks Register The identified risks are mentioned in the document called a Risk Register, which becomes a component of the project management plan. Following items can be included in the Risk Register □ List of identified risks – The list can state the EVENT that may occur , the IMPACT and if CAUSE, EVENT may occur , then listing of EFFECT. Root causes of the risk events can also be listed □ List of potential responses – If identified during the process of risk identification, responses should be documented and it may be a useful input to the plan Risk Responses process Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  29. 29. Connoisseur Solutions Perform Qualitative Risk Analysis Prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  30. 30. Connoisseur Solutions Perform Qualitative Risk Analysis Inputs Tools and Techniques Outputs  Risk Management Plan  Scope baselines  Risk Register  Enterprise environmental factors  Organizational Process assets  Risk probability and impact assessment  Probability and impact matrix  Risk data quality assessment  Risk categorization  Risk urgency assessment  Expert judgment  Project document updates Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  31. 31. Connoisseur Solutions Risk Management Plan documents the roles and responsibilities for :  Budgets and schedule activities for risk management  Risk Categories  Definition of probability and impact  The probability and impact matrix  Revised stakeholder’s risk tolerances These inputs are documented during Perform Qualitative Risk analysis if not defined during the risk management process. Scope Baseline mentions the project deliverables, assumptions and constraints. Depending on the project type, i.e. whether it is a state-of-the-art project or a common recurring project type, the risks and level of uncertainty can be evaluated. A project which is more complex than the ones the team has handled earlier and where the uncertainty level is high requires more diligence during the process. Perform Qualitative Risk Analysis - Inputs Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  32. 32. Connoisseur Solutions Risk Register contains all the identified risks, it’s a component of the project management plan Enterprise Environmental Factors, may provide insight and context to the risk assessment such as :  Industry studies of similar projects by risk specialists and  Risk databases that may be available from industry or proprietary sources Organizational Process assets that can influence this process are information of similar previous projects, studies of similar projects by risk specialists and risk databases that may be available from industry or proprietary sources. Perform Qualitative Risk Analysis - Inputs Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  33. 33. Connoisseur Solutions Perform Qualitative Risk Analysis– Tools and Techniques Risk probability and impact assessment examines the likelihood that each specific risk will occur and evaluates the potential effect of any of the project objectives such as time, cost, scope or quality. It also evaluates the positive opportunities and negative threats. To assess the probability and impact of each risk, a meeting or interview with subject matter experts either internal or external to the organization is conducted where levels are assigned to each risk and also the potential effects of these risks is evaluated in case the risk occurs Probability and impact matrix assigns ratings to each risk and classifies them for either perform quantitative risk analysis or plan risk responses. Ratings are assigned to risks based on the combination of probability and impact. The risk may guide in providing risk responses as indicated below □ Risks that have a negative impact on the project objectives if they occur (threats) and that are in the high – risk (black zone of the matrix), may require priority action and aggressive response strategies. □ Threats in low – risk (medium gray zone) may not require proactive management action beyond being placed on a watch list or adding a contingency reserve. □ For opportunities, those in the high-risk (black zone) that can be obtained most easily and offer the greatest benefit should, therefore be targeted first □ Opportunities in the low-risk (Medium gray zone) should be monitored Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  34. 34. Connoisseur Solutions Perform Qualitative Risk Analysis– Tools and Techniques Probability Impact Matrix Source : PMI PMBOK® Fourth Edition Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  35. 35. Connoisseur Solutions Perform Qualitative Risk Analysis– Tools and Techniques Risk data quality assessment involves determining the quality or usefulness of the data collected to evaluate the risk as per the risk management plan. It involves examining degree to which the risk is understood, and the accuracy, quality, reliability and integrity of the data about risk. If data quality is unacceptable, it may be necessary to gather higher-quality data. Risk categorization – Project risks can be categorized by the source of risk (e.g., using the RBS), areas of the project affected (e.g. ,using the WBS) or other useful category (e.g. , project phase, etc.) to determine areas of the project most exposed to the effects of uncertainty. Grouping risks by common root causes can lead to developing effective risk responses. Risk urgency assessment determines how soon the potential risks may occur, and it also identifies near- term responses for those risks. Expert judgment is required to assess the probability and impact of each risk to determine its location in the probability impact matrix Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  36. 36. Connoisseur Solutions Perform Qualitative Risk Analysis – Outputs Risk Register Updates – Risk register is initiated during identify risk process ,and is updated with information from Perform Qualitative Risk Analysis. Following are the updates from Perform Quantitative Risk Analysis:  Relative ranking or priority list of the project risks. The probability and impact matrix can be used to classify risks according to their individual significance. The project manager can then use the prioritized list to focus attention on those items of high significance to the project, where responses can lead to better project outcomes. Risk may be listed by priority separately for cost, time, scope and quality as organizations may value one objective over another. A description of the basis for the assessed probability and impact should also be included for the assessed risks.  