ENMG698c Lecture3

Lecture 3
The Risk Management Process per PMBOK Standards
ENMG 698c: Special Topics - Project Risk Management - Dr. Rayan Khraibani
Copyright © 2020-2021, American University of Beirut, All Rights Reserved

Outline
▪ Overview of the PRM processes
▪ Plan risk management
▪ Identify risks
▪ Analysis
▪ Responses
▪ Monitoring
▪ Conclusion
2
Overview of the PRM Processes
3
Project Risk Management - Introduction
4
Project risk management
▪Objective
▪ Optimize the chance or project success
▪ Ensure that project stays on track
▪ Seize opportunities
▪Included in
▪ Planning, executing, and monitoring & controlling parts of the
project life cycle
5
Seven processes
6
A broad definition of risk
▪Uncertainty
▪ Positive and negative risks
▪Variability
▪Pro-activity
▪ Response plan vs. contingency reserve
▪Unpredictability
▪Issues
7
A unified framework
8
Plan Risk Management
9
Plan risk management process
▪ Consists of defining how to conduct risk management activities
▪ Once or at pre-defined milestones during the project
10
11
Inputs
▪Project Charter
▪ High-level description, scope and requirements
▪Project Management Plan
▪ Coordination and consistency
▪Project Documents
▪ Information (e.g. stakeholders risk attitude)
12
Inputs
▪Enterprise Environmental Factors
▪Organizational Process Assets

▪ e.g. risk policy, templates (registers & reports), roles and
responsibilities, authority levels, lessons learned
13
Tools and techniques
▪Expert judgement
▪Data analysis
▪Meetings, workshops
▪ Understand the context

▪ Elicit risk attitude
▪ Tailor
▪ Promote team work and communication
14
Output: the risk management plan
▪ General risk strategy
▪ Methodology
▪ Roles and responsibilities
▪ Funding and contingency protocol
▪ Activities and timing
15
▪ Risk categories
▪ Probabilities and impact definitions and matrix
▪ Reporting formats
▪ Tracking
16
A risk breakdown structure
Requirements
Estimates
Technical risk
Processes
Technology
Organization
Management risk Resourcing
Risk categories Global risk Communication
Procurement
Commercial risk Suppliers
Sub-contracts
Legislation
External risk Exchange rates
Competition
Project Risk Management - Introduction
17
A scale definition table
18
A probability and impact matrix
Implement
Plan response response
4
Probability
Monitor 1
1 2 3 4 5
Impact
19
Probability/impact scores
20
Identify Risks
21
Identify risk process
▪ Consists of identifying and documenting sources of risk
▪ Iterative process over the project life cycle – frequency to be

determined in the risk management plan
▪ Many participants (project manager, operations, final users,

experts…)
22
23
Inputs
▪Identify elements that are at risk
▪ Project management plan (WBS, requirements, schedule, costs,
quality, resources, scope,…)
▪ Project documents (estimates, lessons learned)
▪ Agreements
▪ Procurement documentation
▪Use organizational history and resources
▪ Enterprise environmental factors
▪ Organizational process assets
24
▪ Expert judgement
▪ Data gathering (brainstorming, checklists, interviews)
▪ Data analysis (root cause, assumptions & constraints, SWOT,
documents)
▪ Team skills
▪ Prompt lists
▪ Meetings
25
▪ General risk strategy
▪ Methodology
▪ Roles and responsibilities
▪ Funding and contingency protocol
▪ Activities and timing
26
Output: the risk register
▪Contains the details of the identified risks and the results of
their analysis at the activity level
▪Events and changes are recorded during the project life
cycle
▪ List of risks / importance
▪ Risk owners
▪ Potential responses
▪ Risk status
27
Output: Project documents updates
▪Relevant project documents are updated during the life

cycle of the project, e.g.:
▪ Assumption log
▪ Issue log
▪ Lesson learned register
28
Analysis
29
Perform qualitative risk analysis process
▪ Consists of assessing characteristics of project risks (probability,
impact) and classifying them (priority)
▪ Helps in identifying focus
▪ Subjective assessments based on beliefs and perceptions
30
31
▪ Expert judgment
▪ Data gathering
▪ Data analysis
▪ Team skills
▪ Risk categorization
▪ Data representation
▪ Meetings
32
Example: subjective probability assessment
wet black
dry white
33
Example: Graphical representation
34
Perform quantitative analysis process
▪ Consists of assessing characteristics of project risks using
mathematical models
▪ Helps in assessing global exposure
▪ Provides quantitative risk information to support risk response
planning
▪ Specialized software
▪ Usually performed for large complex projects or high priority risks
35
36
▪ Expert judgment
▪ Data gathering
▪ Data analysis
▪ Team skills
37
▪Representation of uncertainty
▪ Probability distributions
▪ Probability trees
▪Data analysis
▪ Sensitivity analysis
▪ Monte-Carlo simulation
▪ Decision trees
▪ Influence diagrams
38
Example: Probability distribution
Construction
costs
39
Example: a Tornado diagram
40
Example: a decision tree
41
Example: Monte-Carlo simulation
42
-800
-600
-400
-200
0
200
400
600
-1200
-1000
-1400
Cash flows / 2005
Cash flows / 2007
Cash flows / 2009
Cash flows / 2011
Cash flows / 2013
Cash flows / 2015
Cash flows / 2017
Cash flows / 2019
Cash flows / 2021
Example: trend chart
Cash flows / 2023

