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Project Management ProfessionalPMP Exam Preparation Course
Prepared By: Eng. Ahmed El Antary, PPM, MSPMEngineering & Management Technologies LLC
Delaware, USA
[email protected] – www.enmatecs.com
Project Risk Management
Chapter 11PMBOK 5th Ed.
“Ahmed El Antary”
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The Course Leader
Ahmed El Antary, PPM, MSPM Engineering and Management Consultant
Certified Professional Project Manager (PPM), WCU, USA PhD Learner with concentration on Project Management - PhD-BA
program. NorthCenteral University, AZ, USA Master of Science in Project Management, Colorado Technical University,
Colorado Springs, CO, USA
B. Sc. Civil Engineering, Al Azhar University, Cairo, Egypt Project Management Certificate & PMP Preparation Course, WCU, USA Business Management Certificate GL, CTU, CO, USA Change Management Certificate GL, CTU, CO, USA Project Management Certificate GL, CTU, CO, USA
Team Member of the Construction Extension Project for the PMBOK 3rdEd. By (PMI) and (ANSI) Certified Green Buildings Expert (GBE) Certified LEED Expert (CLE) Certified Sustainable Development Expert (SDE)
Certified Building Information Modeling Expert (BIME)
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Project Risk Management
Project Risk Management includes the processes of conducting risk
management planning, identification, response planning, andmonitoring and control on a project.
The objectives of Project Risk Management are to increase theprobability and impact of positive events, and decrease the probabilityand impact of negative events in the project.
Projects are launched to take advantage of opportunities
Opportunities carry with them associated (adverse) risks
The greater the opportunity, the greater the degree of uncertainty and
the associated risk Project risk management should be seen as advanced preparation for
possible adverse future events, rather than responding as theyhappen.
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Organization’s Risk Attitude
Organizations perceive risk as the effect of uncertainty onprojects and organizational objectives. Organizations andstakeholders are willing to accept varying degrees of riskdepending on their risk attitude. The risk attitudes of both theorganization and the stakeholders may be influenced by anumber of factors, which are broadly classified into three
themes: Risk appetite, which is the degree of uncertainty an entity is willing
to take on in anticipation of a reward.
Risk tolerance, which is the degree, amount, or volume of risk that
an organization or individual will withstand. Risk threshold, which refers to measures along the level of
uncertainty or the level of impact at which a stakeholder may have aspecific interest. Below that risk threshold, the organization will
accept the risk. Above that risk threshold, the organization will nottolerate the risk.
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Project Risk Management
The knowledge area of Project Risk Management consists of thefollowing processes:
Risk Management Processes
Process Project Phase Key Deliverables
Plan Risk Management Planning Risk Management Plan
Identify Risks Planning Risk register
Perform Qualitative Risk
AnalysisPlanning Risk register updates
Perform Quantitative Risk
Analysis Planning Risk register updates
Plan Risk Responses PlanningRisk related contract
decisions
Control Risks Monitoring and Controlling Risk register updates
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Plan Risk Management
Plan Risk Management is the process of defining how to conduct riskmanagement activities for a project.
Inputs Tools and Techniques Outputs
Project management plan
Project charter
Stakeholder register
Enterprise environmentalFactors
Organizational process assets
Analytical techniques:
Analytical techniques areused to understand anddefine the overall riskmanagement context ofthe project.
Expert judgment
Meetings
Risk management plan
Plan Risk Management Process
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Risk Management Plan
The risk management plan is a component of the project management plan anddescribes how risk management activities will be structured and performed. The
risk management plan includes the following: Methodology. Defines the approaches, tools, and data sources.
Roles and responsibilities.
Budgeting.
Timing.
Risk categories. Provide a means for grouping potential causes of risk. A riskbreakdown structure (RBS) helps the project team to look at many sources from whichproject risk may arise in a risk identification exercise. The RBS is a hierarchicalrepresentation of risks according to their risk categories.
Definitions of risk probability and impact. The example table definitions negative
impacts that could be used in evaluating risk impacts related to four project objectives.(Similar tables may be established with a positive impact perspective). The exampleillustrates both relative and numerical (in this case, nonlinear) approaches.
Probability and impact matrix.
Revised stakeholders’ tolerances.
Reporting formats.
Tracking.
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Example of a Risk Breakdown Structure (RBS)
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Definition of Impact Scales for Four Project Objectives
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Identify Risks Identify Risks is the process of determining which risks may affect the
project and documenting their characteristics.
