Chapter Seven Managing Risk 7–1 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 7–2 Where We Are Now Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 2 Learning Objectives Describe the risk management process Understand how to identify project risks Assess the significance of different project risks Describe the four different responses to managing risks Understand the role contingency plans play in risk management process Understand opportunity management and describe the four different approaches to responding to opportunities in a project Understand how contingency funds and time buffers are used to manage risks on a project Recognize the need for risk management being an ongoing activity Describe the change control process 7–3 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter Outline 7.1 Risk Management Process 7.2 Step 1: Risk Identification 7.3 Step 2: Risk Assessment 7.4 Step 3: Risk Response Development 7.5 Contingency Planning 7.6 Opportunity Management 7.7 Contingency Funding and Time Buffers 7.8 Step 4: Risk Response Control 7.9 Change Control Management 7–4 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 7–5 Risk Management Process Risk Uncertain or chance events that planning cannot overcome or control Risk Management An attempt to recognize and manage potential and unforeseen trouble spots that may occur when the project is implemented What can go wrong (risk event) How to minimize the risk event’s impact (consequences) What can be done before an event occurs (anticipation) What to do when an event occurs (contingency plans) Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5 7–6 The Risk Event Graph FIGURE 7.1 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 6 7–7 Risk Management’s Benefits A proactive rather than reactive approach Reduces surprises and negative consequences Prepares the project manager to take advantage of appropriate risks Provides better control over the future Improves chances of reaching project performance objectives within budget and on time Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 7 7–8 The Risk Management Process FIGURE 7.2 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written conse ...

1. Chapter Seven
Managing Risk
7–1
Copyright © 2018 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written
consent of McGraw-Hill Education.
7–2
Where We Are Now
Copyright © 2018 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written
consent of McGraw-Hill Education.
2
Learning Objectives
Describe the risk management process
Understand how to identify project risks
Assess the significance of different project risks
Describe the four different responses to managing risks
Understand the role contingency plans play in risk management
process
Understand opportunity management and describe the four
different approaches to responding to opportunities in a projec t
Understand how contingency funds and time buffers are used to
manage risks on a project
Recognize the need for risk management being an ongoing
activity
Describe the change control process

2. 7–3
Copyright © 2018 McGraw-Hill Education. All rights reserved.
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consent of McGraw-Hill Education.
Chapter Outline
7.1 Risk Management Process
7.2 Step 1: Risk Identification
7.3 Step 2: Risk Assessment
7.4 Step 3: Risk Response Development
7.5 Contingency Planning
7.6 Opportunity Management
7.7 Contingency Funding and Time Buffers
7.8 Step 4: Risk Response Control
7.9 Change Control Management
7–4
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7–5
Risk Management Process
Risk
Uncertain or chance events that planning cannot overcome or
control
Risk Management
An attempt to recognize and manage potential and unforeseen
trouble spots that may occur when the project is implemented
What can go wrong (risk event)
How to minimize the risk event’s impact (consequences)
What can be done before an event occurs (anticipation)
What to do when an event occurs (contingency plans)
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3. No reproduction or distribution without the prior written
consent of McGraw-Hill Education.
5
7–6
The Risk Event Graph
FIGURE 7.1
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6
7–7
Risk Management’s Benefits
A proactive rather than reactive approach
Reduces surprises and negative consequences
Prepares the project manager to take advantage
of appropriate risks
Provides better control over the future
Improves chances of reaching project performance objectives
within budget and on time
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consent of McGraw-Hill Education.
7
7–8

