PMI RMP – RISK MANAGEMENT FOUNDATIONS

1. INTRODUCTION

Hi, and welcome to the Risk Management foundations or the risk management fundamentals. So, before I move to the sections where I’m going to discuss the seven risk management processes, in this section, I’m going to give you an overview of the risk management. What’s the risk management definition? What are the roles of the project risk management? What are the critical success factors? A high level description of the seven risk management processes and principles and terms and concepts which you need to be aware of before we go deeper into the risk management processes.

So the project risk management includes the processes concerned with conducting risk management planning. First of all, we are going to plan for risk management, then we are going to identify the risks on the project. Then we are going to analyze these identified risks. You are going to plan responses for those identified risks and you are going to monitor those risks on the project. This is a high level description in one sentence.

What is the project risk management processes? We are going to plan, identify, analyze, plan responses and monitor them. The objectives simply are to increase the probability and impact of positive events and to decrease or reduce the probability and impact of negative events on the project. This is the primary objective of all the risk management efforts you are going to spend on your project. I want to increase the probability and impact of positive risk events. Yes, we have positive risk events which are called opportunities. I’m going to explain what is an opportunity in the coming lectures and to reduce the probability and impact of negative risk events, which are called threats. So a risk can be a threat or an opportunity. Project risk management will support the project manager how it will identify and prioritize risks in advance of their occurrence.

And it will provide the project manager with action oriented information on how to deal with the identified project risks and the exact definition of the project risk. It’s an uncertain event or condition that if it occurs, has a positive or negative effect on a project’s objective. Project objectives includes scope, schedule, cost and quality. So we have three conditions to call it a risk. The first condition should be an uncertain event. We are not sure 100% that this event is going to occur. It’s an uncertain event, but if this event occurs, it will have a positive or negative effect on the project. And to call it a risk, it must affect at least one of the project objectives. It will bring you a delay, it will have a cost overrun, it will affect the quality or whatever. It should affect one at least of the project objectives. This is all as an introduction. Thank you so much. I’ll see you in the next lecture.

2. ROLE OF RISK MANAGEMENT IN PROJECT MANAGEMENT

Hi and welcome back again. So what is the role of the project risk management as a part of the project management? First of all, you need to keep in mind that the risk management is not an optional activity. It’s essential to successful project management and it should be applied to all projects and be included in the project plans. So it becomes an integral part of every aspect of managing the project. You need to keep this in mind. You will not perform the risk management activities in your spare time as a project manager. It’s something essential. The risk management plan is a primary component of the project management plan. So the risk management plan shall become an integral part of every aspect of managing the project. Project risk management addresses the uncertainty in project estimates and assumptions. And there is one process. It’s the quantitative risk analysis. It explores the uncertainty in the estimated duration and may provide alternative dates and critical paths that are more realistic given the risks to the project.

This is the core benefit of applying perform quantitative risk analysis process. You will explore the uncertainty in your project estimated duration. In your project estimated budget. You will have an exact probability of achieving your project with a specific budget. You will have an exact probability of achieving the project on a milestone, specific milestone. This will be available once you are done with the quantitative risk analysis process, so it will support other aspects of the project like the budget and the schedule management.

Now, the degree, level of detail, substitution of tools and the amount of time and resources applied to project risk management should be in proportion to the characteristics of the project under management and the value that they can add to the outcome. The degree and level of detail and substitution should be proportionate to the importance of the project. Are you performing a recurring project for the organization? For example, I’m working for a real estate developer. On annual basis, we are building three or four or five stars. Otis so if I was assigned as a project manager for a five star hotel in the coming year, it’s not it will not make any sense to hire a complete team to perform risk management activity. It’s a recurring project. It’s a simple project. So the efforts you are planning to spend on the risk management should be proportionate to the importance of the project. It’s like a cost benefit analysis at the early stages of the project, the level of risk exposure, it’s at its maximum. The highest risk on your project is within the initiation phase of the project. Why? Because of less information and high uncertainty.

The earlier in the project life cycle that the risks are recognized, the more realistic the project plans and expectations of presence will be. So the highest risk will be in the initiation phase of the project. These are the five processing groups which I explained in previous sections. Keep in mind that the highest risk will be as a part of the initiation phase and the lowest risk will be at the closing phase of the project. Now during the project execution, risk management processes will monitor the changes to the project undergoes for new risks that might emerge, we will call them later emergent risks so that the appropriate responses can be developed. This is what we are going to do as a part of the executing process group throughout the project and during the project closure, risk related lessons are reviewed in order to contribute to organizational learning and support continuous improvements of project risk management practice.