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:
Brainstorming Delphi technique Interviewing Root cause analysis
Checklist analysis
Assumptions analysis
Diagramming techniques: Cause and effect diagrams System or process flow charts Influence diagrams
SWOT analysis
Expert judgment
Risk register: List of identified risks
List of potential responses
Identify Risks Process
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Brainstorming
Think of all thepossible risks thatproject may face
Note risks down andbe careful to define
them clearly
Monitor risksthrough all projectphase and their
impact possibilities
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Influence Diagram
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SWOT Analysis
Strengths: (Organizational Internal) Build on these strengths
Weaknesses: (Organizational Internal) Eliminate or reduces these weaknesses
Opportunities: (Organizational External) Exploit all possible opportunities
Threats: (Organizational External) Mitigate all potential threats
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Perform Qualitative Risk Analysis Perform Qualitative Risk Analysis is the process of prioritizing risks for
further analysis or action by assessing and combining their probability
of occurrence and impact.
Inputs Tools and Techniques Outputs
Risk management plan
Scope baseline
Risk registerEnterprise environmental factors
Organizational process assets
Risk probability and impactassessment
Probability and impact matrix
Risk data quality assessment
Risk categorizationRisk urgency assessment
Expert judgment
Project documentsupdates:
Risk register updates
Assumptions log
updates
Perform Qualitative Risk Analysis Process
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Probability and Impact Matrix
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Probability and Impact Matrix “Cont.”
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Perform Quantitative Risk Analysis
Perform Quantitative Risk Analysis is the process of numericallyanalyzing the effect of identified risks on overall project objectives.
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: Interviewing Probability distributionsQuantitative risk analysis andmodeling techniques:Sensitivity analysis: The Tornadodiagram Expected monetary value analysis:Decision tree analysis Modeling and simulation
Expert judgment
Project documents
updates: Probabilistic analysisof the project Probability ofachieving cost and timeobjectives Prioritized list ofquantified risks Trends in quantitativerisk analysis results
Perform Quantitative Risk Analysis Process
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Range of Project Cost Estimates by Risk Interviewing
Interviewing relevant stakeholders helps determine the three-point estimatesfor each WBS element for triangular, beta or other distributions.
In this example, the likelihood of completing the project at or below the mostlikely estimate of $41 million is relatively small as shown in the simulationresults.
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Perform Quantitative Risk Analysis
Quantitative risk analysis and modeling
techniques Sensitivity Analysis: Tornado Diagram –
determines which risks have the most potential
impact on the project Expected monetary value analysis – a statistical
concept that calculates the average outcome
when the future includes scenarios that may ormay not happen
Modeling and Simulation
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Example of Tornado Diagram
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Decision Tree Diagram
A decision is being made whether to invest $120M US to build a new plant or to instead invest only $50M USto upgrade the existing plant. For each decision, the demand (which is uncertain, and therefore represents a“chance node”) must be accounted for. For example, strong demand leads to $200M revenue with the new plant but only $120M US for the upgradedplant, perhaps due to capacity limitations of the upgraded plant. The end of each branch shows the net effect ofthe payoffs minus costs. For each decision branch, all effects are added (see shaded areas) to determine theoverall Expected Monetary Value (EMV) of the decision.
Remember to account for the investment costs. From the calculations in the shaded areas, the upgradedplant has a higher EMV of $46M – also the EMV of the overall decision. (This choice also represents the lowestrisk, avoiding the worst case possible outcome of a loss of $30M).
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Cost Risk Simulation Results
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Plan Risk Responses Plan Risk Responses is the process of developing options and actions
to enhance opportunities and to reduce threats to project objectives.
The key benefit of this process is that it addresses the risks by theirpriority, inserting resources and activities into the budget, scheduleand project management plan as needed.