4. The Risk Management Process
FIGURE 7.2
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8
7–9
Managing Risk
Step 1: Risk Identification
Generate a list of possible risks through brainstorming, problem
identification and risk profiling
Use risk breakdown structure (RBS) in conjunction with work
breakdown structure (WBS) to identify and analyze risks
Macro risks first, then specific events
Risk profile is a list of questions addressing additional areas of
uncertainty on a project.
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9
7–10
The Risk Breakdown Structure (RBS)
FIGURE 7.3
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5. consent of McGraw-Hill Education.
10
7–11
Partial Risk Profile for Product Development Project
FIGURE 7.4
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11
7–12
Managing Risk
Step 2: Risk Assessment
Scenario analysis for event probability and impact
Risk assessment form
Risk severity matrix
Failure Mode and Effects Analysis (FMEA)
Risk Value = Impact x Probability x Detection
Probability analysis
Decision trees, NPV, and PERT
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12
7–13

6. Defined Conditions for Impact Scales of a Risk on Major
Project Objectives (Examples for negative impacts only)
FIGURE 7.5
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13
7–14
Risk Assessment Form
FIGURE 7.6
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14
7–15
Risk Severity Matrix
FIGURE 7.7
Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk ValueUser
BacklashInterface problemsSystem freezingHardware malfunc-
tioning
Likelihood
Impact
Red zone (major risk)
Yellow zone (moderate risk)
Green zone (minor risk)

7. 5
5
4
4
3
3
2
2
1
1
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15
7–16
Managing Risk (cont’d)
Step 3: Risk Response Development
Mitigating Risk
Reducing the likelihood an adverse event will occur
Reducing the impact of an adverse event
Avoiding Risk
Changing the project plan to eliminate the risk or condition
Transferring Risk
Paying a premium to pass the risk to another party
Requiring Build-Own-Operate-Transfer (BOOT) provisions
Accepting Risk
Making a conscious decision to accept the risk
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8. 16
7–17
Contingency Planning
Contingency Plan
An alternative plan that will be used if a possible foreseen risk
event actually occurs
A plan of actions that will reduce or mitigate the negative
impact (consequences) of a risk event
Risks of Not Having a Contingency Plan
Having no plan may slow managerial response
Decisions made under pressure can be potentially dangerous and
costly
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17
7–18
Risk Response Matrix
FIGURE 7.8
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18
7–19
Risk and Contingency Planning

9. Technical Risks
Backup strategies if chosen technology fails
Assessing whether technical uncertainties can be resolved
Schedule Risks
Use of slack increases the risk of a late project finish
Imposed duration dates (absolute project finish date)
Compression of project schedules due to a shortened project
duration date
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19
7–20
Risk and Contingency Planning (cont’d)
Cost Risks
Time/cost dependency links: costs increase when problems take
longer to solve than expected.
Price protection risks (a rise in input costs) increase if the
duration of a project is increased.
Funding Risks
Changes in the supply of funds for the project can dramatically
affect the likelihood of implementation or successful
completion of a project.
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20
7–21

10. Opportunity Management
Exploit
Seeking to eliminate the uncertainty associated with an
opportunity to ensure that it definitely happens
Share
Allocating some or all of the ownership of an opportunity to
another party who is best able to capture the opportunity for the
benefit of the project
Enhance
Taking action to increase the probability and/or the positi ve
impact of an opportunity
Accept
Being willing to take advantage of an opportunity if it occurs,
but not taking action to pursue it
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21
7–22
Contingency Funding and Time Buffers
Contingency Funds
Funds to cover project risks—identified and unknown
Size of funds reflects overall risk of a project.
Budget reserves
Are linked to the identified risks of specific work packages.
Management reserves
Are large funds to be used to cover major unforeseen risks (e.g.,
change in project scope) of the total project.
Time Buffers
Amounts of time used to compensate for unplanned delays in
the project schedule
Severe risk, merge, noncritical, and scarce resource activities