So it’s very important to record the risk related lessons learned and to keep them in the organizational process assets for continuous improvement of future projects. Now this graph represents the risk and uncertainty on the project time. So we have the y axis representing the degree of risk from low to high and the project time. So the highest risk and uncertainty is in the early phases of the project and the lowest is in the closing process group. During the initiating you will highlight high level risk identification, you will highlight the high level risks. So the first time you are going to identify the project risks will be while creating the project charter as a part of the initiating process group. Within the planning process group you are going to identify, analyze and plan responses for the risks.

As a part of the executing process group you are going to implement risk responses, track the identified risks and identifying new risks. And as a part of the club closing you are going to record risk related lessons, learn they are reviewed in order to contribute to the organizational learning. This is the role of the project risk management in the project management. Thank you so much, I will see you at the next lecture.

3. CRITICAL SUCCESS FACTORS

Hi and welcome back again. So what are the six critical success factors of risk management on the project? As per the practice standards for risk management published by the PMI or the Project Management Institute, we have six success factors recognize the value of risk management’s.

First, individual commitment and responsibility of open and honest communications. Organizational commitment scale risk effort to the project and integrate the risk management with the project management. These are the six critical success factors which I’m going to discuss. First of all, recognize the value of risk management.

It should be recognized as a valuable discipline that provides a positive potential return on investment for organizational management. Project stakeholders, project management and team members. So there should be a recognition that the risk management is a valuable discipline. Spending efforts on the risk management will have a retail on investment.

This belief or this recognition should be admitted by all the key stakeholders, by the management, by the project manager and by the team members. Individual commitment and responsibilities being proactive it’s the ownership of the risk management. It’s everybody’s responsibility. It’s not only the responsibility of the project manager, each team member on the project will have it. It’s his own responsibilities for the project.

Risk management. Open and honest communication any actions or attitudes that hinder communication about project risk. Reduce the effectiveness of project risk management in terms of proactive approaches and effective decision making. There should be transparent communication between the team members. Organizational Commitment it can only be established if risk management is aligned with the organizational policies, goals and value. There should be a commitment or a commitment from the organization to the project.

Regarding the risk management, the first success factor is the risk effort scale to project. Project risk management activities should be consistent with the value of the project to the organization and with its level of project risk, its scale and other organizational constraint. It’s like the cost benefit analysis for the risk management efforts on the project.

There should be a proportional relationship between the efforts and the outcome of the risk efforts on the project. Integration with project Management successful project risk management requires the correct execution of other project management processes. Risk management is not a standard, a long thing. It should be an integral part of the project management. These are the three critical success factors for risk management on the project. Thank you so much, I see you at the next length.

4. PRINCIPLES AND CONCEPTS

Hi and welcome back again. So in this lecture I’m going to explain a few important terms. They are considered as the ABC for the risk management knowledge area in addition to few concepts. I will be starting with the project risk, which is defined as an uncertain event or condition that if it occurs, has positive or negative effects on the project objectives. So it’s uncertain it might happen, might not and it will have an effect on the project. This effect might be positive or negative, but at least any risk to be defined as a risk should have an impact at least on one of the project objectives. What’s the risk management? Risk management is a systematic and proactive approach to taking control over the projects by understanding or decreasing uncertainties. It’s not a one time only process. It’s repeated throughout the project life. This is why I’m going to explain the Iterative risk management concept at the end of this lecture. The risk management is repeated throughout the project life.

This means that it’s an Iterative process. The risk management in general, it’s a systematic approach. It’s very proactive. You need to think in advance, you need to imagine, you need to identify what might happen. This is why it’s very proactive approach. Proper risk management will allow you to take control over the project instead of being controlled by the project. What’s the uncertainty? It’s a lack of knowledge about an event that reduces confidence and conclusion drawn from the data. This is the definition of the uncertainty. Risk can be an opportunity or a threat. A positive risk is an opportunity. A negative risk is a threat. An opportunity is a positive set of events or a risk that if occurred, will have a positive impact on the project objectives. While the threat is a negative condition or situation, a risk that will have a negative effect on project objectives if it occurs. So any identified risk might be opportunity, an opportunity or athlete positive event.

It’s an opportunity. Negative event is asset. There are a lot of criteria which we are going to mention regarding the risk types regarding the impact. For example, a risk can be a threat or an opportunity. Also risk can be a business risk or a pure risk. A business risk is a risk of gain or loss, while a pure risk is a risk of loss. Like the probability of fire on your project. It’s a pure risk. You will never gain or have a benefit from a fire. So a fire is an example of a pure risk. Any identified risk has two key dimensions. These are the minimum two key dimensions for any identified risk. The first one is the probability. It’s uncertainty described using the term probability. Sometimes it’s called likelihood. The other dimension is the effect described using the term impact.

