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Risk Management
PMI's risk management philosophy is based on a proactive approach to preventing negative risks and enhancing positive risks. Key points to remember about risk include
The risk methodology is a definition of how risk will be managed. It includes the approach, tools, and techniques to be used for the project. The approach details how the steps of the risk process will be conducted. For example, the approach could specify that risk analysis will be conducted at the end of each planning meeting. The tools can include the risk register, the risk breakdown structure, the probability and impact matrix, and checklists. Risk Management Planning and Risk Response PlanningThe risk management plan includes the risk methodology, roles/responsibilities, budget, execution timing, and definitions for risk categories, probabilities, and impacts. It is a summation of how the project team will carry out the remainder of the risk management activities for the project. The risk management plan should not be confused with the risk response plan, which is where the project manager captures responses to specific risks that have been identified during the risk identification process. The risk management plan is the single output of the plan risk management process. Table 4.10 shows the inputs, tools and techniques, and outputs for the plan risk management process. Table 4.10. Plan Risk Management Inputs, Tools and Techniques, and Outputs
Risk Breakdown Structure (RBS)A risk breakdown structure (RBS) is a tool that can be used to organize risks in a hierarchical fashion. The structure is defined using the risk categories. Even if an RBS is not used, risk categories are still defined in risk management planning. Risk categories can include
Risk Probability and ImpactProbability can be defined as the likelihood that a risk will occur. It can be expressed mathematically (.2) or as a relative scale (low, medium, high). The definition for probability is developed during risk management planning. Impact is the effect a risk has if it does occur. It can also be defined on a relative scale or mathematically. The definition for impact is developed during risk management planning. The team documents in the project management plan detail how probabilities and impacts are measured. For example, a red/yellow/green scale might be used, where high-probability, high-impact risks are red; low-probability, low-impact risks are green; and so forth. A probability and impact matrix can also be used; for an example, refer to PMBOK Fourth Edition, Figure 11-10. Risk Identification, Analysis, Response Planning, and Monitoring/ControllingIn the risk management process, completing the risk management plan is the first step. After the plan is in place, according to PMI the next steps in the risk management process are
Identify RisksThe identify risks process is determines the risks that might affect the project and characterizes those risks. Obviously, the ability to identify risks is key in an effective risk management process. Keep in mind that identifying risks is not just the project manager's responsibility; team members, subject matter experts, customers, stakeholders, and others are involved in this process. Table 4.11 shows the inputs, tools and techniques, and outputs for the identify risks process. Table 4.11. Identify Risks Inputs, Tools and Techniques, and Outputs
The Risk RegisterThe risk register is the output of the identify risks process. The risk register contains the following information:
Qualitative and Quantitative Risk AnalysisQualitative risk analysis provides further definition to the identified risks in order to determine responses to them. The key terms are probability and impact. Probability is important because it measures how likely a risk will occur. A high-probability risk deserves more attention than a low-probability risk. Likewise, impact is a measure of how the risk will affect the project should it occur. A risk with low impact has a different response than one with a high impact. Qualitative risk analysis quickly prioritizes risks in order to conduct response planning and quantitative risk analysis, if used. Using the probability of the impact and a probability impact matrix, the project manager develops a prioritized list of risks. The output to this step is captured in the risk register. Table 4.12 shows the inputs, tools and techniques, and outputs for the perform qualitative risk analysis process. Table 4.12. Perform Qualitative Risk Analysis Inputs, Tools and Techniques, and Outputs
Quantitative risk analysis assigns numerical values to risks and looks at those risks that are high on the list of prioritized risks during qualitative risk analysis. The goal of this process is to quantify possible outcomes for the project, determine probabilities of outcomes, further identify high impacting risks, and develop realistic scope, schedule, and cost targets based on risks. Table 4.13 shows the inputs, tools and techniques, and outputs for the perform quantitative risk analysis process. Table 4.13. Perform Quantitative Risk Analysis Inputs, Tools and Techniques, and Outputs
A key tool used in quantitative risk analysis is decision tree analysis. Using a decision tree diagram (see Figure 4.3), the impact of different scenarios is captured. Both probability and cost are used, resulting in an expected monetary value (EMV).
Figure 4.3 An example of a decision tree analysis. For this example, there are two vendors for a software package; Acme and WebCo. The details of the two options are presented in Table 4.14. Table 4.14. Decision Tree Analysis Example Data
Responses to Positive and Negative RiskAfter all risks are identified, options to deal with the risks must be identified. Each risk is assigned to one or more owners to carry out the planned response. The responses are documented in the risk register after it has been updated in the plan risk responses process. Table 4.15 shows the inputs, tools and techniques, and outputs for the plan risk responses process. Table 4.15. Plan Risk Responses Inputs, Tools and Techniques, and Outputs
There are four responses to negative risks:
For positive risks the responses include
They are summarized in Table 4.16. Table 4.16. Summary of Risk Responses
Risk Monitoring and ControllingThe risk process is not just performed once during the planning process. Throughout the project, risks must be continually monitored, with additional analysis and risk response development as new risks are identified. Risk monitoring and controlling focuses both on identification and analysis of new risks, as well as tracking previously identified risks and risk triggers. Risks should be re-evaluated when the following events occur:
Cram QuizAnswer these questions. The answers follow the last question. If you cannot answer these questions correctly, consider reading this section again until you can.
Cram Quiz Answers
What are the main activities of risk identification?There are five core steps within the risk identification and management process. These steps include risk identification, risk analysis, risk evaluation, risk treatment, and risk monitoring.
What are the 3 stages of risk identification?Risk assessment is the name for the three-part process that includes: Risk identification. Risk analysis. Risk evaluation.
What does risk identification include?Risk identification (RI) is a set of activities that detect, describe and catalog all potential risks to assets and processes that could have negatively impact business outcomes in terms of performance, quality, damage, loss or reputation.
What are the four stages of risk identification?In this article, we look at the process of risk management and how to identify, assess, and respond to project risks.. Identify the risk.. Assess the risk.. Treat the risk.. Monitor and Report on the risk.. |