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22
7–23
Contingency Fund Estimate
TABLE 7.1
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23
7–24
Managing Risk (cont’d)
Step 4: Risk Response Control
Risk control
Execution of the risk response strategy
Monitoring of triggering events
Initiating contingency plans
Watching for new risks
Establishing a Change Management System
Monitoring, tracking, and reporting risk
Fostering an open organization environment
Repeating risk identification/assessment exercises
Assigning and documenting responsibility for managing risk
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12. consent of McGraw-Hill Education.
24
7–25
Change Control Management
Sources of Change
Project scope changes
Implementation of contingency plans
Improvement changes
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25
7–26
Change Management Systems
Identify proposed changes
List expected effects of proposed changes on schedule and
budget
Review, evaluate, and approve or disapprove of changes
formally
Negotiate and resolve conflicts of change, condition, and cost
Communicate changes to parties affected
Assign responsibility for implementing change
Adjust master schedule and budget
Track all changes that are to be implemented
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13. 26
7–27
The Change
Control Process
FIGURE 7.9
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27
7–28
Benefits of a Change Control System
Inconsequential changes are discouraged by the formal process.
Costs of changes are maintained in a log.
Integrity of the WBS and performance measures is maintained.
Allocation and use of budget and management reserve funds are
tracked.
Responsibility for implementation is clarified.
Effect of changes is visible to all parties involved.
Implementation of change is monitored.
Scope changes will be quickly reflected in baseline and
performance measures.
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28

14. 7–29
Sample Change Request
FIGURE 7.10
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consent of McGraw-Hill Education.
29
7–30
Change Request Log
FIGURE 7.11
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30
7–31
Key Terms
Accept risk
Avoiding risk
Budget reserve
Change management system
Contingency plan
Management reserve
Mitigating risk
Opportunity
Risk

15. Risk breakdown structure (RBS)
Risk profile
Risk register
Risk severity matrix
Scenario analysis
Time buffer
Transferring risk
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31
Appendix 7.1
PERT and PERT Simulation
7–32
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32
7–33
PERT—Program Evaluation Review Technique
Assumes each activity duration has a range that statistically
follows a beta distribution.
Uses three time estimates for each activity: optimistic,
pessimistic, and a weighted average to represent activity
durations.
Knowing the weighted average and variances for each activity
allows the project planner to compute the probability of meeting

16. different project durations.
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33
7–34
Activity and Project Frequency Distributions
FIGURE A7.1
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34
7–35
Activity Time Calculations
The weighted average activity time is computed by the
following formula:
(7.1)
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35

17. 7–36
Activity Time Calculations (cont’d)
The variability in the activity time estimates is approximated by
the following equations:
The standard deviation for the activity:
The standard deviation for the project:
Note the standard deviation of the activity is squared in thi s
equation; this is also called variance. This sum includes only
activities on the critical path(s) or path being reviewed.
(7.2)
(7.3)
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36
7–37
Activity Times and Variances
TABLE A7.1
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37
7–38
Probability of Completing the Project

18. The equation below is used to compute the “Z” value found in
statistical tables (Z = number of standard deviations from the
mean), which, in turn, tells the probability of completing the
project in the time specified.
(7.4)
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38
7–39
Hypothetical Network
FIGURE A7.2
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39
7–40
Hypothetical Network (cont’d)
FIGURE A7.2 (cont’d)
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19. 40
7–41
Possible Project Duration
Probability project is completed before scheduled time (TS) of
67 units
Probability project is completed by the 60th unit time period
(TS)
FIGURE A7.3
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41
7–42
Z Values and Probabilities
TABLE A7.2
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42

20. Student name:
Assessor:
Date:
Name of project:
Task 1.1: Project scoping and planning
Provide an overview of the organisatio n. Include their:
· Mission
· Goals
· Objectives
· Operational context
Give the rationale for the project
Business objectives
Relationship of project to the organisation's
objectives
Define the project scope
Relationship to other projects
Include dependencies
Stakeholders
Outline the project stakeholders and clearly define the
project staff
Resources
The additional resources that will be needed
Legislative and regulatory context including WHS

