Chapter 8

Managing Project Risk

Copyright 2012 John Wiley & Sons, Inc.

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Importance of Project Risk ManagementThe art and science of identifying, analyzing, &

responding to risk throughout the life of a project and in the best interests of meeting project objectives

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Importance of Project Risk Management

The art and science of identifying, analyzing, & responding to risk throughout the life of a project and in the best interests of meeting project objectives

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PMBOK® Risk Management Processes

Plan Risk Management Determining how to approach and plan the project risk management activities. An

output of this process is the development of a risk management plan.

Identify Risks Deciding which risks can impact the project. Risk identification generally includes

many of the project stakeholders and requires an understanding of the project’s goal, as well as the project’s scope, schedule, budget, and quality objectives.

Perform Qualitative Risk Analysis Focusing on a qualitative analysis concerning the impact and likelihood of the

risks that were identified.

Perform Quantitative Risk Analysis Using a quantitative approach for developing a probabilistic model for

understanding and responding to the risks identified.

Plan Risk Responses Developing procedures and techniques to reduce the threats of risks, while

enhancing the likelihood of opportunities.

Monitor and Control Risks Providing an early warning system to monitor identified risks and any new risks.

This system ensures that risk responses have been implemented as planned and had the effect as intended.

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Managing Project Risk

Common Mistakes:

Effective/Successful Risk Management:

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Benefits from Software Risk Management Practices*

6*Source: Kulik and Weber, KLCI Research Group

Definitions

Risk

Project Risk Management (PMBOK®)

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Risk Utility

What is your risk tolerance?

Risk Utility

You are on a TV game show and can choose one of the following. Which would you take?

a.  $1,000 in cashb.  A 50% chance at winning $5,000c.  A 25% chance at winning $10,000d.  A 5% chance at winning $100,000

You have just finished saving for a "once-in-a-lifetime" vacation. Three weeks before you plan to leave, you lose your job. You would:

e. Cancel the vacationf. Take a much more modest vacationg. Go as scheduled, reasoning that you need the time to

prepare for a job searchh. Extend your vacation, because this might be your last

chance to go first-class

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Common Sources of Risk in Information Technology Projects

The Standish Group developed an IT success potential scoring sheet based on potential risks

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Success Criterion Relative Importance

User Involvement 19

Executive Management support 16

Clear Statement of Requirements 15

Proper Planning 11

Realistic Expectations 10

Smaller Project Milestones 9

Competent Staff 8

Ownership 6

Clear Visions and Objectives 3

Hard-Working, Focused Staff 3

Total 100

IT Project Risk Management Processes

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Risk Planning

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Risk IdentificationFrameworkIT Project Risk Identification Framework

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Applying the framework

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Risk Identification Tools & Techniques

Learning CyclesBrainstormingNominal Group TechniqueDelphi TechniqueInterviewsChecklistsSWOT AnalysisCause & Effect (a.k.a. Fishbone/Ishikawa)Past Projects

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Nominal Group Technique (NGT)

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1. Each individual silently writes their ideas on a piece of paper2. Each idea is then written on a board or flip chart one at a time in a round-robin fashion until each individual has listed all of his or her

ideas3. The group then discusses and clarifies each of the ideas4. Each individual then silently ranks and prioritizes the ideas5. The group then discusses the rankings and priorities6. Each individual ranks and prioritizes the ideas again7. The rankings and prioritizations are then summarized for the group

Risk Check List

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Funding for the project has been secured Funding for the project is sufficient Funding for the project has been approved by senior management The project team has the requisite skills to complete the project The project has adequate manpower to complete the project The project charter and project plan have been approved by senior

management or the project sponsor The project’s goal is realistic and achievable The project’s schedule is realistic and achievable The project’s scope has been clearly defined Processes for scope changes have been clearly defined

SWOT Analysis

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Cause & Effect Diagram

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Risk Breakdown Structure

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Risks involved in MAA project

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Risk Analysis & Assessment

Can’t respond to all risks!

Depends on Stakeholder

risk tolerances

Risk Analysis & Assessment Qualitative Approaches

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A B A*B

Schedule Risk Probability Payoff(In thousands)

Prob * Payoff(In thousands)

Project completed 20 days early 5% $ 200 $10

Project completed 10 days early 20% $ 150 $30

Project completed on Schedule 50% $ 100 $50

Project completed 10 days late 20% $ - $0

Project completed 20 days late 5% $ (50) ($3)

  100%   $88

Payoff Table

The Expected

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Decision Tree Analysis

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0 - 100% 0-10 P*IRisk (Threats) Impact Score

Key project team member leaves project

Client unable to define scope and requirements

Client experiences financial problems

Response time not acceptable to users/clientTechnology does not integrate with existing applicationFunctional manager deflects resources away from project

Client unable to obtain licensing agreements

Risk Impact Table

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Rank