Risk Management : Tools and Techniques

Tools for risk planning

• Planning meetings
• Expert judgment
• Analytical techniques
  • How sensitive you are to risks (Risk Tolerance) ?
  • How much risks your project are exposed to ?

Tools for Risk Identification

• Documentation review
• Information gathering
  • Brainstorming
  • Delphi technique
    • Advantage
      • Unlike brainstorming, participants are not under group pressure, since some people can be afraid of disagreeing with others or are too shy to express their opinions freely.
    • Disadvantage
      • It is time consuming.
  • Interview
    • Very effective from expert
  • Root cause identification
    • The advantage of knowing the basic cause is that, although at the surface many risks will seem to be caused by different factors; in reality, many will share the same basic cause(s).
    • By using root cause identification, you can control many risks with the same response; thus hitting several birds with one stone.
  • SWOT analysis
    • SWOT analysis is useful for stimulating your thinking and will make you consider the positive risks as well.
  • Checklist analysis
    • Your organization might use risks that were identified in previous projects to make a checklist of risks.
    • A readymade list can also be used.
    • The checklist helps to remind the project team of common and repeated risks in project management as well as of specific risks involving a particular type of project.
    • You should update the company’s risk checklist with new risks identified from your project at the closeout phase.
  • Assumption analysis
    • In assumption analysis, you need to verify the rationality of the assumptions made.
  • Diagramming techniques
    • Ishikawa diagram
      • The fishbone diagram lets you systematically find the causes of a problem arising from different factors.
  • Process flowcharts
    • A flowchart is just a drawing of how a system operates.
    • It helps you see the whole process and the links between its elements, thus making it easier to identify possible problems (risks).
  • Influence diagram
    • It is a technique for identifying risks involving how elements of a system can influence each other.

Tools for Qualitative Risk Assessment

• Risk Matrix and Risk Assessment
  • Risk assessment is the tool that you use to prioritize the risks so that you would be able to develop a more efficient and effective risk response.
  • Usually, you use a risk matrix to conduct risk assessment.
  • The risk matrix is based on the risk formula: Risk exposure = Probability x Severity
• Assessment of the Quality of the Risk Data
  • Data quality assessment is concerned with how confident you are about the risk facts.
• Risk categorization
  • In risk categorization, you group risks under common sources (categories).
  • Risk categorization is based on the Risk Breakdown Structure (RBS), which looks similar to the WBS.
  • You can make an RBS for your project, or find a general one that is adopted by the organization.
    • Risk categorization can help you in two areas
      • Risk Identification
        • Because you can use the RBS as a checklist to make sure that you have systematically gone over all the possible sources of risks.
      • Risk Response
        • When similar risks are grouped together, you may be able to identify common responses to them.
• Risk urgency assessment
  • This is another way of prioritizing risks (remember, prioritizing risks is the purpose of risk assessment).
  • Here, you will rank risks based on how urgent they are.
  • If you believe that a risk will happen early on in your project, you have to give it more weight.

Tools for Quantitative Risk Analysis

• Interviews and Expert Judgment
  • You sit with experienced people and ask them to provide estimations on probability and severity for risks.
• Sensitivity analysis
  • This technique is adopted to identify the risks that have the strongest effect on a project.
  • Sensitivity analysis is usually represented by a tornado diagram.
• Expected Monetary Value and Decision Tree Analysis
  • These techniques provide you with the anticipated cost(s) of risks.
  • Once you know how much each risk may cost, you will be able to compare and rank them.
• Simulation
  • You use simulation to evaluate the effect of risks on the project as a whole.
  • In simulation, you use mathematical calculations and computers to predict how your project will perform.
  • Based on the simulation result(s), you might find that your budget and/or timeframe are not realistic, giving you an opportunity to amend them before embarking on the project.
  • You apply simulation to your project with the identified risks before you make a plan to respond to them.
  • After making a response plan, incorporate your responses in the simulation model and run it again to see if the result improves (which indicates a good response plan).

