Lesson 6: Project Risk Management

A risk is a situation that can potentially develop and have very negative consequences on the project. This lesson will all be on how do we identify, analyze, and respond to risks, and to do so I will describe 6 different subgroups.

1. Risk Management Planning: Develop a plan for risk management activities

2. Risk Identification: Finding the risks that may affect the project

3. Qualitative Risk Analysis: Evaluating the seriousness of the risk and the likelihood it will affect the project.

4. Quantitative Risk Analysis: Developing measures for the probability of the risk and its impact on the project.

5. Risk Response Planning: Finding ways of reducing negative impacts as well as enhancing positive impacts

6. Risk Monitoring and control: Maintaining records of and evaluating the sub-processes above in order to improve risk management.

1. Risk Managing Planning

It's a method for carrying out subgroups 2-5. Managing risk is a continuous process and risks can appear, disappear, and change along with the life of the project.

2. Risk Identification:

To identify risks we need a description of the product and deliverables, cost estimates a staffing plan of the project, but also historical information. The risks need to be prioritized according to their potential harm to the venture.

Common Sources of risk - Staff, equipment, client, scope, technology, delivery, physical,

3. Qualitative Risk Analysis

This method consists of analyzing and categorizing the different risks. There are 2 different methods used for qualitative risks:

- Scenario Analysis: It involves envisioning likely scenarios that may have repercussions on the project and then identify the possible resulting outcomes.

- Failure Mode and Effect Analysis: It's a structured approach that consists of listing the possible failure scenarios on a chart and score them according to their likelihood, severity & detectability. We should then multiply the scores for each column and that will give us an RPN number. The one with the highest number will give us which is the major risk and allow us to take necessary actions.

4. Quantitative Risk Analysis

This method is about stating the various outcomes of a decision into probability distributions and then use this information to make managerial decisions.

- Pert Estimation Technique: Knowledgeable individuals are asked for three estimates of the cost of each activity (Normal, Optimistic & Pessimistic) and make a table for all the tasks with this information. These numbers will give an estimated expect cost by using the following PERT formula - (a+4,+b) / 6

- Game theory: An approach by which we assume a pessimistic mindset and select a course of action to minimize maximum harm. Each decision possibility is evaluated for the worst possible outcome and the decision with the "best" worst outcome is selected.

5. Risk Response Planning

Decisions about what risk to prepare for and which to ignore and simply accept by developing a risk response plan. This can be done by procurement means, by changing approach, using insurance or lastly having a backup contingency plan in place.

6. Risk Monitoring and Control

It is important to keep a record of what risks were identified, how they were analyzed and responded to, and what resulted from the responses.

Control and prevention tools: Remove excuses, demand visibility, help people communicate, plan fallback.