Risk Definitions – PMP 1

Now here are some definitions you may find on the PMP exam:

 

Uncertainty

Lack of knowledge of future events

Goals of PRM

To identify project risks and develop strategies which either significantly reduce them or take steps to avoid them.

Opportunity

The probability those outcomes will be favorable.

Risk

The probability those outcomes will be unfavorable.

Project Risk

Is the cumulative effect of the chances of uncertain occurrences adversely affecting project objectives.

Risk Factors

1.      Risk Event – Precisely what might happen to the detriment of the project

2.      Risk Probability – How likely the event is to occur

3.      Amount at Stake – The severity of the consequences

Probability

Probability = Frequency of relevant events

                      Total number of possible events      

Risk Event Status (criterion value or ranking)

Risk Event status = risk probability x amount at stake

Processes

1.      Risk Identification

Determining which risks are likely to affect the project and documenting the characteristics of each.  Can be classified as:

a.      Scope – Risk associated with changes of scope or the subsequent need for “fixes” to achieve the required technical deliverables.

b.      Quality – Failure to complete tasks to the required level of technical or quality performance

c.       Schedule – Failure to complete tasks within the estimated time limits, or risks associated with dependency network logic

d.      Cost – Failure to complete tasks within the estimated budget allowances

2.      Risk Quantification

Evaluating risks and risk interactions to assess the range of possible project outcomes.

3.      Risk Response Development

Defining enhancement steps for opportunities and responses to threats.

4.      Risk Response Control

Responding to changes in risk over the course of the project.

Identification

1.      Inputs

a.      Product description

Risk depends on the nature of the product.  Proven technology has less risk than products requiring innovation and invention.

b.      Other Planning outputs

Review outputs from the processes for possible risks, e.g., WBS, cost estimates and schedule duration’s, staffing plan, procurement management plan.

c.       Historical information

2.      Tools and Techniques

a.      Checklists

b.      Flowcharting

Helps understand the cause and effects of risks.

3.      Outputs

a.      Sources of Risks

This includes such items as stakeholder actions, unreliable estimates, team turnover, changes in requirements, insufficiently skilled staff.

b.      Potential Risk Events

Precisely what might happen to the detriment of the project, such as natural disasters, requirement for development of new technology, etc.

c.       Risk symptoms

These sometimes are called triggers, early warning of an impending event, etc.

d.      Inputs to other processes

Risks can be inputs to other processes as constraints or assumptions.

Quantification

1.      Inputs

a.      Stakeholder risk tolerances

This provides a screen for both inputs and outputs to risk quantification.

b.      Sources of risk

c.       Potential risk events

d.      Cost Estimates

e.      Activity duration estimates

2.      Tools and Techniques

a.      Expected Monetary value

This is the product of risk event probability of occurring times the risk event value (could be a gain or loss).

b.      Statistical sums

This calculates the range of alternative project budgets from the cost estimates for individual work items.

c.       Simulation

The most common is Monte Carlo analysis, which is used to analyze the behavior or performance of the system. The results of a schedule simulation may be used to quantify the risk of various schedule alternatives, different project strategies, and different paths through the network or individual activities.

d.      Decision Tree

e.      Expert Judgment

3.      Outputs

a.      Opportunities to pursue, threats to respond to

This is a list of opportunities that should be pursued and threats that require attention.

b.      Opportunities to ignore, threats to accept