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and approved risks. This involves estimating the probability of occurrence and
consequence of occurrence and converting the results to a corresponding risk.
Quantitative approaches
Qualitative approach use the probability of occurrence and consequence of
occurrence scales together with a risk mapping matrix to convert the values to
risk levels.
* Project
Schedule
Management Plan
* Project Cost
Management Plan
2.Probabilistic cost estimates at completion per project phase and probabilistic schedule
estimates for key milestones to help the project manager allocate reserve accordingly,
Estimates of the probability of meeting cost, technical performance, and schedule objectives
(e.g., determining the probability of achieving the planned estimate at completion)
Updated Risk Register
Probabilistic analysis for project success (time and cost)
Updated priority of risk events
Trends in risk analysis
The process of numerically analyzing the effect of identified risks on the projects
objectives In particular, the project schedule and the project costs.
Identify realistic and achievable cost, schedule, or scope targets, given project risks
T-Avoid when the project team acts to eliminate the threat or protect the project
from its impact.
T-Transfer when the project team shifts the impact of a threat to a third party,
together with ownership of the response.
T-Mitigate reduce the probability, and/or impact, of a threat to an acceptable
level. Does not eliminate the threat, but reduces it.
T-Accept the Risk Owner decides not to respond to the risk.
The Risk Responses for each of the risks can be documented within the Project Log-Risk
spreadsheet.
Other fields exist in the Risk Register to help plan the risks:
Detailed Risk Response - A more complete description of how the project team will
respond to the risk.
Risk Trigger(s) An event or events that take place just prior to the risk occurring.
Timing - Determine how far off in time the risk is expected to occur. This will help
determine if the project manager should spend more time addressing the risk.
When planning for risks in a project, it is also important to set aside budgets to be used in
case the risks actually do occur.
Quantitative Analysis
*Quantitative Analysis is the numerical analysis of risk that is used to try to
understand the possible outcomes related to risks. Risk Owners can use the
following tools to perform quantitative analysis.
Use the EVM to understand the potential costs associate with risks to the project.
This information will aid the project manager in the process of prioritizing risks.
The potential cost of a given risk, in the example $160,000, can be added to the
project budget for the overall project to fund the risk response should the risk be
realized.
*Sensitivity Analysis - A quantitative risk analysis and modeling technique used
to help determine which risks have the most potential impact on the project.
This analysis is another way project managers can compare risks. A tornado
diagram is a tool used to compare the risks within a project.
*This definition was taken from the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK
Guide) Fifth Edition, Project Management Institute, Inc., 2013.
This diagram allows the project manager to visualize different aspects of a risk
and compare them against the same aspect for other risks. In the diagram
above the diagram shows the different ranges of costs for each risk, describing
the amount via the length of the bar as well as the placement with the range of
cost at the bottom of the chart. By placing a risks with the high cost above a risk
with a lower cost, the risks create a figure that resembles a tornado. Cost of a
risk is just an example. Another example could be the Risk Score. Using the
tornado diagram allows project managers to quickly and easily prioritize risks for
the project.
The decision that yields the greater Outcome Value is the one that should be
chosen.
*This definition was taken from the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK
Guide) Fifth Edition, Project Management Institute, Inc., 2013.
EXAMPLE: From the Project Management Institute
Investment:
New Building - $120 million
Upgrade - $50 million
Potential Revenue:
New Building Strong demand (60% probability) - $200million
New Building Weak demand (40% probability) - $90 million
Step 1: Subtract the investment from the revenue projects to establish the
Potential Profit for both options.
Step 3: Add the strong demand and weak demand values together to create a
total for the option.
Based on the decision tree analysis, the Upgrade option is the better option
comparing the $36 million to the $46 million.
*Management Reserves An amount of the project budget withheld for management control
purposes. These are budgets reserved for unforeseen work that is within scope of the
project.
During the Qualitative Analysis, it is the Risk Score that is used to help prioritize
risks. The Risk Score is a product of both the probability and the impact of a risk.
The following is the calculation used:
*This definition was taken from the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK
Guide) Fifth Edition, Project Management Institute, Inc., 2013.
This calculation uses the following table for the values to be used to derive the
Risk Score:
To determine which Probability Value and Impact Value are to be used, the risks
Probability Rating and Impact Rating must be established.
Probability Rating
To determine the Probability Rating of a risk, a scale must be created and
consistently used for all risks identified. The following represents a three point
scale:
Members of the team should study the risk and determine the most accurate
probability and the associated Probability Rating High, Moderate or Low.
Impact Rating
Like the Probability Rating, the Impact Rating is described as High, Moderate or
Low. The Impact Rating is determined by a calculation, the result of which is the
Impact Score. The following is the calculation for the Impact Score:
Impact Score = Scope value x Schedule value x Cost value x Quality value
The values for scope, schedule, cost and quality are determined by using a
matrix containing information about each one. The following is an example for
opportunity impacts:
The following is an example for threat impacts:
Using the following table, a score for Scope, Schedule, Cost and Quality can be
established.
A table must be developed to determine range of scores for the different values
associated with the Probability Ratings. The following are examples of the
different ranges depending on the type of risk:
With an Impact Score of 36, the Impact Rating for the sample risk is High.
The sample risk has been identified as having an Impact Rating of High.
Using the table below, the Probability Values and the Impact Values can be
identified that will be used to calculate the Risk Score.
Multiplying each probability value with each impact value creates the Probability
Impact Matrix (PIM). Because we are tracking risks that represent both
opportunities for the project and threats to the project, two PIM tables should be
used, one for each.
Sample PIM using a 3-point scale for Opportunities.
Probability
Impact
Low Moderate High
High 3x2=6 3x4=12 3x6=18
Moderate 2x2=4 2x4=8 2x6=12
Low 1x2=2 1x4=4 1x6=6
Impact
Low Moderate High
High -1(3x2)=-6 -1(3x4)=-12 -1(3x6)=-18
Moderate -1(2x2)=-4 -1(2x4)=-8 -1(2x6)=-12
Low -1(1x2)=-2 -1(1x4)=-4 -1(1x6)=-6
Colors can be added to the PIM identifying the Risk Scores for opportunities that
are a high priority (green), moderate priority (yellow) and low priority (red).
Impact
Low Moderate High
High 6 12 18
Moderate 4 8 12
Low 2 4 6
For threats, the colors are the opposite in the PIM identifying the Risk Scores for
opportunities that are a high priority (red), moderate priority (yellow) and low
priority (green).
Impact
Low Moderate High
High -6 -12 -18
Moderate -4 -8 -12
Low -2 -4 -6