21. considerations
Risk assessment
Make a list of potential risks
Reporting
Define the project’s reporting requirements
Project management tools and system to be used
Outline the project management system,
tools or methods you will use to file documentation
and share information for this project
Seek clarification from your supervisor in relation to any
queries and issues you have relating to the project and its
parameters.
Summarise your queries here before sending the
communication.
Attach evidence of this in this section. E.g. emails,
online chats.
Attach:
Evidence of communication with supervisor re project
issues or parameters
☐
Project management documents reviewed if not using the
Simulation Pack.
☐
Screenshots of online file organisation to date
☐ Task 2.2: Project management plan

22. Title
Background
Provide a brief explanation of the background of the
project.
Objectives
Benefits that the project intends to achieve
How the success of the project will be measured
Describe the measure(s) that will used to indicate
that the project has been successfully completed
Activities and Milestones
List the major activities, scheduled start, scheduled finish
and who has been assigned accountability.
Project area
Actions
Responsibility
Scheduled
start
Scheduled
finish

23. Project Budget
Include the approved project budget.
Cost area
Details
Estimated cost

24. Risk management plan
Risk assessment legend
List the major risks identified from the business case, as
well as consequences of the risk occurring. Use the risk
assessment legend to establish severity and likelihood.
Document risk treatment/control measures.
Include at least one WHS risk.
Risk
Likelihood
Severity
Treatment/control methods

25. Attach:
Email to supervisor requesting approval to proceed
☐
Email to team outlining plans and responsibilities
☐
Screenshots of online file organisation to date
☐ Task 2.3: Implementation activities
Which implementation activities did you complete?
List these here and
provide evidence of each one (minimum two)
Project Status Report
Project name
Project Manager
Project Objective
Project Progress Summary
Briefly describe the Project’s progress towards meeting its
target outcome during this reporting period. Anecdotal
information may be provided.

26. Milestones
Target date
Actual date
Impact
Description of milestone
Target date as per project plan
Actual date achieved
Briefly describe any changes to the project schedule
required as a
result of the amended milestone(s).
Budget
Indicate total project funding, planned expenditure
and actual expenditure.
Total Project funding
$
Planned Expenditure for this reporting period
Actual Expenditure for this reporting period.
Remaining budget for life of project
Comments
Include additional comments as required regarding
overspend or surplus/underspend in this reporting period.

27. Risk management
Include information on project risks to date.
Risk
Predicted likelihood
Seriousness
Actions to be taken
Brief description project risks arising
of
Include
likelihood attributed to risk in project plan
Include consequences
attributed to risk in project plan
Include actions to be taken based on original risk
treatments identified.
Recommendations
Brief statement(s) for your supervisor to consider and/or
endorse as applicable.
Attach:
Evidence of implementation activities (if using the case
study include design brief and emails to website designers
for quotes)

28. ☐
Screenshots of online file organisation to date
☐
Task 2.4: Project finalisation
Reason for project
Outline why is over
closing this
the project
Highlights
and
innovations
What were
the
main
highlights
and
innovations project?
of
this
Summary
of
recommendations
If using the case study, one of the
recommendations
should be for the supervisor to agree that the project can
be deemed closed.

29. Performance against
objectives
Summarise the actual performance of the project against
the planned performance.
Performance against outcomes
Describe the actual performance of the project in relation
to the achievement of targeted outcomes. Were all planned
targeted outcomes achieved, to what degree?
Performance against
outputs
Describe the actual performance of the project in relation
to the delivery of the outputs. Were all planned outputs
delivered, to what degree? Were they all accepted? Did
the quality of the outputs meet expectations?
Performance against budget
Include the actual performance of the project against the
project budget and make comments regarding variations.
Cost area
Estimated cost
Actual cost
Photographs
Logo design
Web site development
Web site content

30. Lessons learnt
Describe the project management and quality management
processes that were perceived to be inappropriate and/or
ineffective for the project, as reflected by the stakeholders
and the project records/documentation.
Attach:
Link to completed online file organisation and record
keeping system used throughout the project.
☐