Chapter Project Risk Management

Project Risk Management includes the processes of conducting risk management planning, identification, analysis, response planning, and monitoring and control on a project. Project Risk Management objectives are to increase the probability and impact of positive events, and decrease the probability and impact of negative events in the project.

Table 11-1 provides an overview of Project Risk Management processes, which are as follows:

11.1 Plan Risk Management—The process of defining how to conduct risk management activities for a project.

11.2Identify Risks—The process of determining which risks may affect the project and documenting their characteristics.

11.3Perform Qualitative Analysis—The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact.

11.4Perform Quantitative Analysis—The process of numerically analyzing the effect of identified risks on overall project objectives.

11.5Plan Risk Responses—The process of developing options and actions to enhance opportunities and to reduce threats to project objectives.

11.6Monitor and Control Risk Responses—The process of executing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.

These processes interact with each other and with processes in the other Knowledge Areas. Each process can involve effort from one or more persons based on the needs of the project. Each process occurs at least once in every project and occurs in one or more project phases, if the project is divided into phases. Although the processes are presented here as discrete elements with well-defined interfaces, in practice they will overlap and interact in ways not detailed here. Process interactions are discussed in detail in Chapter 3 on Project Management Processes for a Project.

Project risk is always in the future. Risk is an uncertain event or condition that, if it occurs, has an effect on at least one project objective. Objectives can include scope, schedule, cost, or performance. A risk may have one or more causes and, if it occurs, it may have one or more impacts. A cause may be a requirement, constraint, or condition that creates the possibility of negative or positive outcomes. For example, causes could include requiring an environmental permit to do work, or having limited personnel assigned to design the project. The risk event is that the permitting agency may take longer than planned to issue a permit, or the limited design personnel available and assigned may still be able to get the job done on time. If either of these uncertain events occurs, there may be an impact on the project cost, schedule, or performance. Risk conditions could include aspects of the project's or organization's environment that may contribute to project risk, such as immature project management practices, lack of integrated management systems, concurrent multiple projects, or dependency on external participants who cannot be controlled.

Table 11-1 Project Risk Management Overview

Project Risk Management Overview

11.1 Plan Risk Management

1. Inputs

1. Project scope statement

2. Cost management plan

3. Schedule management plan

4. Communications management plan

5. Enterprise environmental factors

6. Organizational process assets

2. Tools S Techniques

1. Planning meetings and analysis

3. Outputs

1. Risk management plan

11.4 Perform Quantitative Risk Analysis

1. Inputs

1. Risk register

2. Risk management plan

3. Cost management plan

4. Schedule management plan

5. Organizational process assets

2. Tools&Techniques

1. Data gathering and representation techniques

2. Quantitative risk analysis and modeling technigues

3. Expert judgment

3. Outputs

1. Risk register updates

11.2 Identify Risks

1. Inputs

1. Risk management plan

2. Activity cost estimates

3. Activity duration estimates

4. Scope baseline

5. Stakeholder register

6. Cost management plan

7. Schedule management plan

8. Quality management plan

9. Other project documents 1 [¡.Enterprise environmental factors

11.Organizational process assets


1 Documentation reviews

2. Information gathering techniques

3. Checklist analysis

4. Assumptions analysis

5. Diagramming techniques


7. Expert judgment

3. Outputs

1. Risk register

11.5 Plan Risk Responses

1. Inputs

1. Risk register

2, Risk management plan

2. Tools & Techniques

1. Strategies for negative risks or threats

2. Strategies for positive risks or opportunities

3. Contingent response strategies

4. Expert judgment

3. Outputs

1. Risk register updates

2. Risk related contract decisions

3. Project management plan updates

4. Project document updates

11.3 Perform Qualitative Risk Analysis

1. Inputs

1. Risk register

2. Risk management plan

3. Project scope statement

4. Organizational process assets

2. Tools & Techniques

1. Risk probability and impact assessment

2. Probability and impact matrix

3. Risk data quality assessment

4. Risk categorization

5. Risk urgency assessment

6. Expert judgment

3. Outputs

1, Risk register updates

11.6 Monitor & Control Risks

1. Inputs

1. Risk register

2. Risk management plan

3. Work performance data

4. Performance reports

2. Tools & Techniques

1. Risk reassessment

2. Risk audits

3. Variance and trend analysis

4. Technical performance measurement

5. Reserve analysis

6. Status meetings

3. Outputs

1, Risk register updates 2v0rganizational process assets updates 3vChange requests

4. Project management plan updates

5. Project document updates

Project risk has its origins in the uncertainty present in all projects. Known risks are those that have been identified and analyzed, making it possible to pian responses for those risks while: unknown risks cannot be managed proactivcly, the projcct team can crcatc a contingency plan.

Organizations pcrccivc risk as it relates to threats to project success, or to opportunities for efficient, effective project success. Risks that are threats to the project may be accepted if the risks are in balance with the rewards that may be gained by taking the risks. For example, adopting a fast track schedule (Section that may be overrun is a risk taken to achieve the reward crcatcd by an earlier completion date.

Individuals and groups adopt attitudes toward risk that influence the way they respond. These risk attitudes arc driven by perception and other biases, which should be made explicit wherever possible. A consistent approach to risk that meets the organization's requirements should be developed for each project, and communication about risk and its handling should be open and honest. Risk responses reflect an organization's perceived baiancc between risk-taking and risk avoidancc.

To be successful, the organization should be committed to address risk management proactivcly and consistently throughout the project. A conscious choicc must be made at all ievels of the organization to actively identify and pursue effective risk management during the life of the project. Risk exists the moment a projcct is conceived. Moving forward on a project without a proactive focus on risk management generates more risk to the succcssful conclusion of any project.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… 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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