Information Technology Project
Management – Fourth Edition
By Jack T. Marchewka
Northern Illinois University
Power Point Slides by Gerald DeHondt
Grand Valley State University
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Copyright 2012 John Wiley & Sons, Inc.
Managing Project Risk
Chapter 8
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Copyright 2012 John Wiley & Sons, Inc.
Learning Objectives
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Describe the project risk management planning framework
introduced in this chapter.
Define risk identification and the causes, effects, and integrative
nature of project risks.
Apply several qualitative and quantitative analysis techniques
that can be used to prioritize and analyze various project risks.
Describe the various risk strategies, such as insurance,
avoidance, or mitigation.
Describe risk monitoring and control.
Describe risk evaluation in terms of how the entire risk
management process should be evaluated in order to learn
from experience and to identify best practices.
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Copyright 2012 John Wiley & Sons, Inc.
PMBOK® Risk Management Processes
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Plan Risk Management
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Identify Risks
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Using a quantitative approach for developing a probabilistic model for understanding and responding to
the risks identified.
Plan Risk Responses
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Focusing on a qualitative analysis concerning the impact and likelihood of the risks that were identified.
Perform Quantitative Risk Analysis
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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
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Determining how to approach and plan the project risk management activities. An output of this
process is the development of a risk management plan.
Developing procedures and techniques to reduce the threats of risks, while enhancing the likelihood of
opportunities.
Monitor and Control Risks
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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.
Copyright 2012 John Wiley & Sons, Inc.
Common Mistakes in Managing Project Risk
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Not understanding the benefits of risk management
Not providing adequate time for risk management
Not identifying and assessing risk using a standardized
approach
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Effective & Successful Risk
Management Requires
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Commitment by all stakeholders
Stakeholder responsibility
Different risks for different types of projects
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Copyright 2012 John Wiley & Sons, Inc.
Definitions
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Risk
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An uncertain event or condition that, if occurs, has a positive
or negative effect on the project objectives.
Project Risk Management (PMBOK®)
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Includes the processes of conducting risk management
planning, identification, analysis, response planning, and
monitoring and control on a project; most of these processes
are updated throughout the project. The objectives of Project
Risk Management are to increase the probability and impact of
positive events and decrease the probability and impact of
events adverse to the project.
Copyright 2012 John Wiley & Sons, Inc.
IT Project Risk Management Processes
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Copyright 2012 John Wiley & Sons, Inc.
Risk Planning
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Requires firm commitment by all stakeholders to a RM
approach
Assures adequate resources are in place
Focuses on preparation
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Risk Identification
Framework
IT Project Risk Identification Framework
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Risk Identification Tools & Techniques
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Learning Cycles
Brainstorming
Nominal Group Technique
Delphi Technique
Interviews
Checklists
SWOT Analysis
Cause & Effect (a.k.a. Fishbone/Ishikawa)
Past Projects
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Nominal Group Technique (NGT)
1. Each individual silently writes their ideas on a piece of paper
2. 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
ideas
3. The group then discusses and clarifies each of the ideas
4. Each individual then silently ranks and prioritizes the ideas
5. The group then discusses the rankings and priorities
6. Each individual ranks and prioritizes the ideas again
7. The rankings and prioritizations are then summarized for the group
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Risk Check List
 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
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SWOT Analysis
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Cause & Effect Diagram
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Risk Analysis & Assessment
Risk = f(Probability * Impact)
Risk assessment focuses on prioritizing risks so that
an effective strategy can be formulated for those risks
that require a response.
Depends on
Stakeholder risk
tolerances
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Can’t respond to all
risks!
Copyright 2012 John Wiley & Sons, Inc.
Risk Analysis & Assessment
Qualitative Approaches
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Expected Value & Payoff Tables
Decision Trees
Risk Impact Table & Ranking
Tusler’s Risk Classification
Which risks require a response?
