Project Risk ManagementProject Risk ManagementPlanning StagePlanning Stage

The Importance of Project Risk Management

Project risk management is the art and science of identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives

Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates

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Negative RiskA dictionary definition of risk is “the possibility of

loss or injury”

Negative risk involves understanding potential problems that might occur in the project and how they might impede project success

Negative risk management is like a form of insurance; it is an investment

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Risk Can Be PositivePositive risks are risks that result in good things

happening; sometimes called opportunities

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Project risks vs. Business risksTwo things are differentBusiness risks are about the probability of failing

to achieve estimated benefits Project risks are about the probability for the

project to failEach probability has a different ground that leads

to the risk occurrence

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Risks Management ProcessesThe techniques have some common ground,

e.g.:Identify risk factorsEstimate a probability and an impactDefine mitigating mechanismsMonitor risks

Business and Project risk factors are entirely different

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Project Risk Management Processes

Risk management planning…

Risk identification: determining which risks are likely to affect a project and documenting the characteristics of each

Qualitative risk analysis: prioritizing risks based on their probability and impact of occurrence

Quantitative risk analysis: calculating probability and impact

Risk response planning: taking steps to…reduce threats to meeting project objectives

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Project Risk Management Processes (continued)Risk monitoring and control: monitoring identified

and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project

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Risk IdentificationRisk identification is the process of

understanding what potential events might hurt … a particular project

Risk identification tools and techniques include:

Brainstorming

The Delphi Technique

Interviewing

Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis

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BrainstormingCall your development team to the meeting Have an intelligent discussion re the project risksFacilitate the discussion:

Collect information from external resources (experts, books, Internet)

Collect the ideas and categorize themPrioritize risk factors

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Delphi TechniqueDuring the group discussion some negative

effects may occur, e.g. someones’ opinions prevail the other people opinions

Delphi technique help eliminating negative effectsIs based on a special procedure of interviewing

expertsDetails are out of scope

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InterviewingAnother most commonly used technique, after

brainstormingTalk to expertsTalk to ones who have completed similar projects

recentlyBefore interviewing, have an initial list of

questions but be prepared to change it during the interview

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SWOT AnalysisIn terms of the project, discuss each of S, W, O,

and TKeep focused on the project objectives and

scopeWatch for threats from external entities (other

projects, contractors, vendors, etc)

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SWOT analysisExamples:S – we have already development teams trained

to work with Service Oriented ArchitectureW – we have no experience with Service

Oriented Architecture O – this vendor offers us a significant discountT – the vendor is at the acquisition, who knows

what may happen to them

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Broad Categories of RiskMarket risk

Unable to promote the product to buyers as estimated

Financial risk Development and ownership cost is higher than estimated

Technology risk New technology brings unexpected compatibility problems

People risk Leading developers resign from the company

Structure/process riskNew processes required to utilize the product are not successful

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IT Project Risks Factors

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ExerciseFor your project, define applicable risk factors

and evaluate probability of occurrence for each of them

Make reasonable assumptions in regards to unknown value of factors

Make your notes – you will be using them during the lab

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Table 11-3: Information Technology Success Potential Scoring Sheet

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Risk RegisterThe main output of the risk identification process is a list

of identified risks and other information needed to begin creating a risk register

A risk register is:A document that contains the results of various risk

management processes and that is often displayed in a table or spreadsheet format

A tool for documenting potential risk events and related information

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Risks EvaluationAssess the likelihood and impact of identified

risks to determine their magnitude and priorityRisk evaluation tools and techniques include:

Probability/impact matricesThe Top Ten Risk Item TrackingExpert judgment

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Probability/impact matricesThe chart built to show correlation between

probability and impact

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Risk6 Risk9 Risks 1 and 4

Risks 3 and 7 Risks 2, 5, and 11

Risks 8 and 10 Risk 12

ProbabilIty

Impact

High

Medium

Low

Low Medium High

Top Ten Risk Item Tracking

Top Ten Risk Item Tracking is a qualitative risk analysis tool that helps to identify risks and maintain an awareness of risks throughout the life of a project

Establish a periodic review of the top ten project risk items

List the current ranking, previous ranking, number of times the risk appears on the list over a period of time, and a summary of progress made in resolving the risk item

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Risk Response PlanningAfter identifying and quantifying risks, you must

decide how to respond to themFour main response strategies for negative risks:

Risk avoidanceYou may decide to avoid doing with a new vendor

Risk acceptanceYou accept a new vendor

Risk transferenceYou apply a 3rd party service instead of doing your own

developmentRisk mitigation

You find the way to address and control risk

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Table 11-7: General Risk Mitigation Strategies for Technical, Cost, and Schedule Risks

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Risk Management PlanCreate the plan at the project planning stageGenerally the plan contains:

MethodologyRoles and responsibilitiesBudget and scheduleRisk categoriesRisk probability and impactStakeholders toleranceTrackingRisk documentation

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Sample forms

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Risk Monitoring and ControlInvolves executing the risk management process

to respond to risk eventsWorkarounds are unplanned responses to risk

events that must be done when there are no contingency plans

Main outputs of risk monitoring and control are:Requested changesRecommended corrective and preventive actionsUpdates to the risk register, project management plan,

and organizational process assets

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Results of Good Project Risk ManagementUnlike crisis management, good project risk

management often goes unnoticedWell-run projects appear to be almost effortless,

but a lot of work goes into running a project wellProject managers should strive to make their jobs

look easy to reflect the results of well-run projects

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