Risk grouped by categories can reveal common root cause of the risk or project areas requiring particular attention.  Cause of risk or project areas requiring particular attention. Discovering concentrations of risk may improve the effectiveness of risk.  List of risks requiring response in the near-term. Those risks that require an urgent response and those that can be handled at a later date may be put into different groups. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  37. 37. Connoisseur Solutions Perform Qualitative Risk Analysis – Outputs  List of risks for additional analysis and response. Some risks might warrant more analysis , including perform qualitative risk analysis as well as response action  Watch-lists of low priority risks. Risks that are not assessed as important in the Qualitative Risk Analysis process can be placed on a watch-list for continued monitoring  Trends in qualitative risk analysis results. As the analysis is repeated , a trend for particular risks may become apparent and can make risk response or further analysis more or less urgent/important Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  38. 38. Connoisseur Solutions Perform Quantitative Risk Analysis Process Numerically analyzing the effect of identified risks on overall project objectives. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  39. 39. Connoisseur Solutions Perform Quantitative Risk Analysis Process Inputs Tools and Techniques Outputs  Risk management plan  Cost management plan  Schedule management plan Risk register  Enterprise environmental Factors Organizational process assets  Data gathering and representation techniques  Quantitative risk analysis and modeling techniques  Expert Judgment  Project document updates Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  40. 40. Connoisseur Solutions Perform Quantitative Risk Analysis -Inputs Risk management plan provides guidelines , methods and tools to be used in quantitative risk analysis. Cost management plan contains baseline data related to cost, this may help to determine the approach for Quantitative analysis for the project. Schedule management plan contains baseline data related to schedule, this may help to determine the approach for Quantitative analysis for the project. Risk register is used as a reference point for performing quantitative risk analysis Organizational process assets that can influence this process are information of previous projects, studies of similar projects by risk specialists and risk databases that may be available from industry or proprietary sources. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  41. 41. Connoisseur Solutions Perform Quantitative Risk Analysis -Inputs Enterprise Environmental Factors may provide insight and context to the risk analysis, such as :  Industry studies of similar projects by risk specialists, and  Risk databases that may be available from industry or proprietary sources. Organizational process assets that can influence this process are information of previous projects, studies of similar projects by risk specialists and risk databases that may be available from industry or proprietary sources. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  42. 42. Connoisseur Solutions Perform Quantitative Risk Analysis - Tools and Techniques Data gathering and representation techniques  Interviewing : Experienced project managers , stakeholders and subject matter experts are interviewed to quantify the probability and impact of risks on project objective. During interviewing different kind of probability distribution are used. In case a triangular one is used then the three values for 3 point estimates are taken as input from the SMEs which is used to quantify risk for each element.  Probability distributions : are basically of two types – Asymmetrical distribution or Uniform distributions Asymmetrical distribution depicts shape which are compatible with the data typically developed during project risk analysis. Asymmetrical distributions are of two types- Continuous probability distributions represent the uncertainty in values, such as durations of schedule activities and costs of project components, whereas Discrete probability distributions can be used to represent uncertain events, such as the outcome of a test or a possible scenario in the decision tree. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  43. 43. Connoisseur Solutions Perform Quantitative Risk Analysis -Outputs Uniform distributions can be used if there is no obvious value that is more likely than any other between specified high and low bounds Quantitative risk analysis and modeling techniques Commonly used techniques in Quantitative Risk Analysis and Modeling techniques include:  Sensitivity analysis. This aid in determining which risks have the most potential impact on the project. It examines the extent to which the uncertainty of each project element affects the objective being examined when all other uncertain elements are held at their baseline values. Sensitivity analysis can be done by using the Tornado diagram.  Expected monetary value (EMV) analysis is a statistical concept that calculates the average outcome when the future includes scenarios that may or may not happen (i.e. analysis under uncertainty). The EMV of opportunities will generally be expressed as positive values while those of risks will be negative. EMV is calculated by multiplying the value of each possible outcome by its probability of occurrence and adding them together. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  44. 44. Connoisseur Solutions Perform Quantitative Risk Analysis - Tools and Techniques Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  45. 45. Connoisseur Solutions Perform Quantitative Risk Analysis - Tools and Techniques Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  46. 46. Connoisseur Solutions Perform Quantitative Risk Analysis Source: A Guide to the Project Management Body of Knowledge, Fourth Edition (PMBOK® Guide) ©2008 Project Management Institute, Inc., All Rights Reserved. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  47. 