Blog Project Management Risk Management – Part 2

Risk Management – Part 2

PROJECT RISK MANAGEMENT

In our previous article we have seen plan risk management and Identify risks processes. The outputs of those processes are risk management plan and risk register.

Perform Qualitative Risk Analysis

Next process in line is Perform Qualitative Risk Analysis in which identified risks are prioritized for further analysis or auctioning by accessing their probability and impact. Once this process is done management can concentrate on high priority risks first. Let us start looking into it.

Perform Qualitative Risk Analysis: Inputs

We have just learnt that Perform Qualitative Risk Analysis is to prioritize risks. So, this process needs list of risks to start with. So, RISK REGISTER is one of the inputs. Risk management plan is the subsidiary plan of project management plan and Project Management plan contains roles and responsibilities to conduct risk management, budgets, schedules, definitions, categories of risks. So Project Management plan is another input. Scope baseline is another input as it can be evaluated whether the project is of first of its kind or not. It is of great help if we have access to industry standards of risk management, risk databases from internal or external sources. These will fall under Enterprise Environmental factors. IT is also beneficial to know whether similar project were executed within the organization in the past making organizational process assets also as input.

So, Project Management Plan, Scope baseline, Risk Register, Enterprise Environmental Factors, Organizational Process assets are inputs to perform Qualitative Risk analysis.

Perform Qualitative Risk Analysis: Outputs

What will be the output(s) from this process? It is simple; we are performing qualitative risk analysis and prioritize the identified risks. While prioritizing we will be looking at many factors like probability, impact, causes, etc., and that analysis may demand updating the project documents. So, Project document updates are the outputs.

Perform Qualitative Risk Analysis: Tools and Techniques

We are clear on inputs and outputs of this process; now let us see the tools and techniques of this process. In our previous article we have learnt that risks are prioritized basing on their level of impact and probability of occurrence.  So, the first tool or technique which is used is Risk probability and Impact Assessment.

Risk Data Quality Assessment is done to evaluate how far the data available about risks is useful for risk management. What extent the risk is understood, and how reliable and integrated the data is is the factors.

Risk probability Impact assessment is analyzing the likelihood of occurrence of each of identified risks and impact on the project if the risk occurs. It is analysed whether the impact will be on schedule, cost, quality or performance including both negative risks and project risks. One can take his own way to analyse risk impact and probability but most well-known way is to have interviews and meetings. Risk probabilities and impacts are understood and assigned as per the definitions mentioned in project management plan. Low rated risks will be recorded in risk register as part of watch list for monitoring.

Next tool is Probability and Impact matrix. We have seen this in our previous article also. Using these risks can be prioritized for deeper analysis and planning risk response actions. Every risk is rated and placed in that matrix basing on the probability and impact.

Using RBS and WBS the risks are categorized to determine the areas which are more exposed to risks in the project. RBS gives you the sources of the risk and WBS gives you affected areas. Using this technique you can identify the activities and roles in the project which can help develop effective risk responses.

Next is Risk Urgency Assessment. Risk is assessed by combining risk rating, probability and impact and given a risk severity rating. Depending on the rating certain risk may require responses in near future and those are recorded and monitored as most urgent risks.

Other than all these tools and techniques, there is one which is more important and useful and that is EXPERT JUDGMENT. People with similar experiences, Project managers of recent similar projects and other seniors experienced in risk management will be of great help. Expert Judgment can be gathered through risk workshops or interviews.

So, Probability and Impact assessment, probability and impact matrix, risk data quality assessment, risk categorization, Risk Urgency assessment, Expert judgment are the tools and techniques used.

Perform Quantitative Risk Analysis

This is the process of analyzing the effect of identified risks on the project objectives numerically. Analyzing numerically will help take decisions to reduce the impact on project. Probably you might be getting confused when you read the term numerical analysis. It is nothing, just coming to an understanding on the financial terms.