Tools for Risk Response Strategies for Threat and Opportunity

• Threat or Opportunity, when to Use it ?
  • Avoid or Exploit
    • For risks that are too good to miss or too bad to let happen
  • Transfer or Share
    • For risks (good or bad) you cannot deal with by yourself and need the help of another party
  • Mitigate or Enhance
    • You balance between risks and resources.
    • You work on the components of risks (probability and impact) to reduce threats and improve opportunity as much as you can.
  • Accept
    • This is for risks that you cannot control through any of the above strategies.
    • If they happen, they happen.
    • However, you can put some money aside to deal with them (called contingency reserve).
• Risk Response Strategies approach
  • It is better to use a mix of strategies.
  • You can use decision trees to choose between strategies.
  • You cannot always just choose any strategy you want.
    • There will be risks that you will not be able to avoid or transfer.
  • You can identify primary and secondary strategies.
    • For example, you plan to avoid a risk, but after initial failure, you try to mitigate it.
  • Risk response will require some change(s) in the project plan (resources, time, quality, contract terms, etc.).
  • If you accept a risk, you usually have to allocate a budget to deal with it if it occurs.
    • That budget is referred to as contingency reserve.
• Strategies for threats
  • Avoid
    • Avoiding a risk means that you do not want it to happen, ever, and, hence, you try to eliminate it.
    • You will be willing to invest resources or change your project plan to do that.
  • Transfer
    • Transfer is a strategy that usually applies to threats that you do not have any experience dealing with.
    • You may also apply this strategy if you find it more practical to let others handle some of the project risks.
  • Mitigate
    • This strategy applies to risks that you cannot avoid or transfer.
    • It is like doing the best you can with the available resources to reduce the risks (by reducing their probability or severity or both).
• Strategies for opportunities
  • Exploit
    • Here, you don’t want to lose an expected opportunity.
    • You try to manage your resources so that the opportunity will not be wasted.
    • You can think of it as the opposite of avoiding a risk.
  • Share
    • In your project, you can have an opportunity but do not have the expertise or resources to benefit from it.
    • In this case, it is better to share some of the benefits with someone who can actually make it happen than lose it all.
  • Enhance
    • Similar in concept to mitigation, you want to improve chances of an opportunity by increasing its probability or positive impact.
• Strategy for both Threats and Opportunities
  • Accept
    • If there is no suitable strategy for dealing with threats or opportunities, then you may choose to accept them.
    • All strategies mentioned so far will involve some modification in the project plan, but if you accept a risk, you just let it happen (if it happens at all; remember that risks are in the future and they may or may not happen).
      • Passive Acceptance
        You do nothing regarding the risk; for example, if an equipment delivery is delayed, you just wait.
      • Active Acceptance
        • Contingency reserve
          • You assign extra money, time, resources aside, in order to deal with the risks.
          • This is called a contingency reserve; for example, if an equipment delivery is delayed, you rent one to perform the task.
        • Management reserve
          • It is money set aside for unplanned and unidentified changes to the project.
          • The project manager might need approval to use it.
          • This reserve is not part of the cost baseline.
          • The management reserve is usually predetermined in companies.
            • For example, it may be 2.5% of the budget for each project.
            • As for the contingency reserve, it is identified based on calculations and reasoning.
• Contingency planning
  • Contingency planning is a risk response tool that is used when the risk actually happens.
  • It involves monitoring triggers.
  • Triggers are early indicators that a risk is going to happen.
• Expert judgment
  • This is another tool that is used in risk response.
  • You might consult an expert to advise you on how to deal with risks and control them.
  • Using experts is justified because they have a better understanding of risks in their field of expertise.
  • Note that you use the judgments of experts at different times, when identifying risks, analyzing risks and responding to risks.

Tools for Risk Monitoring and Control

• Risk Reassessment
• Status Meetings
• Risk Audits
  • Your goal is to verify that the risk identification, assessment and response activities done during the planning phase were adequate.
• Reserve analysis
  • Here, you will simply investigate how much has remained and whether it will be enough to cover the remaining risks.
• Performance measurement
  • If actual performance is poor compared to the planned performance, you should check for new risks or re-examine previously identified risks.
• Variance and trend analysis
  • Variance and trend analysis are monitoring and forecasting methods used to monitor project performance.
  • They utilize techniques like the earned value analysis to predict future performance based on past and current one(s).

PMI-RMP Certification exam flashcards

Created : 22/05/2022