PM Risk For Dummies
PM Risk For Dummies
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Project Risk Management For Dummies®, Deltek Special Edition
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Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
About This Book......................................................................... 1
Foolish Assumptions.................................................................. 2
Icons Used in This Book............................................................. 2
Where to Go From Here............................................................. 2
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iv Project Risk Management For Dummies, Deltek Special Edition
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Introduction
R isk is an everyday part life of every project. Bad weather
could delay progress on a construction site. So could
late arrival of key materials. The start of a new contract
year could cause labor costs to increase. Countless factors
threaten the schedule as well as the budget. How in the world
does any project manager or sponsor sleep at night, knowing
how many things could go wrong?
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2 Project Risk Management For Dummies, Deltek Special Edition
Foolish Assumptions
One should not make too many assumptions, but because you
chose to pick up and start reading this book, we’re able to
make a few assumptions about you, the reader:
As you work your way through the pages, be sure not to miss
the important point next to this icon.
This book is all about risk, and this paragraph is all about
something that could go awry if you’re not careful.
Are you one of those people who likes the little details? This
paragraph might be of interest to you.
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Chapter 1
Preparing for Project Risk
Analysis
In This Chapter
▶▶Understanding what a plan can do for you
▶▶Dealing with variations from the plan
▶▶Evaluating the quality of the plan
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4 Project Risk Management For Dummies, Deltek Special Edition
After the project plan has been established, it’s time to begin
performing work on the project according to the plan. Let the
beautiful music begin!
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Chapter 1: Preparing for Project Risk Analysis 5
in advance. That way they can make proper decisions to maxi-
mize use of resources and potentially prevent a significant
delay. An inadequate project plan won’t function properly as
a predictor of schedule and cost overruns.
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6 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 1: Preparing for Project Risk Analysis 7
Say no to negative float
When an activity has negative float, that can delay the over-
all completion of the project or a key milestone. Delays will
happen, for sure, but when a project plan has negative float
from the outset, it practically guarantees that the project will
not complete on or before the planned finish date.
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8 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 2
Schedule Risk Analysis
In This Chapter
▶▶Understanding direction uncertainty
▶▶Examining schedule risk events
▶▶Introducing correlation to the model
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Chapter 2: Schedule Risk Analysis 11
“realistic,” the group can focus its attention on what is clearly
not realistic, or the exceptions. That’s a simple trick for making
the ranging work much more manageable. See Figure 2‐2.
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12 Project Risk Management For Dummies, Deltek Special Edition
The base information includes the risk ID, risk type, risk
name, probability, and impacts. The mitigation portion of the
risk register includes the mitigation name, the time and cost
to implement the mitigation, and the probability and impact
ratings for the risk event after implementing the mitigation.
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Chapter 2: Schedule Risk Analysis 13
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14 Project Risk Management For Dummies, Deltek Special Edition
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Figure 2-6: Risk mapping.
For some risk events, the mapping can be clear and easy. But
if there’s a chain of activities, it can be a bit tricky deciding
which activity the risk event should be mapped to. Map the
risk event to the earliest activity it will impact in the chain,
unless the risk event could uniquely impact every activity in
the chain.
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Chapter 3
Schedule Risk Exposure
In This Chapter
▶▶Crunching the numbers
▶▶Comparing schedule risk exposure
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16 Project Risk Management For Dummies, Deltek Special Edition
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The results from all the iterations are then charted into a his-
togram, which shows the profile of the results. The left‐side
date, or earliest date, shows the result if all the activities
happen in the minimum amount of time estimated. The right‐
side date, or latest date, shows the result if all the activities
took the maximum amount of time. Different middle dates
result from the many various combinations of durations. The
profile is created as each iteration, or result, is charted during
the analysis, and the result is the risk exposure chart.
The second thing you’ll learn from the risk exposure chart is
the confidence — that’s the probability that the original deter-
ministic delivery date can be met. In the example in Figure 3‐2,
this confidence level is only 3 percent. For most typical proj-
ects this value is less than 10 percent. Sounds like the original
schedule wasn’t done very well, right? No, that’s not what this
means. Schedules aren’t designed to account for uncertainty
unless the durations are padded.
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Chapter 3: Schedule Risk Exposure 17
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Figure 3-2: Risk exposure.
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Chapter 4
Schedule Risk Drivers
In This Chapter
▶▶Determining the schedule contribution
▶▶Figuring out what’s driving the risk
▶▶Comparing schedule risk drivers
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20 Project Risk Management For Dummies, Deltek Special Edition
You’ll pick a P‐value for this analysis, and it’s usually the
same P‐value you used in the risk exposure analysis. The con-
tingency needed to have that P‐value level of confidence is
identified. The schedule contribution reveals the top activities
that contribute to the contingency. For example, in Figure 4‐1,
the activity Site Clearance contributes 34 days to the total
103 days of contingency your project will need to achieve the
50 percent confidence date of February 19.
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Figure 4-1: Schedule contribution.
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Chapter 4: Schedule Risk Drivers 21
for the Site Clearance activity comes from the R42 risk event
(that’s the risk that you won’t be able to hire craft). The analy-
sis is very helpful, because it shows the activities that should
be the biggest focus of any optimization efforts, and points
out which activities aren’t worth focusing on.
