Project Risk Planning

Chapter 10
Contemporary Project Management
Kloppenborg

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to a publicly accessible website, in whole or in part.
Chapter
Chapter
Vignette
Vignette Texas Medical Center
TMC is composed of 49 not-for-profit institutions
dedicated to the highest standards of patient care,
research, and education.
Currently 11 major construction projects are
underway.
TMC forms the seventh largest downtown
business district in the United States.
Contractors must have a plan in place detailing
how they are going to secure their construction
sites in the event of a hurricane.

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 At the end of this chapter
Describe risk management planning, risk identification,
risk analysis, and risk response planning.
Identify and classify risks for a project.
Populate a risk register.
Describe various risk assessment techniques and tell
when each is appropriate to use.
Prioritize each risk on a project using an appropriate
assessment technique.
Develop and defend at least one strategy for each of
the high priority risks on a project.
Compare and contrast the various strategies for
dealing with risks.

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 The purpose of risk management is to
reduce the overall project risk to a level
that is acceptable to the project sponsor
and other stakeholders.

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to a publicly accessible website, in whole or in part.
 Plan Risk Management
First understand the projects objectives
Realize what project success is
Project success measures include:

Plan
Planrisk
riskmanagement
management the
theprocess
processof ofdefining
defininghow
how to
to
conduct
conductrisk
riskmanagement
management activities
activitiesfor
foraa project.
project.
PMBOK
PMBOKGuideGuide
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
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 Plan Risk Management
Planning requires an understanding of project success
Project success measures include:

Meeting Agreements
Cost, schedule, and specifications met
Customers Success
Needs met, deliverables used, customer
satisfied
Performing Organizations Success
Market share, new products, new technology
Project Teams Success
Loyalty, development, satisfaction
 Plan Risk Management

Did the project help the performing

organization?

Performing
Performingorganization
organization the
theenterprise
enterprisewhose
whose
personnel
personnelare
aremost
most directly
directly involved
involved in
in doing
doing the
the work
work of
of
the
theproject.
project. PMBOK
PMBOKGuide
Guide

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Specific Project Stakeholder Priorities
 Risk Management Planning and
Stakeholder Priorities
Understand what the project plan calls for
Understand in what area would the most
important stakeholders like to improve
Understand where stakeholders are willing to
sacrifice to enable improvements

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 Understanding the Project Risk
A risk is anything that may impact the project
teams ability to achieve the general project
success measures and the specific project
stakeholder priorities.
A negative impact poses a threat

threat
threat a
acondition
conditionor orsituation
situationunfavorable
unfavorableto
to the
the
projecta
projectarisk
riskthat
that will
willhave
haveaanegative
negativeimpact
impact on
onaa
project
projectobjective
objectiveififititoccurs.
occurs. PMBOK
PMBOKGuideGuide

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 Understanding the Project Risk
A positive impact poses an opportunity
A project manager proactively seeks to
eliminate/reduce the impact of threats and
capitalize on opportunities

opportunity
opportunity aacondition
conditionor or situation
situation favorable
favorableto
to the
the
project
projectaarisk
riskthat
thatwill willhave
haveaa positive
positiveimpact
impact on
onaa
project
projectobjective
objectiveififititoccurs.
occurs. PMBOK
PMBOKGuide Guide

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to a publicly accessible website, in whole or in part.
 Risk Management Planning
The risk management plan is useful for
communicating with project stakeholders and for
follow up analysis

Risk
Riskmanagement
managementplanplan the
thedocument
documentdescribing
describinghow
how
project
projectrisk
riskmanagement
management willwillbe
bestructured
structuredand
and
performed
performedon onaaproject.
project. PMBOK
PMBOKGuide Guide
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to a publicly accessible website, in whole or in part.
 Risk Management Plan Guidance
for an IT Consulting Company
Risk management includes guidance on how to
perform three risk management activities:
1. Decide what level of risk premium to charge for the
project. The team must rate factors such as project size,
complexity, technology, and type. The combined ratings
will dictate that a risk premium of 0, 10, or 20 percent be
added to the estimated project cost or, for very risky
projects, executive approval is mandated.
2. Mitigate risk external to the firm through contract clauses
and risk internal to the firm through agreements.
3. Manage the risk very carefully through specifically
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designed
to a publicly weekly
accessible website, in conference
whole or in part. call meetings and reports.
 Roles and Responsibilities
Encourage wide participation in risk
management activities
The more perspectives considered, the more
likely important risks will be uncovered
Participation in project risk planning encourages
buy-in to a risk management approach
The risk management plan defines who has
responsibility for each risk management activity

