1 December 2022

Risk Management concepts to know

Risk Management Terminology

  • Active Acceptance
    • To accept a risk with a contingency reserve.
    • Summarizes the options you may take to deal with risks.
      • Risk
      • Management Management Reserve
      • Workaround
      • List of Prioritized Risks
      • Monitor Watch List
      • Monitor Residual Risks
      • Threats Opportunities
      • Avoid, Mitigate, Transfer
      • Explore, Share, Enhance
      • Accept
      • Accept Contingency
      • Plans
      • Fallback Plan
      • Secondary Risks
      • Passive Acceptance
      • Contingency Reserve
      • Triggers Contingency Reserve
  • Affinity diagram
    • Affinity diagram is very simple and straightforward way of organizing and grouping ideas.
      • You simply record different ideas on yellow stickers, then try to think of the best way to group them.
      • Using yellow stickers is not mandatory of course but it will make it easy to stick one in a place then move it.
      • You will use a wall to put the stickers on for better display.
      • The diagram will look like columns of yellow stickers where each column representing a general area.
  • Analogous estimation
    • Here you estimate prices or durations based on past experience.
    • However, this is not an exact estimation and thus there will be risks in using it.
    • This is called sometimes a “ top down “ estimation because you get the estimate as a whole and in one go.
  • Attitudes to risk
    • Different organizations will have different attitudes to risk.
    • Some organizations may be considered to be risk averse, whilst other organizations will be risk aggressive.
    • To some extent, the attitude of the organization to risk will depend on the sector and the nature and maturity of the marketplace within which it operates, as well as the attitude of the individual board members.
    • Risks cannot be considered outside the context that gave rise to the risks.
    • It may appear that an organization is being risk aggressive, when in fact, the board has decided that there is an opportunity that should not be missed.
    • However, the fact that the opportunity is high risk may not have been fully considered.
    • One of the major contributions from successful risk management is to ensure that strategic decisions that appear to be high risk are actually taken with all of the information available.
    • Improvement in the robustness of decision-making processes is one of the key benefi ts of risk management.
    • Other key factors that will determine the attitude of the organization to risk include the stage in the maturity cycle.
    • For an organization that is in the start-up phase, a more aggressive attitude to risk is required than for an organization that is enjoying growth or one that is a mature organization in a mature marketplace.
    • Where an organization is operating in a mature marketplace and is suffering from decline, the attitude to risk will be much more risk averse.
    • It is because the attitude to risk has to be different when an organization is a start-up operation compared with a mature organization, that it is often said that certain high-profi le businessmen are very good at entrepreneurial start-up, but are not as successful in running mature businesses.
    • Different attitudes to risk are required at different parts of the business maturity cycle.
  • Bottom up estimation
    • From its name you can guess that this is used to get the price of something by adding the costs of its components.
  • Bowtie analysis
    • Bowtie method helps you analyze and demonstrate causal relationships in high-risk scenarios.
    • It’s a way to “tie” between the causes and results of an event (risk happening).
    • Sketch
      • You put the event in the middle and causes and effects on either side.
      • It will look like a tie.
      • This is a good way of thinking about risks because you can draw it.
      • It can also serve as a communication tool.
    • Bow-tie method
      • https://www.cgerisk.com/knowledgebase/The_bowtie_method
      • A ‘bowtie’ is a diagram that visualizes the risk you are dealing with in just one, easy to understand the picture.
      • The diagram An example of a bowtie diagramm. is shaped like a bow-tie, creating a clear differentiation between proactive and reactive risk management.
      • The power of a BowTieXP diagram is that it gives you an overview of multiple plausible scenarios, in a single picture. In short, it provides a simple, visual explanation of a risk that would be much more difficult to explain otherwise.
  • Contingency Plans
    • A plan that you implement if a risk occurs during project execution.
    • Money or time assigned to deal with accepted risks, if they occur.
  • Contingency Reserve
  • Cost benefit analysis
    • This is a study done before a company starts a project.
    • The expected profit is calculated by subtracting the project cost from the expected return.
    • If the project is expected to create more revenue than cost, then it should be done.
    • A famous tool to calculate the expected profit is called return on investment or ROI.
  • Fallback Plan
    • Plan “B”, which is to be implemented if the primary plan to control the risk fails.
  • Fault Tree Analysis (FTA )
    • Fault Tree Analysis is a way to find the basic causes of an event ( risk).
    • It follows the same idea of WBS.
    • You put the risk on the top of the page and then think of events that can lead to it.
  • Force Field Analysis
    • Force Field Analysis is a decision-making technique.
    • The reason for so many tools for decision-making is that a good project manager should be able to explain the reason of a decision (i.e. he/she have a logic behind it, an “impulse” or “feeling” doesn’t qualify here).
    • So lets go back to force field analysis.
    • For any decisions there will be positives and negatives.
    • Your aim is to add them and see if the result will be positive or negative.
    • To do that you need to give a score for each force.
  • Heuristics
    • This is a physiological term referring to A way of taking decisions.
    • When you can’t research a problem for some reason, you use your experience to find a quick solution.
    • Example is “rules of thumbs” and “educated guesses” which are fast but may not be the best solutions.
    • Link to risk management is clear.
    • Such fast decisions can have risks of including many assumptions and errors.
  • Inherent level of risk
    • It is important to understand the uncontrolled level of all risks that have been identified.
    • This is the level of the risk before any actions have been taken to change the likelihood or magnitude of the risk.
    • Although there are advantages in identifying the inherent level of risk, there are practical difficulties in identifying this with certain types of risks.
  • IRGC
    • IRGC models aim at building robust, integrative inter-disciplinary governance models for emerging and existing risks.
