Mis 448 Ch11 - Risk

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Project risk management is the art and science of

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identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives

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Project risk management is the art and science of

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select good projects, determining project scope, and developing realistic estimates

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Project risk management is the art and science of

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A dictionary definition of risk is “the possibility of loss or injury”

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Project risk management is the art and science of

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potential problems that might occur in the project and how they might impede project success

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Project risk management is the art and science of

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a form of insurance; it is an investment

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Project risk management is the art and science of

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Positive risks are risks that result in good things happening; sometimes called opportunities

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A general definition of project risk is

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an uncertainty that can have a negative or positive effect on meeting project objectives

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The goal of project risk management is to

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minimize potential negative risks while maximizing potential positive risks

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Risk utility or risk tolerance is

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the amount of satisfaction or pleasure received from a potential payoff

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Those who are risk-seeking have

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a higher tolerance for risk, and their satisfaction increases when more payoff is at stake

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Risk Utility rises at a decreasing rate

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for people who are risk-averse

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The risk-neutral approach achieves

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a balance between risk and payoff

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Project Risk Management Processes: Planning Risk Management

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deciding how to approach and plan the risk management activities for the project

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Project Risk Management Processes: Identifying Risks

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

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Project Risk Management Processes: Performing qualitative risk analysis

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prioritizing risks based on their probability and impact of occurrence

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Project Risk Management Processes: Performing quantitative risk analysis:

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numerically estimating the effects of risks on project objectives

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Project Risk Management Processes: Planning Risk Responses

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taking steps to enhance opportunities and reduce threats to meeting project objectives

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Project Risk Management Processes: Monitoring and Controlling Risks

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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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Contingency plans are

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predefined actions that the project team will take if an identified risk event occurs

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Fallback plans are

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developed for risks that have a high impact on meeting project objectives and are put into effect if attempts to reduce the risk are not effective

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Contingency reserves or allowances are

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provisions held by the project sponsor or organization to reduce the risk of cost or schedule overruns to an acceptable level

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Broad Categories of Risk

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Market risk

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A risk breakdown structure is

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a hierarchy of potential risk categories for a project

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Identifying risks is the process of

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understanding what potential events might hurt or enhance a particular project

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Risk identification tools and techniques include:

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Brainstorming

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A risk register is:

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A document that contains the results of various risk management processes and that is often displayed in a table or spreadsheet format

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Risk events refer to

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specific, uncertain events that may occur to the detriment or enhancement of the project

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Risk Register Contents

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An identification number for each risk event

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Risk Register Contents (continued)

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Triggers for each risk; triggers are indicators or symptoms of actual risk events

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Performing Qualitative Risk Analysis

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Assess the likelihood and impact of identified risks to determine their magnitude and priority

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Risk quantification tools and techniques include:

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Probability/impact matrixes

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A probability/impact matrix or chart lists

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lists the relative probability of a risk occurring on one side of a matrix or axis on a chart and the relative impact of the risk occurring on the other

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A probability/impact matrix or chart lists

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List the risks and then label each one as high, medium, or low in terms of its probability of occurrence and its impact if it did occur

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Can also calculate risk factors

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Numbers that represent the overall risk of specific events based on their probability of occurring and the consequences to the project if they do occur

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Top Ten Risk Item Tracking is

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a qualitative risk analysis tool that helps to identify risks and maintain an awareness of risks throughout the life of a project

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A watch list is

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a list of risks that are low priority but are still identified as potential risks

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Performing Quantitative Risk Analysis

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Often follows qualitative risk analysis, but both can be done together

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Decision tree analysis

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A decision tree is

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a diagramming analysis technique used to help select the best course of action in situations in which future outcomes are uncertain

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Estimated monetary value (EMV) is

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the product of a risk event probability and the risk event’s monetary value

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Simulation uses

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a representation or model of a system to analyze the expected behavior or performance of the system

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Monte Carlo analysis simulates

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a model’s outcome many times to provide a statistical distribution of the calculated results

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To use a Monte Carlo simulation, you must have

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(most likely, pessimistic, and optimistic) plus an estimate of the likelihood of the estimate being between the most likely and optimistic values

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Sensitivity analysis is a

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technique used to show the effects of changing one or more variables on an outcome

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After identifying and quantifying risks, you must

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decide how to respond to them

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Four main response strategies for negative risks

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Risk avoidance

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Residual risks are

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risks that remain after all of the response strategies have been implemented

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Secondary risks are

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a direct result of implementing a risk response

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Monitoring and Controlling Risks involves

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executing the risk management process to respond to risk events

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Workarounds are

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unplanned responses to risk events that must be done when there are no contingency plans

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Main outputs of risk monitoring and control are:

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Risk register updates

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Results of Good Project Risk Management

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Unlike crisis management, good project risk management often goes unnoticed