Perform Quantitative Risk Analysis: Inputs

Quantitative analysis is performed on the list of prioritized risks, that the outcome of previous project performs qualitative risk analysis. Affect those risks on the project objectives is analysed in this process.  This process is used at large to calculate the aggregate effect of all risks. As we need the list of risks, risk register as input. As we need guidelines, methods and tools to be used we need risk management plan. We are working on financial impact analysis (numerical analysis) so we need cost management plan. We have read in previous project that we need two types of reserves while managing risks. One is management reserve and other is contingency reserves. Management reserve guidelines can be seen in schedule management plan so it is also taken as input. Just like the previous process having information about industry studies by specialists, risk databases if available. It is also required to know the information from similar previous completed projects. So Environmental Factors and Process Assets will join the list of inputs.

To put it at one place, Risk Management plan, Cost Management plan, Schedule Management Plan, Risk Register, Enterprise Environmental Factors, Organizational Process assets are the inputs to perform quantitative analysis process.

Perform Quantitative Risk Analysis: Outputs

Outputs from this process will be same as previous process, project document updates. Risk register gets updated and given below are some of the updates that goes into risk register.

  • Probabilistic analysis of the project – Depending on the schedules, costs estimated to complete the project and depending on the risks identified a tolerance levels defined, contingency reserves are planned and such reserves are required to bring back the project onto track if it is off the track due to risks.
  • Probability of achieving cost and time objectives: Depending on the risks expected, the probability of achieving the project objectives is calculated.
  • Prioritized list of quantified risks: This list includes the risks which are expected to cause greatest threat or opportunity to the project.
  • Trends in quantitative risk analysis results: repeated analysis, historical information when used may result in new insights. Such insights may take place into quantitative analysis report. Depending on the analysis cycles, results captures in historical risk management will set the trends.

Perform Quantitative Risk Analysis: Tools and Techniques

Now it is time to know about the tools and techniques used. First in the list is

Data gathering and representation techniques:

  • Interviewing: This technique will pull out the experience and historical information to quantify the probability and impact of risks.
  • Probability Distribution: Continuous probability distribution represents the uncertainty in values of schedule activities, costs etc., discrete distributions can be used to represent uncertain events.

Quantitative Risk Analysis and Modelling techniques:

  • Sensitivity analysis: determines which risks have the most potential impact on the project. Tornado diagram is used to represent this analysis. Tornado diagram is a bar chart.
  • Expected Monetary value analysis:  A statistical concept that calculates the average outcome of the project when the future includes events may or may not happen. EMV is calculated by multiplying the value of each possible outcome by its probability of occurrence
  • A common use of this technique is decision tree analysis.

Modelling and simulation:

  • Project Simulation uses a model in which uncertainties are translated into impact on project objectives.
  • Simulations are performed mostly using Monte Carlo technique.
  • Project model is computed many times with different input values at random for each computation.
  • A histogram is built from the results of each computation.
  • Cost risk is calculated using cost estimates
  • Schedule risk analysis is done using duration estimates and network diagram.

Expert Judgment:

This is a well-known technique or tool as you have seen in all the processes.

With that we are done with another two steps Perform Qualitative Risk Analysis and Perform Quantitative Risk Analysis in Risk Management process.

Just for your remembering:

Qualitative Analysis is the process of prioritizing risks as per their probability of occurrence and impact on the project if occurs.

Quantitative analysis is the process of numerically analyzing the impact of risks on project objectives.

Questions & Answers

  1. In a brain storming session, your team is trying make out the list of risks in the order of the probability of their occurrence during which your tech lead comes up and suggest to prepare the list as per the impact the risk causes on project if it takes place. Actually what is your team doing?
    • a. Identifying risks
    • b. Qualifying the risks
    • c. Quantifying the risks
    • d. Analyzing the risks

    Correct Answer: B [ prioritizing as per the risks probability and impact is Qualitative analysis]

  2. Amidst of the project if you find yourself trying to understand whether project objectives can be achieved, and if yes what are the chances to achieve, what are you actually doing?
    • a. Risk sensitivity analysis
    • b. Modelling and Simulation
    • c. Expert Judgment
    • d. Looking at Probability of achieving cost and time objectives

    Correct Answer: D [changes to achieve , that is probability to achieve is an out of Quantitative analysis process]

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About Mark Oswald

Mark is an experienced software engineer and technology blogger. He has over five years of experience in writing in different technological domains. Writing is his passion and he contributes regularly to the Whizlabs blog to share his knowledge.
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