Cash flows / 2025
Cash flows / 2027
Cash flows / 2029
Cash flows / 2031
Cash flows / 2033
Cash flows / 2035
Cash flows / 2037
Cash flows / 2039
Cash flows / 2041
Cash flows / 2043
Cash flows / 2045
Cash flows / 2047
Cash flows / 2049
Cash flows / 2005 to Cash flows / 2060
Cash flows / 2051

Cash flows / 2053
Cash flows / 2055
Cash flows / 2057

Cash flows / 2059

Mean
5% - 95%
+/- 1 Std. Dev.
43
Responses
44
Plan risk response process
▪ Consists of developing options and deciding on actions and
strategies to address project risk (negative or positive)
▪ Responses should be adapted to the importance and impact of

risks and be cost effective (strategic decision making)
▪ May include more than one level of contingency planning
45
46
▪ Expert Judgment
▪ Data Gathering
▪ Team skills
▪ Strategies (threats, opportunities, contingent responses)
▪ Data Analysis (alternative, cost-benefit analysis)
▪ Decision Making (risk/return, multicriteria)
47
Outputs
▪Change Requests
▪Updates
▪ Project management plan
▪ Project documents
▪Risk register, risk report
48
Example: risk register update
Risk Probability Impact Importance Preventive Contingency Owner

measures measures
Delay in 0.25 -2M Selection, Alternative X
procurement monitoring supplier
Devaluation 0.5 -1M hedging Additional Y
funding
Major 0.1 -50M Preventive Repairs & Z
breakdown maintenance
reschedule
49
Implement risk response process
▪ Consists in implementing agreed-upon risk response plans
▪ Belongs to the execution group
▪ Can result in a change of schedule (activities, cost, resources)
50
51
Monitoring
52
Monitoring risk process
▪ Consists of tracking the identified risks, monitoring the
implementation of the response plans, and evaluating the risk
management process effectiveness
▪ Uses performance information generated during project execution
53
54
▪Data analysis
▪ Risk reassessment
▪ Variance and trend analysis (technical performance, costs,
resources)
▪Audits
▪Meetings
55
Example: burn-down chart
56
Conclusion
57
Specific R.M. documents
▪ Risk register
▪ In table form, contains information on individual project risks
▪ List, impact, probability, importance, responses, status, owner
▪ Risk report
▪ Higher level summary, contains strategic information
▪ Threats and opportunities, risk management results, strategies
58
Organizational memory
▪ Issue log
▪ Lesson learned register
59
Emergent practices
▪ Non-event risks
▪ Project resilience
▪ Value of flexibility and team work
▪ Integrated risk management
▪ Agile environments
▪ Frequent reviews – risks are identified and discussed in regular meetings
▪ Tools: risk burndown charts, Kanban boards, impact matrices
60
Readings
▪ A guide to the PMBOK, Chapter 11
61
Assignment
▪ Form teams for the final presentation
▪ 11 teams, 7 students per team
▪ Write a one-page proposal
62

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Lecture 3

The Risk Management Process per PMBOK Standards

Copyright © 2020-2021, American University of Beirut, All Rights Reserved

▪ Once or at pre-defined milestones during the project

▪Enterprise Environmental Factors

▪Organizational Process Assets

▪ Understand the context

▪ Roles and responsibilities

▪ Funding and contingency protocol

▪ Activities and timing

▪ Probabilities and impact definitions and matrix

▪ Iterative process over the project life cycle – frequency to be

▪ Many participants (project manager, operations, final users,

▪ Roles and responsibilities

▪ Funding and contingency protocol

▪ Activities and timing

▪Relevant project documents are updated during the life

▪ Consists of assessing characteristics of project risks (probability,

impact) and classifying them (priority)

▪ Helps in identifying focus

▪ Subjective assessments based on beliefs and perceptions

Cash flows / 2023

Cash flows / 2051

Cash flows / 2057

Cash flows / 2059

▪ Responses should be adapted to the importance and impact of

▪ May include more than one level of contingency planning

▪Risk register, risk report

Risk Probability Impact Importance Preventive Contingency Owner

▪ Belongs to the execution group

▪ Can result in a change of schedule (activities, cost, resources)

▪ Uses performance information generated during project execution

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