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Uncertain or chance events that planning may not be able to overcome or control.


Risk Management

A proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a project’s success.

What can go wrong (risk event).
How to minimize the risk event’s impact (consequences).
What can be done before an event occurs (anticipation).
What to do when an event occurs (contingency plans).


Benefits of Risk Management

A proactive rather than reactive approach.
Reduces surprises and negative consequences.
Prepares the project manager to take advantage of appropriate risks.
Provides better control over the future.
Improves chances of reaching project performance objectives within budget and on time.


Managing Risk Steps

Step 1: Risk Identification
Step 2: Risk Assessment
Step 3: Risk Response Development
Step 4: Risk Response Control


Step 1: Risk Identification

Generate a list of possible risks through brainstorming, problem identification and risk profiling.


Step 2: Risk Assessment

Scenario analysis for event probability and impact
Risk assessment matrix
Failure Mode and Effects Analysis (FMEA)
Probability analysis
Decision trees, NPV, & Program Eval. Review Technique (PERT)
Semi-quantitative scenario analysis


Step 3: Risk Response Development

Mitigating Risk
Avoiding Risk
Transferring Risk
Retaining Risk


Step 4: Risk Response Control

Risk control
Execution of the risk response strategy
Monitoring of triggering events
Initiating contingency plans
Watching for new risks

Establishing a Change Management System
Monitoring, tracking, and reporting risk
Fostering an open organization environment
Repeating risk identification/assessment exercises
Assigning and documenting responsibility for managing risk


Contingency Plan

An alternative plan that will be used if a possible foreseen risk event actually occurs.
A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event.


Risks of Not Having a Contingency Plan

Having no plan may slow managerial response.
Decisions made under pressure can be potentially dangerous and costly.


Technical Risks

Backup strategies if chosen technology fails.
Assessing whether technical uncertainties can be resolved.


Schedule Risks

Use of slack increases the risk of a late project finish.
Imposed duration dates (absolute project finish date)
Compression of project schedules due to a shortened project duration date.


Cost Risks

Time/cost dependency links: costs increase when problems take longer to solve than expected.
Price protection risks (a rise in input costs) increase if the duration of a project is increased.


Funding Risks

Changes in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.


Risk and Contingency Planning

Technical Risks
Schedule Risks
Cost Risks
Funding Risks



Seeking to eliminate the uncertainty associated with an opportunity to ensure that it definitely happens.



Allocating some or all of the ownership of an opportunity to another party who is best able to capture the opportunity for the benefit of the project.



Taking action to increase the probability and/or the positive impact of an opportunity.



Being willing to take advantage of an opportunity if it occurs, but not taking action to pursue it.


Opportunity Management Tactics



Contingency Funds

Funds to cover project risks—identified and unknown.
Size of funds reflects overall risk of a project

Budget reserves
Are linked to the identified risks of specific work packages.

Management reserves
Are large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project.


Time Buffers

Amounts of time used to compensate for unplanned delays in the project schedule.
Severe risk, merge, noncritical, and scarce resource activities


Change Control System Process

Identify proposed changes.
List expected effects of proposed changes on schedule and budget.
Review, evaluate, and approve or disapprove of changes formally.
Negotiate and resolve conflicts of change, condition, and cost.
Communicate changes to parties affected.
Assign responsibility for implementing change.
Adjust master schedule and budget.
Track all changes that are to be implemented.


Benefits of a Change Control System

Inconsequential changes are discouraged by the formal process.
Costs of changes are maintained in a log.
Integrity of the WBS and performance measures is maintained.
Allocation and use of budget and management reserve funds are tracked.
Responsibility for implementation is clarified.
Effect of changes is visible to all parties involved.
Implementation of change is monitored.
Scope changes will be quickly reflected in baseline and performance measures.


PERT—Program Evaluation Review Technique

Assumes each activity duration has a range that statistically follows a beta distribution.
Uses three time estimates for each activity: optimistic, pessimistic, and a weighted average to represent activity durations.
Knowing the weighted average and variances for each activity allows the project planner to compute the probability of meeting different project durations.


_____ is a proactive approach rather than a reactive

Risk Management


The sources of ______ are unlimited

project risk


____ is usually excluded from the disucssion or project risk as it has already been accounted for

External risk


Risk Breakdown Structure (RBs)

A hierarchical depiction of identified project risks arranged by risk category that identifies the various areas and causes of potential risks.


Risk profile

a list of questions that address traditional areas of uncertainty on a project


Scenario analysis

the easiest and most commonly used technique for analyzing risks


Team members assess the significance of each risk event in terms of:

Probably of the event
Impact of each event


Failure Mode and Effects Analysis (FMEA)

extends the risk severity matrix by including ease of detection inn the equation:
Impact x Probability x Detection = Risk Value


Mitigating Risk

Reducing the likelihood an adverse event will occur.
Reducing impact of adverse event.


Avoiding Risk

Changing the project plan to eliminate the risk or condition.


Transferring Risk

Paying a premium to pass the risk to another party.
Requiring Build-Own-Operate-Transfer (BOOT) provisions.


Retaining Risk

Making a conscious decision to accept the risk.


Budget Reserves

Identified for specific work packages or segments of a project found in the baseline budget or work breakdown structure


Management Reserves

Funds are needed to cover major unforeseen risks and, hence, are applied to the total project


Major scope change may appear nessary midway in the project. What reserve would be used

Management Reserves


Time Buffers

Cushion against potential delays in project.


Change Control Process

1. Change Originates
2. Change Request Submitted
3. Review Change Request
4. Approve
5. Update Plan of Record
6. Distribute for Action


Change Management system

involve reporting, controlling, and recording changes to the project baseline.


The benefits from a change in control systems

1. Inconsequential changes are discouraged by the formal process
2. Cost of changes are maintained in a log
3. Integrity of the WBS and performance measures is maintained
4. Allocation and use of budget and management reserve funds are tracked
5. Responsibility for implementation is clarified
6. Effect of changes is visible to all parties involved
7. Implementation of change is monitored
8. Scope changes will be quickly reflected in baseline and performance measures