47. Connoisseur Solutions Perform Quantitative Risk Analysis –Tools and Techniques  Modeling and simulation. A project simulation uses a model that translates the uncertainties or potential risks specified at a detailed level of the project into their potential impact on project objectives. Simulation techniques compute the project model using the inputs such as cost or schedule to determine the probability distribution. Simulation techniques should be the preferred one for predicting schedule or cost risks as compared to other techniques Simulations are typically performed using the Monte Carlo technique. In a simulation, the project model is computed many times (iterated) with the input values randomized from a probability distribution function (e.g. cost of project elements or duration of schedule activities) chosen for each iteration from the probability distribution of each variable. A probability distribution is then calculated. Expert Judgment – Subject matter experts internal or external to the organization such as Engineering or statistical experts are required to identify potential cost and schedule impacts , to evaluate probability and to define inputs to tools Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  48. 48. Connoisseur Solutions Perform Quantitative Risk Analysis – Outputs Risk Register Updates – The register initiated in the Identify Risks process and is updated in Perform Qualitative Risk Analysis process. The risk register is a component of the project management plan. Updates include the following components :  Probabilistic analysis of the project. Estimates are made of potential project schedule and cost outcomes, listing the possible completion dates and costs with their associated confidence levels. This output typically expressed as a cumulative distribution is used with stakeholder risk tolerances to permit qualification of the cost and time contingency reserves  Probability of achieving cost and time objectives. With the project facing the risks, the probability of achieving project objectives under the current plan can be estimated using quantitative risk analysis results  Prioritized list of quantified risks. This list of risks includes those that pose the greatest threat or present the greatest opportunity to the project. These include the risks that require the greatest cost contingency and those that are most likely to influence the critical path.  Trends in quantitative risk analysis results. As the analysis is repeated a trend may become apparent that leads to conclusions affecting risk responses Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  49. 49. Connoisseur Solutions Plan Risk Responses Developing options and actions to enhance opportunities and reduce threats to project objectives Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  50. 50. Connoisseur Solutions Inputs Tools and Techniques Outputs  Risk management plan Risk register  Strategies for negative risks or threats  Strategies for positive risks or opportunities  Contingent response strategy  Expert Judgment  Project management plan updates  Project document updates Plan Risk Responses Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  51. 51. Connoisseur Solutions Plan Risk Responses - Inputs Risk management plan include roles and responsibilities, risk analysis definitions, risk thresholds for low, moderate and high risks and the time and budget required to conduct the project Risk Management Processes. Some components of the Risk Management Plan that are important inputs to Plan Risk Responses may include risk thresholds for low, moderate and high risks to help understand those risks for which responses are needed, assignment of personnel and scheduling and budgeting for risk response planning. Risk register provides important inputs related to this process and this include the relative rating or priority list of project risks, a list of risk for additional analysis and response, trends in qualitative risk analysis results, root causes, risk grouped by categories and a watch list of low priority risks. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  52. 52. Connoisseur Solutions Plan Risk Responses – Tools and Techniques Strategies for negative risks or threats  Avoid. Risk avoidance involves changing the project management plan to eliminate the threat posed by an adverse risk, to isolate the project objectives from the risk’s impact or to relax the objective that is in jeopardy, such as extending the schedule or reducing scope. Some risks that arise early in the project can be avoided by clarifying requirements, obtaining information, improving communication or acquiring expertise.  Transfer. Risk transference requires shifting the negative impact of a threat, along with ownership of the response to a third party. Transferring the risk simply gives another party responsibility for its management, it doesn’t eliminate it. Risk transference nearly always involves payment of a risk premium to the party taking on the risk. Transference tools can be quite diverse and can include but are not limited to the use of insurance, performance, bonds, warranties, guarantees etc.  Mitigate. Risk Mitigation implies a reduction in the probability and impact of an adverse risk event to an acceptable threshold. E.g. Conducting more tests, a more stable supplier etc  Accept. This includes passive or active acceptance. Passive acceptance requires no action , the most common active acceptance strategy is to establish a contingency reserves, including amounts of money or resources to handle known or unknown threats/ opportunities Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  53. 53. Connoisseur Solutions Plan Risk Responses – Tools and Techniques Strategies for positive risks or opportunities  Exploit .This strategy may be selected for risks with positive impacts where the organization wishes to ensure that the opportunity is realized. This strategy seeks to eliminate the uncertainty associated with a particular upside risk by making the opportunity definitely happen. Directly exploiting responses include assigning more talented resources to the project to reduce time to completion or to provide better quality than originally planned.  Share. Sharing a positive risk involves allocating ownership to a third party who is best able to capture the opportunity for the benefit of the project. E.g. forming risk-sharing partnerships, teams, special-purpose companies or joint ventures, which can be established with the express purpose of managing opportunities.  Enhance . This strategy modifies the size of an opportunity by increasing probability and /or positive impacts and by identifying and maximizing key drivers of these positive-impact risks. Seeking to facilitate or strengthen the cause of the opportunity and proactively targeting and reinforcing its trigger conditions, might increase the probability  Accept. Accepting an opportunity is being willing to take advantage of it if it comes along, but not actively pursuing it. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  54. 