For this example, even if you were able to eliminate all of the
contribution for Communications, Initial Long Lead Items,
and Third-Party Validation, you still wouldn’t get as much
benefit as you would just by reducing the contribution from
Site Clearance. That doesn’t mean those other activities
aren’t important or don’t have a contribution. But it points
out in no uncertain terms that if you only have limited project
resources, it makes a whole lot more sense to work on the
largest impact first.
Rather than spread the team across all the items on the criti-
cal path in the single view that you get from the scheduling
tool, the risk analysis lets you use the team more effectively
by focusing only on the activities that make a difference in the
end delivery date. Remember, the scheduling tool’s critical
path is only one possible outcome for your schedule. The risk
analysis shows you 1,000 potential critical paths.
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22 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 4: Schedule Risk Drivers 23
the risk drivers, before and after mitigation, you can deter-
mine the benefit to a particular activity or the neutralization
of a particular risk event.
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24 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 5
Schedule Risk Mitigation
In This Chapter
▶▶Analyzing the mitigation possibilities
▶▶Performing a cost/benefit analysis
▶▶Creating the new deterministic schedule
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26 Project Risk Management For Dummies, Deltek Special Edition
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Now it’s time for “let’s pretend.” The project team must think
of the discrete risk event and assume that the proposed miti-
gation has been implemented. With that assumption, team
members re‐evaluate the probability and impact for that dis-
crete risk event.
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Chapter 5: Schedule Risk Mitigation 27
it’s possible to deliver only one or the other, so choices must
be made.
You’ll run a third risk analysis, this time using the probabili-
ties and impacts from the risk events — but after mitigation.
This analysis can tell you whether there’s enough benefit to
make the mitigation worth the cost and time.
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28 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 6
Cost Risk Analysis
In This Chapter
▶▶Accounting for time in the cost model
▶▶Identifying the base cost uncertainties
▶▶Determining cost risk events
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30 Project Risk Management For Dummies, Deltek Special Edition
A Question of Time
The biggest question when doing a cost risk analysis is how to
account for the impact of time on the cost model. It’s impor-
tant to make this a conscious decision so that you don’t miss
or double‐count costs due to time. There are several ways to
go about this:
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Chapter 6: Cost Risk Analysis 31
Organize the cost estimate with separate lines for time inde-
pendent and time‐dependent costs. This way of organizing will
make the assembly of the cost risk model a whole lot easier.
It also makes both the model and the analysis more accurate
and precise.
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32 Project Risk Management For Dummies, Deltek Special Edition
You can speed up the ranging process if you organize the cost
lines to match the group you’re working with, by area, depart-
ment, or control account. That way, you can remove all the
nonrelevant columns and date columns. See Figure 6‐2.
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Chapter 6: Cost Risk Analysis 33
The risk matrix
The risk matrix used for the cost risk analysis will be the same
as the matrix used for the schedule risk analysis. You do, how-
ever, need to evaluate the cost impact range for accuracy and
appropriateness. See Figure 6‐3.
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Figure 6-3: Risk matrix.
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34 Project Risk Management For Dummies, Deltek Special Edition
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Figure 6-4: Risk register.
The risk register will show different types of cost risk events,
such as:
After the cost risk events are captured in the risk register, you
must quantify both the probability and the impact. This leads
to the calculation of the overall risk score (which should not
be used).
Once the appropriate risks are mapped to the cost model, you
must examine and verify the impact on the individual cost
lines. Many risk models will map an individual risk event to
multiple cost lines, so you must be sure that’s done correctly.
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Chapter 6: Cost Risk Analysis 35
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Figure 6-5: Risk mapping.
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36 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 7
Cost Risk Exposure
and Mitigation
In This Chapter
▶▶Crunching the numbers
▶▶Comparing cost risk exposure
▶▶Determining the cost contribution
▶▶Figuring out what’s driving the risk
Ready to Analyze
Cost risk analysis works the same way, mechanically, as
schedule risk analysis does, with a total cost be calculated
rather than a delivery date. During each analysis, the cost
lines are sampled and a total cost value is added up, using the
sampled costs. If a risk event has a 50 percent probability of
occurring, then it would be present in roughly 50 percent of
the iterations. See Figure 7‐1.
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38 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 7: Cost Risk Exposure and Mitigation 39
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40 Project Risk Management For Dummies, Deltek Special Edition
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Figure 7-3: Cost contribution.
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Chapter 8
Nine Thoughts on Delivering
the Risk Message
In This Chapter
▶▶Keeping it simple and focusing on the audience
▶▶Challenging the skeptics
▶▶Moving forward with risk management
▶▶Understanding risk avoidance
▶▶Keeping the message alive
That’s easier said than done, and no matter how well you do
your work, you may run into stubborn obstacles to the risk
management for which you’re advocating. Here are some
thoughts about creating the message and ensuring its success.
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42 Project Risk Management For Dummies, Deltek Special Edition
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Chapter 8: Nine Thoughts on Delivering the Risk Message 43
You’ll hear all kinds of comments and questions. “These risk
models don’t apply to us.” “Risk always tells us that we can’t
finish on time or that the project will be too expensive, but we
have to deliver anyway.” “This looks like it was cooked up by
some number‐crunchers, not the project team.” “We have to
make the charts, but they don’t really mean anything to our
project.”
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44 Project Risk Management For Dummies, Deltek Special Edition
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