In a fixed-price contract the supplier is obligated to deliver the contracted-for item at a fixed price. The supplier is aware of the risk and will put an allowance for the risk in the contracted price. This often means that the project team will pay the supplier for the cost of the risk regardless of whether the risk occurs.

Risk avoidance is eliminating the risk from consideration by doing something that will eliminate it as a possibility. Risk acceptance is allowing the risk to happen and dealing with it if it occurs. Risk deflection or transfer is transferring the risk to someone other than the project team, such as an insurance company or outside supplier.

Risk mitigation is the process of reducing a risk to acceptable levels. In risk mitigation the risk has either a reduced impact or probability or both. This reduces the risk severity to levels below the risk tolerance.

Including a contingency budget will set aside money for known, identified risks. This will give more control to the project and reduce the problem of known risks using budget that was set aside for the work of the project and causing a cost overrun in the project.

The expected value of a risk is the probability of the risk times the impact of the risk summed up for all possibilities.

Management reserve is funds set aside to manage unidentified risks. PMI refers to these as the ''unknown unknowns.'' When the management reserve is used, it is moved from the management reserve to the cost or schedule baseline.

Risk triggers, sometimes called risk symptoms, are indications that a risk is about to occur. In this example there is a risk that the project will be delayed. There is a warning that this will occur because several activities are now overdue for completion. They do not affect the project schedule yet, but if this trend continues the project will be late.

Because of risk in most projects the probability distribution is usually skewed. This is because there are more things that will adversely affect schedules than there are that will improve them. If the probability distribution of the scheduled completion of the project is indeed skewed, then the most likely date for project completion will be earlier than the mean value or the expected value.

The expected value is found by multiplying the probability of the risk by the cost of the impact of the risk should it occur. EV = 25,000 X 10%

This is a matter of applying the probability rule of addition. This rule says that the probability of either one of two events is equal to the probability of one event plus the probability of the second event minus the probability of both of the events occurring.

A buffered schedule is one where float is deliberately created in the schedule. Buffers are deliberately created between tasks on the critical path, and the activities are rescheduled to more closely approximate the schedule to the new promise date.

The client's outsourcing method has nothing to do with risk management; all the other choices are items that should be included in the risk description.

The lessons learned document from other similar projects can be a great help in determining the new risks associated with this project. Many times risks repeat themselves from one project to another. This makes the lessons learned document very important for all projects.

The result of the first risk meeting of a project team is to identify as many risks as possible in the time allowed.

The Monte Carlo technique is a refinement of PERT. In the PERT process the range of values and the probability that they can occur is calculated for the project completion date or parts of the project. The Monte Carlo technique allows for shifts that may occur in the critical path during possible values of the durations of the activities of the project. It is a simulation technique that produces a value called the criticality index, which is the percent of simulations that a particular activity is on the critical path. That is, criticality index is the percent of the number of simulations that an activity is on the critical path.

The management reserve is time and money used to offset the effect of unknown risks affecting cost and schedule. These risks can only be approximated since none of them are specifically identified. PMI refers to these risks as the known-unknown risks and the identified risks as the known-known risks.

The breakeven-point justification technique predicts a point in time where the benefits offset the costs involved. It is a simple justification technique that takes into consideration a lot of assumptions. Since it predicts the point in time where the benefits exceed the cost, given the choice of an expensive and a cheap machine, the cheap machine will usually have high short-term benefits, and the expensive machine will have higher long-term benefits.

In critical chain theory the feeder chains are activities that are not on the critical path. These tasks are scheduled to be done as late as possible and then buffered so that they start earlier than the late schedule dates. Buffer is also added to the critical path of the schedule to improve the probability that the project will finish on time. Feeder chain activities as well as critical chain activities are not started as early as possible or as late as possible. They are started as late as possible minus their buffer.

In the normal probability distribution or any symmetric probability distribution, the most likely value of the distribution is the peak of the distribution curve. This is the value that has the highest probability of occurring. In a symmetric probability distribution this will be the center of the curve as well. There is a 50% probability that the project will finish past the most likely date and a 50% chance that the project will finish earlier than that date.

Risks are events that affect a project for better or worse. Positive risks increase the positive cash flow or benefits to the project, and negative risks increase the negative cash flow or effects of the project.

Fast tracking is changing the project plan to schedule activities that were planned to be done in sequence so that they can be done completely or partially in parallel. This will increase risk, because more work will be done if a problem is discovered.

In determining the worst-case situation, all of the negative risks are included and none of the positive risks are included in the total. This makes the assumption of the worst case as being that all of the bad things happen and none of the good things happen.

Insurance transfers (deflects) the problem of the risk to someone else who takes the responsibility for the loss caused by the risk. In this case an insurance company agreed to compensate PMI if this loss occurred.

During project closeout much of the project work has been completed and many of the risks have passed the time in which they can occur. The total risk of the project is therefore lowest during closeout.

The Monte Carlo technique is a refinement of PERT. In the PERT process the range of values and the probability that they can occur are calculated for the project completion date or parts of the project. The Monte Carlo technique allows for shifts that may occur in the critical path during possible values of the durations of the activities of the project. It is a simulation technique that produces a value called the criticality index, which is the percent of simulations that a particular activity is on the critical path.

If any of the activities are late, the entire project of the three activities will be late. To state this as three mutually exclusive events we consider the probability of all three of the events occurring on time. This is .9 for each, and the probability of all three occurring is .9 X .9 X .9

The probability is that at least one of the sellers will deliver the parts on time. This is the same as saying either vendor A or B must deliver. This is the addition rule in probability. The probability that the first seller will deliver is .9. The probability that the second seller will deliver is also .9, but the second seller delivering on time is only of consequence if the first seller fails to deliver on time, or .1. The calculation is then .9 + (.1 X .9) = .99.

This is the definition of value engineering used in the Guide to the PMBOK Glossary.

A workaround is the work that is not planned ahead of time to take care of a threat that occurs.

In an even distribution any date in the distribution will have the same probability as any other date in the distribution.

The Monte Carlo technique is a simulation technique that assigns a value to the duration for each activity in the schedule. This assignment can be by user-selected probability distributions. Depending on the values of the duration for each activity the critical path may change from simulation run to simulation run.

Risk acceptance is doing nothing about the risk until it happens. This is done with risks that are below the risk tolerance level.

Risk tolerance is the measure of the client's likelihood to take risks. A client with a low risk tolerance will not be willing to take very many or large risks even though they may produce considerable opportunities to make large profits.

The Monte Carlo technique is a computer simulation method that selects durations for schedule events according to a probability distribution on a random basis. For each set of selected durations the simulation is run and the schedule and critical path are calculated. The result is a probability distribution showing the probability of project completion dates that are possible. The criticality index shows the percent of simulations that any activity is on the critical path.

Simulations such as the Monte Carlo simulation are frequently used in risk management. It is far less expensive to model the real world than to actually do things in the real world.

Risk analysis should be done frequently throughout the project.

The risk option of mitigation means that the impact or the probability is reduced to a level below the risk tolerance level. This means that the risk is now acceptable.

Qualitative assessment of risks is often appropriate. When there is little impact from a risk or when little is known about the risk parameters it may only be practical to evaluate risks in a qualitative way.

This is the definition of sensitivity analysis in the Guide to the PMBOK.

The expected value of the risk is the probability of the risk multiplied by its cost. This is one method of ranking risks. Risks can also be ranked qualitatively by assigning them qualitative values like ''very risky'' and ''not too risky'' and ranking them in groups.

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What you need to know aboutâ€¦ Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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