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Payoff Table
A
Schedule Risk
Probability
Project completed 20 days early
5%
B
A*B
Payoff
Prob *
Payoff
(In thousands)
(In thousands)
$ 200
Project completed 10 days early
20%
$ 150
$30
Project completed on Schedule
50%
$ 100
$50
Project completed 10 days late
20%
$
Project completed 20 days late
5%
-
$ (50)
100%
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$10
Copyright 2012 John Wiley & Sons, Inc.
$0
($3)
$88
The
Expected
Value
Decision Tree Analysis
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Risk Impact Table
0 - 100%
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P*I
Probability
Impact
Score
Key project team member leaves project
40%
4
1.6
Client unable to define scope and requirements
50%
6
3.0
Client experiences financial problems
10%
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Response time not acceptable to users/client
80%
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Technology does not integrate with existing application
60%
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Functional manager deflects resources away from project
20%
3
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Client unable to obtain licensing agreements
5%
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0.4
Risk (Threats)
IT Project Risk Impact Analysis
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Risk
Rankings
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Risk (Threats)
Rankin
g
Response time not acceptable to users/client
1
Technology does not integrate with existing application
2
Client unable to define scope and requirements
3
Key project team member leaves project
4
Client experiences financial problems
5
Functional manager deflects resources away from project
6
Client unable to obtain licensing agreements
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Copyright 2012 John Wiley & Sons, Inc.
Risk Analysis & Assessment
Quantitative Approaches
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Quantitative Probability Distributions
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Discrete
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Continuous
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Binomial
Normal
PERT
TRIANG
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Binomial Probability Distribution
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Normal Distribution
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Normal Distribution
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Rules of thumb with respect to observations
Approximately….
68% + 1 standard deviations of mean
95% + 2 standard deviations of the mean
99% + 3 standard deviations of the mean
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PERT Distribution
PERT MEAN = (a + 4b + c)/6
Where:
a = optimistic estimate
b = most likely
c = pessimistic
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PERT Distribution
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Triangular Distribution
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Simulations
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Monte Carlo
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Technique that randomly generates specific values for a
variable with a specific probability distribution
Goes through a number of trials or iterations and records the
outcome
@RISK®
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An MS Project® add in that provides a useful tool for conducting risk
analysis of your project plan
http://www.palisade.com/riskproject/default.asp
Copyright 2012 John Wiley & Sons, Inc.
Monte Carlo Simulation
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Cumulative Probability Distribution
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Sensitivity Analysis Using a Tornado Graph
Tornado
Graph
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Risk Strategies
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Accept or Ignore
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Management Reserves
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Contingency Reserves
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Part of project’s budget
Contingency Plans
Avoidance
Mitigate
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Released by senior management
Reduce the likelihood or impact (or both)
Transfer
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E.g. insurance
Copyright 2012 John Wiley & Sons, Inc.
Risk Strategies Depend On
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The nature of the risk
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Impact on MOV and project objectives
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Probability? Impact?
Project constraints
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Really an opportunity or threat?
Available resources?
Risk tolerances or preferences of the project
stakeholders
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Risk Monitoring & Control
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Risk Audits
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Risk Reviews
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External to project team
Internal
Risk Status Meetings & Reports
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Risk Response Plan should include:
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A trigger which flags that the risk has occurred
An owner of the risk (i.e., the person or group responsible
for monitoring the risk and ensuring that the appropriate
risk response is carried out)
A response based on one of the four basic risk strategies
Adequate resources
Copyright 2012 John Wiley & Sons, Inc.
Risk Evaluation
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Lessons learned and best practices help us to:
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Increase our understanding of IT project risk in general.
Understand what information was available to managing
risks and for making risk-related decisions.
Understand how and why a particular decision was made.
Understand the implications not only of the risks, but also
the decisions that were made.
Learn from our experience so that others may not have to
repeat our mistakes.
Copyright 2012 John Wiley & Sons, Inc.
Copyright 2012 John Wiley & Sons, Inc.
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programs or from the use of the information herein.
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