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 Categories and Definitions
Risks may be considered by association with a
specific project life cycle stage
More project risks are uncovered early in the life
of a project
The cost per risk discovered early is less
Risks discovered late in a project can be
expensive

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 Risks Over the Project Life Cycle

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 Categories and Definitions
Risks may be categorized by their impact on a
project objective (cost, schedule, scope, quality)
Risks may be classified as external/internal to
the organization
Risks may be classified by what is known about
each

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International Construction Project Risk
Factors
 Information Systems Project Risk
Factors

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
 Information Systems Project Risk
Factors

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
 Information Systems Project Risk
Factors

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
 Categories and Definitions
Cement will Bad weather 100-year
harden will happen flood

A known known can be planned and managed

with certainty
Known unknowns can be identified and may or
may not happen
Identify the risk and establish contingency reserves
Unknown unknowns are true uncertainties
Negotiate a management reserve based on project
manager and key stakeholders understanding of the
project
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 Identify Risks
Information gathering
Reviews
Understanding relationships
Risk register

Identify
Identifyrisks
risks the
theprocess
processof
ofdetermining
determiningwhich
which risks
risks
might
mightaffect
affectthe
theproject
project and
anddocumenting
documentingtheir
their
characteristics.
characteristics. PMBOK
PMBOKGuide Guide

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to a publicly accessible website, in whole or in part.
 Information Gathering
A brainstorming activity considering what
could go wrong
Use classic rules for brainstorming
Variations and extensions of possible risks
can help to identify additional risks
Interview stakeholders

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to a publicly accessible website, in whole or in part.
 Information Gathering
SWOT
SWOTanalysis
analysis an
aninformation
informationgathering
gathering technique
technique
used
usedtotoexamine
examinethe
the project
project from
from perspectives
perspectivesof of each
each
projects
projectsstrengths,
strengths,weaknesses,
weaknesses, opportunities,
opportunities,and
and
threats
threatsto
toincrease
increasethe
thebreadth
breadth of
of risks
risksconsidered.
considered.
PMBOK
PMBOKGuide Guide
Use a SWOT analysis
Use the Delphi technique
Use a structured review review a variety of
project and other documents to uncover
possible risks
Delphi
Delphitechnique
technique an an information
informationgathering
gathering techniques
techniques
used
used as asaaway wayto to reach
reach aaconsensus
consensusof of experts
experts on on aa
subject
2012subject Responses
Responses
Cengage Learning.
are
areMay
All Rights Reserved.
summarized
summarized and
andorrecirculated
not be scanned, copied recirculated
duplicated, or posted
to a for
for further
further
publicly comment.
accessible website, in whole PMBOK
comment. PMBOK
or in part. Guide
Guide
Reviews
 Understanding Relationships
Learn the cause and effect relationships of risk
events
Use a flow chart that shows how people, money, data,
or materials flow from one person/location to another
Consider why a certain risk event may happen
through root cause analysis
Why might this happen?

Root
Rootcause causeanalysis
analysis an an information
informationgathering
gathering
techniques
techniquesused usedas asaaway wayto toreach
reachaaconsensus
consensusof of
experts
expertson onaasubject
subject Responses
Responsesare aresummarized
summarizedand and
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
recirculated
recirculated
to a publicly for
for further
accessible website, infurther comment.
whole or incomment.
part. PMBOK
PMBOKGuide Guide
 Understanding Relationships
Understand triggers
A trigger may be specific to an individual risk
Triggers can be general indications of problems
for the project as a whole

Triggers
Triggers indications
indicationsthat
that aa risk
riskhas
has occurred
occurredor
or isis
about
aboutto
tooccur.
occur. PMBOK
PMBOKGuide Guide
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 Triggers for a Project as a Whole
Project manager displays lack of self-esteem.
Team members do not show enthusiasm for
project.
Project was started with inadequate time for
planning.
Communications are overly general, with little
focus.
Reports yield little information about true project
status.
Little effort has been given to risk management.
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to a publicly accessible website, in whole or in part.
 Risk Register
The primary output of risk identification is the
risk register
The risk register includes risk categories,
identified risks, potential causes, potential
responses
The risk register is a living document

Risk
Riskregister
register thethedocument
documentcontainingcontainingthe theresults
resultsof ofthe
the
qualitative
qualitativerisk riskanalysis,
analysis, quantitative
quantitativerisk risk analysis,
analysis,and andrisk risk
response
responseplanning.planning. The Therisk riskregister
registerdetails
detailsall allidentified
identified
risks,
risks,including
includingdescription,
description,category, category,cause,
cause,probability
probability of of
occurring,
occurring, impact(s)
impact(s) on onobjectives,
objectives,proposed
proposedresponses,
responses,
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to aowners,
owners, and current
andwebsite,
publicly accessible current status.
or in part. PMBOK
status.
in whole PMBOKGuide Guide
 Partial Risk Register

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to a publicly accessible website, in whole or in part.
 Risk Analysis
Perform qualitative risk analysis
Perform quantitative risk analysis
Risk register updates

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to a publicly accessible website, in whole or in part.
 Qualitative Risk Analysis
How likely is a risk to happen?
How big will the impact be?
When is the risk likely to occur?
How easy will it be to notice and correctly
interpret the trigger?