54. Connoisseur Solutions Plan Risk Responses – Tools and Techniques 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 be executed 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 or gaining higher priority with a supplier, should be defined and tracked Expert Judgment. Expertise may be provided by any group or person with specialized education, knowledge, skill, experience or training in establishing risk responses. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  55. 55. Connoisseur Solutions Plan Risk Responses – Outputs Project Management Plan Updates- Elements of the project management plan that may be updated include  Schedule management plan  Cost management plan  Quality management plan  Procurement management plan  Human resource management plan  Scope baseline  Schedule baseline  Cost baseline. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  56. 56. Connoisseur Solutions Plan Risk Responses – Outputs Project Document Updates. This include components of the Risk register such as  Identified risks their descriptions, areas of the project (e.g. WBS element) affected, their causes (e.g. RBS element) and how they may affect project objectives  Risk owners and their assigned responsibilities  Output from the Perform Qualitative and Perform Quantitative Risk Analysis processes, including prioritized lists of project risks and probabilistic analysis of the project  Agreed – upon response strategies  Specific actions to implement the chosen response strategy  Symptoms and warning signs of risks’ occurrence Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  57. 57. Connoisseur Solutions Plan Risk Responses – Outputs  Budget and schedule activities required to implement the chosen responses  Contingency reserves of time and cost designed to provide for stakeholders risk tolerance.  Contingency plans and trigger that call for their execution  Fallback plans for use as a reaction to a risk that has occurred and the primary response proves to be inadequate  Residual Risks that are expected to remain after planned response have been taken as well as those that have been deliberately accepted  Secondary risks that arise as a direct outcome of implementing a risk response  Contingency reserves that are calculated based on the quantitative analysis of the project and the organization’s risk thresholds. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  58. 58. Connoisseur Solutions Control Risks Implementing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  59. 59. Connoisseur Solutions Inputs Tools and Techniques Outputs  Project management plan  Risk register  Work performance data  Work performance reports  Risk reassessment  Risks audits  Variance and trend analysis  Technical performance measurement  Reserve analysis  Status meetings  Work Performance Information  Change requests  Project management plan updates  Project document updates  Organizational process assets updates Control Risks Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  60. 60. Connoisseur Solutions Control Risks- Inputs Project management plan consists of the risk management plan which includes the assignment of people, time, and resources to the project risk management process. Risk register which is a subset of the project management plan, includes a list of identified risks agreed upon risk responses, specific implementation actions, symptoms and warning signs of risk, residual and secondary risks, watch-list of low priority risks and cost contingency reserves. Work Performance Data includes information such as project deliverables status , schedule progress and incurred costs. Work Performance reports gather and summarize the information required by the stakeholders. This information is an analysis of the work performed during the execution process vis-à-vis project baseline and is relevant to the risk management process. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  61. 61. Connoisseur Solutions Control Risks- Tools and Techniques Risk reassessment indicates reassessing the identified risks and identification of new risks as defined in the risk management plan. Project risk reassessment should be performed regularly and it can be included as an agenda item at the project status meetings. Risks audits are scheduled audits that document the effectiveness of risk responses with respect to their dealing with identified risks and their associated root causes. This aids in determining the effectiveness of the risk management process. Variance and trend analysis Performance data provides the data for variance and trend analysis. Using this data and applying the earned value analysis and similar methods of project variance and trend analysis; it is possible to monitor the overall project performance. Technical performance measurement. This involves identifying the variance in the technical performance from the planned technical schedule. Any variance from the defined milestone(s) can aid the project team to forecast the degree of success in achieving the project’s scope. Reserve analysis. During the planning phase, contingency reserves are defines as a part of risk response plan. During execution some of the reserves get exhausted. This tool determines if the remaining reserves are sufficient to tackle the remaining risks. Meetings. Status review meetings help in monitoring the risks Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  62. 62. Connoisseur Solutions Control Risks- Outputs Work Performance Information , as a Control Risks output , provides a mechanism to communicate and support decision making. Change requests - During this process, there may be requested change due to implementation of the contingency plans or workarounds. These changes are reviewed and approved through the integrated change control process. Project management plan updates may arise as a result of the approved change requests Project document updates- Project documents that may be updated as a result of this process are assumptions log updates and technical documentation updates. Organizational process assets updates- The risk management processes produce information that should be documented for future reference. The organizational process assets may be updated to include templates for the risk management plan, including the probability and impact matrix and risk register, risk breakdown structure and lessons learned from the project risk management activities. Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356
  63. 63. Connoisseur Solutions QUIZ ! Pankaj Sharma, 9810996356 Pankaj Sharma - Mobile No -919810996356

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