Inputs Tools and Techniques Outputs
Risk managementplan
Risk register
Strategies for negative risks orthreats
Strategies for positive risks oropportunities
Contingent response strategies
Expert judgment
Project management planupdates
Project documents updates
Plan Risk Responses Process
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Plan Risk Response T&T
Strategies for Negative Risks or Threats
Avoidance – Change PMP to eliminate thethreat by eliminating the cause
Transference - Make another party responsible
for the risk through allocation, purchasing ofinsurance, or outsourcing the work
Mitigation – Reduction in the probability or
impact the risk Accept – This strategy is adopted because it is
seldom possible to eliminate all threats from a
project
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Plan Risk Response T&T
Strategies for Positive Risks or Opportunities
Exploit – Ensures the opportunity is realized
Share – allocating ownership to a third partywho is best able to capture the opportunity
Enhance – Modifies the size of anopportunity by increasing the probability orpositive impacts
Accept
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Control Risks Control Risks is the process of implementing risk response plans,
tracking identified risks, monitoring residual risks, identifying new
risks, and evaluating risk process effectiveness throughout the project.The key benefit of this process is that it improves efficiency of the riskapproach throughout the project life cycle to continuously optimizerisk responses.
Inputs Tools and Techniques Outputs
Project management plan
Risk register
Work performance dataWork performance reports
Risk reassessment
Risk audits
Variance and trend analysis
Technical performance measurement
Reserve analysis
Meetings
Work performanceinformation
Change requests:
Project management planupdates
Project documents updates
Organizational processassets updates
Control Risks Process
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Q U E S T I O N S
A N S W E R S
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Resources Project Management Institute. (2013). A guide to the project management body of
knowledge ( 5th ed.). Newtown Square, PA: Project Management Institute.
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Q & A on Project Risk Management1. Andrew has joined as the Project Manager of a project. One of the project documentsavailable to Andrew lists down all the risks in a hierarchical fashion. What is this document
called?1.Risk Management Plan.2.List of risks.3.Monte Carlo diagram.4.Risk Breakdown Structure.
2. Which of the following statements is true about risks?1.When evaluating risks their impact should be considered, however probability ofoccurrence is not important.2.Risks if they happen always have negative impact and not positive.3.Risk register documents all the risks in detail.4.Risk response plan is another name for Risk Management Plan.
3. Beta is the Project Manager of a Road construction project. During a project review, Betarealizes that one particular risk has occurred. To take appropriate action against risk thathas happened, Beta needs to refer to which document?
1.Risk response plan2.Risk management plan
3.Risk breakdown structure4.Risk register
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Q & A on Project Risk Management4. During which stage of Risk planning are risks prioritized based on probability and impact?
Identify RisksPlan Risk responses
Perform Qualitative risk analysisPerform Quantitative risk analysis
5. During which stage of Risk planning are modeling techniques used to determine overall
effects of risks on project objectives for high probability, high impact risks?Identify RisksPlan Risk responsesPerform Qualitative risk analysisPerform Quantitative risk analysis
6. Andrew is a Project Manager for Green Valley project. A risk management plan has beenprepared for the project. Which of the following should Andrew do next?
Perform Qualitative risk analysisPerform Quantitative risk analysis
Identify RisksPlan Risk responses
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Q & A on Project Risk Management7. Which of the following processes has risk register as the primary output?
Plan Risk ManagementIdentify Risks
Monitoring and Control RisksPerform Qualitative Risk Analysis
8. Five of the processes in Project Risk Management are from which process group?
InitiatingPlanningExecutingMonitoring and Control
9. John Strauss is a Project Manager for a reforestation project. To identify the risksinvolved, John sends a questionnaire to gather inputs from experts. Which technique isJohn using?
Delphi techniqueInterviews
Brain stormingDocumentation review
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Q & A on Project Risk Management
10. Mathew is a Project Manager for software migration at a bank. A majorrisk that has been identified is attrition of resources. As a strategy torespond to this risk, Mathew, with support from Senior Management,provides good increments to his team members. What type of risk responseis Mathew following?
AcceptAvoid
TransferMitigate
11. Which of these is a valid response to positive risks?
ExploitMitigateEnhanceShare
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Q & A on Project Risk Management
Answers1. d. Hierarchical description of risks is called Risk Breakdown structure.
2. c. Risk register documents the risks in detail.3. a. Beta needs to refer to the Risk response plan that documentsresponses to identified risks.4. c. Risk probability and impact are defined during Qualitative risk analysis.5. d.6. c. Risk identification is performed after performing the risk managementplan.7. b. Process of Identify Risks has Risk register as the major output.8. b. Five of the six processes in Project Risk Management are part of thePlanning process group.9. a. John is using the Delphi technique to identify risks.
10. d. Mathew is mitigating the risk by reducing the probability of riskhappening11. Risk mitigation is a response to negative risks and not positive risks.Positive risks may be responded by - "Exploit", "Enhance", "Share","Accept".