    • The International Risk Governance Center (IRGC) is a neutral interdisciplinary center based at the École Polytechnique Fédérale de Lausanne (EPFL) in Lausanne, Switzerland. IRGC develops risk governance strategies that focus on involving all key stakeholder groups, including citizens, governments, businesses and academia.
    • It exists to improve the understanding, management and governance of emerging and systemic risks that may have significant adverse consequences for human health and the environment, the economy and society.
    • Its mission includes “developing concepts of risk governance, anticipating major risk issues and providing risk governance policy advice for key decision-makers.”
  • Laissez-faire leadership
    • In the laissez-faire leadership style, the leader gives his/her team enough space for creativity and innovation.
    • The leader does not practice strong and excessive control over his/her team because they are knowledgeable and experienced.
    • The term is French and means to “let do”.
  • Latin Hypercube
    • Latin Hypercube sampling stratifies the input probability distributions.
    • With this sampling type, @RISK or RISKOptimizer divides the cumulative curve into equal intervals on the cumulative probability scale, then takes a random value from each interval of the input distribution.
    • The number of intervals equals the number of iterations.
    • We no longer have pure random samples and the CLT no longer applies.
    • Instead, we have stratified random samples. https://kb.palisade.com/index.php?pg=kb.page&id=28
  • Look-up table (table de correspondance)
    • A data structure created for the purpose of translating keys into values.
  • Nominal group
    • Nominal group is a way of reaching people agreement on some ideas.
    • Like brainstorming, participant are encouraged to put their ideas.
    • Then everyone will vote on the ideas.
    • The result will be a list of prioritized ideas where the best idea will be the one with the highest votes.
  • Parametric estimation
    • Here you estimate the durations or price of service or product based on numbers you have.
    • This is more accurate than analogous estimation.
  • Passive Acceptance
    • To accept a risk without a contingency reserve.
  • Regression analysis and correlation
    • These are statistical concepts
    • Regression is used to find weather two variables are connected.
    • Meaning if one changes will it cause the other to change or not?
    • Correlation, on the other hand, investigates the type of the relationship.
    • A formula is used to find a “correlation coefficient” with value between -1 and +1.
      • If the result is positive then the two variable move together.
      • If the result is negative, then if one variable increase the other will decrease and vise versa.
      • If the value is zero, then there is no relationship.
  • Residual Risks
    • Risks that still remain after risk response measures have been implemented.
  • Risk Appetite
    • Simply it means how much risk you are willing to eat (take).
  • Risk attribute
    • Characteristics of risks like category, type, probability, and impact.
  • Risk connectivity analysis
    • Risk connectivity analysis this is a new way of looking at risks.
      • You know that risk is a factor of probability and severity.
      • But what about risks being connected to other risks.
      • The idea, is that a small risk can be connected to other risks which makes it more risky.
      • What I mean by conectivity is if a risk is connected to another then if one happens the other will also happen.
      • Usually a software is used to produce connectivity analysis.
      • The software will create a network like diagram showing what risks are connected to others.
    • This idea gives another prospective on how to view risks and help identify “hidden” risks that can cause big problems.
  • Risk Owners
    • People who will implement the risk control.
  • Risk prompt list
    • Risk prompt list is a checklist but with a category of risk (i.e. It will not list specific risks).
      • For example, you will not find an item of “staff resigns”, but a more general category of “People Risks”.
    • The idea of these lists is to push (prompt) you to think and brainstorm of risks under the category.
  • Secondary Risks
    • Risks that are generated from implementing the risk response.
  • Scenario Planning
    • Scenario Planning is a way to identify possible risks.
      • From the current situation of your company/project you make a story (scenario) of what can happen in the future.
      • For example, you can make a scenario that some conditions will change like fuel prices will go up or there will be shortage in skilled people in the job market.
      • Based on these scenarios you discuss how your company or project can deal with this possible situation.
    • Scenario planning is used to validate your risk response.
  • Tally sheet
    • Tally sheet is like check sheet, this tool may be used as a checklist when gathering data and is used to verify the effective collection of data.
  • Trend analysis
    • Trend analysis is a good way to predict the future.
      • From historical data you can guess the direction of the future.
      • For example, in a construction project, is the sub contractor failed in “concrete” testing 5 times out of 7, you can guess the next time have a great chance of also failing.
  • Triggers
    • Early warnings of risks.
  • Utility Function
    • A utility function is a representation to define individual preferences for goods or services beyond the explicit monetary value of those goods or services.
    • In other words, it is a calculation for how much someone desires something, and it is relative.
    • Example
      • A high-profile, high-priority project within your organization is being created. Management wants you to pay special attention to the project risks and do all that you can to ensure that all of the risks are identified early in the project. Management has to ensure that this project succeeds. Management’s risk aversion in this project is associated with what term?
      • Answer : utility function
  • Visualization
    • Visualization is a term used when data are represented by graphs or sketches.
    • Visualization make understanding easier.
      • For example, a risk matrix a way of visualizing risks importance in relation to each other.
      • You can also use a 3d risk matrix.
    • So, for the exam, just know that visualization is a good way to foster understanding of an issue.
  • Watch List
    • Risks that are low in magnitude and do not require a response, but need to be monitored.
  • Workarounds
    • They are actions that you take if unplanned risks occur.
    • Here, both the risk and actions are not planned.

PMI-RMP Certification exam flashcards

Created : 23/05/2022

Leave a Reply

Your email address will not be published.