Perform
Performqualitative
qualitativerisk
riskanalysis
analysis the
theprocess
processofof
prioritizing
prioritizingrisks
risksfor
forsubsequent
subsequentfurther
furtheranalysis
analysisor
oraction
action
by
byassessing
assessingand andcombining
combiningtheir
theirprobability
probabilityand
and
impact.
impact. PMBOK
PMBOKGuideGuide
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to a publicly accessible website, in whole or in part.
 Qualitative Risk Assessment

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to a publicly accessible website, in whole or in part.
 Qualitative Risk Analysis
Determine cause and effect relationships
Part of root cause analysis
It may be easier to change the effect by changing the
underlying cause
Use a cause and effect diagram (fishbone diagram)

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
 Cause and Effect Diagram

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 Cause and Effect Diagram
List the risk as the effect in a box at the head of
the fish
Name the big bones
Complete the smaller bones as responses to
asking why the big bones may be a problem

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 Perform Quantitative Risk Analysis

Bigger, more complex, riskier, more expensive

projects may benefit from the rigor of
quantitative structured techniques
Use when it is critical to predict the probability of
completing a project on-time, on-budget, at the
agreed upon scope and/or agreed upon quality

Quantitative
Quantitativerisk
riskanalysis
analysis the
theprocess
processof
of numerically
numerically
analyzing
analyzingthe
theeffect
effect of
ofidentified
identifiedrisks
risks on
onoverall
overallproject
project
objectives.
objectives. PMBOK
PMBOKGuideGuide
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to a publicly accessible website, in whole or in part.
Common Quantitative Risk Analysis
Techniques
 Criteria for Selecting a Quantitative
Risk Technique Methodology
Use the explicit knowledge of the project team
members.
Allow quick response.
Help determine project cost and schedule
contingency.
Help foster clear communication.
Easy to use and understand.

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 Risk Register Updates
Add the probability of each risk occurring and its
impact to the register
Document results of quantitative risk analysis in
the risk register

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to a publicly accessible website, in whole or in part.
 Plan Risk Responses
Strategies for Responding to Risks
Risk Register Updates

Plan
Planrisk
riskresponses
responses the
theprocess
processof
of developing
developing
options
optionsand
andactions
actionsto
toenhance
enhanceopportunities
opportunitiesand
andreduce
reduce
threats
threatsto
toproject
projectobjectives.
objectives. PMBOK
PMBOKGuide
Guide

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 Strategies for Responding to Risks

Project risk response strategy decisions must be

made with a thorough understanding of the
priorities key stakeholders have for cost,
schedule, scope, and quality

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 Common Project Risk Strategies

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 Risk Register Updates
The project manager sees that the risk register
is updated with the results of the response
planning
For each risk the response strategy is noted
Assign a single person as the owner of each
risk
Include any changes to the project schedule,
budget, resource assignments and
communications plan
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 Summary
All projects have some risks
Risk planning should use an appropriate
level of detail to plan for major risks
Risk planning begins with an
understanding of project success
Risk management planning is part of the
overall project management plan
Risk identification includes gathering
information on potential risks
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
 Summary
Identified risks are documented in a risk
register
Identified risks are next analyzed
Risk response planning involves determining
how to respond to each of the major risks
Risk response strategies include avoid,
transfer, mitigate, accept, research, and
exploit

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 Risk Management on a Satellite
Development Project
Systematically working with the risks of the project allowed us
to prepare responses to the risks if and when they occurred.

Planning
Establish the process for
dealing with risk and
change
Day-long clinic
Criteria for evaluating
probabilities of
occurrence
Compared methods to
industry standards
Execution
Integrated approach to
identification, analysis,
and response to risks
Using a risk management
database tool to log each
risk as a record in the
database
PM in Action
Example
 Risk Management Worksheet

PM in Action
Example
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 Risk Management on a Satellite
Development Project
Risk management reviews
Review logged risks, actions and impacts of
risks
Review prioritized report of all projects risks
Avenue to resolve high-priority risks of the
project
Identification of potential risks for related
projects
PM in Action
Example
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