Sometimes it’s called consequences. So for the exam purposes you might see the word likelihood. Likelihood is exactly the probability and the consequences are exactly the impact. Usually an effect or an impact of a risk should be expressed in terms of US dollars, money, budget or days duration. While the impact is always sorry, why the probability is always a percentage. So the probability is expressed as a percentage and the impact is expressed in budget or duration. We have four risk factors for any identified risk and project management. The first one is the probability. It’s the likelihood that a risk will occur. The impact, the effect on the project objectives if the risk occurs. Expected timing when during the life of the project the risk might occur and the frequency of the risk or the event. How many times the risk might occur during the life of the project. These are the four risk factors and we have the risk acceptance level. There are three levels.

For these three terms, you will encounter at least one or two questions in your PMI RMP exam. You need to understand them. When you are defining or specifying the risk acceptance level for the key stakeholders in your project, you can use one of these three terms. The first one is the risk appetite. It’s the general one, the high level description of the acceptable range of risk, the risk tolerance. It’s the measurable amount of the acceptable level of risk, while the risk threshold, it’s a specific point at which risk becomes unacceptable. So when you are defining the risk acceptance level for any key stakeholder on the project, you can use the appetite tolerance or threshold.

The most general one or high level one is the appetite and the most specific one is the threshold. Now, when dealing with risks, risk exists at two levels on all the projects. Project risk management should consider and address both levels. The first level is the individual project risk uncertain event or condition that if it occurs has a positive or negative effect on project objectives. It can affect the achievement of the project objectives. So this is the first level you need to address while managing risks on your project.

The individual level, the overall project risk is the second level, it’s the effect of uncertainty of the project as a whole arises from all sources of uncertainty, including individual risks, representing the exposure of the stakeholders to the implications of variations of the project outcome, both positive and negative. So it’s very important to consider these two levels while you are assessing and addressing the project risks, the individual project risk and the overall project risk.

Now, the risk attitudes when it comes to the project stakeholders will determine the extent to which an individual risk or overall project risk can matter. So it’s very important to define the risk attitudes of the project key stakeholders at the early phases of the project life. How risk is regarded is usually strongly influenced by an organization’s culture. Different organizations are more or less open and this often impacts the way risk management can be applied.

Understanding risk attitudes of the stakeholders is an important component of risk management planning risk attitudes of the stakeholders is an important component. This is why risk attitudes should be addressed and defined as the first process of the risk management knowledge area plan. Risk management and these attitudes should be documented in the risk management plan precedes the risk identification.

So we will determine the risk attitudes before the risk identification and the risk analysis processes. These attitudes should be identified and managed proactively throughout the risk management processes. When it comes to an iterative process for the risk management, this is why the amount or this is because the amount of information available about project risks will be usually increased as time goes on. The minimum information available about the project will be at the early phases of the project. So you need to repeat, you need to have an iterative approach regarding risk management. As more information become available, some risks will occur, while other will not. New risks might emerge or arise or be discovered and the characteristics of those identified might change. As a result, the project risk management processes should be repeated and the corresponding plans progressively elaborated throughout the project life.

As more information is available, you need to perform few progressive elaboration throughout the project life. The frequency and depth of reviews and updated will depend on the nature of the project, the volatility of the environment in which the project is being implemented. Again, it’s like a cost benefit analysis regarding the risk management efforts on your project. The last concept will be the communications and risk management. It’s a very important topic. For the Primp exam you will have a full domain about the risk management communications. This is why I’m going to explain the communications management at the end of this course in a dedicated section. For now, you need to know that project risk management success relies heavily on communication throughout the process.

And remember that one of the critical success factors for the risk management is the transparent communication. Risk identification and analysis depend on the comprehensive input from stakeholders in a project to ensure that nothing significant is overlooked and that risks are realistically assessed. So this is why risk management will rely on an honest communication because usually risks will be identified through brainstorming sessions, promotes data analysis techniques and all these tools and techniques will rely on an input from the stakeholders and the participants of these meetings. So transparent communication is very important.

Communication of the results of the project risk management processes should be targeted to meet the specific needs of each stakeholder and should be reflected within the overall project communication strategy. So the communication needs for the key stakeholders on the project will be recorded as a part of the communication management plan on the project and the risk management plan as well. This demands effective and honest communication from the project risk management process to the rest of the project team and other project stakeholders. Also keeping in mind that it’s the project manager’s responsibility to ensure that communications are flowing well when it comes to the risk management. Thank you so much. I will see you at the next lecture.

5. RISK MANAGEMENT RESPONSIBILITY

Hi and welcome back again. So what is the project manager’s role when it comes for the project risk management? The project manager has overall responsibility for delivering a successful project which fully meets the defined objectives. This is the general responsibility of the project manager to successfully deliver the final product of the project within the given constraints. When it comes to risk management, we have six major roles for the project manager.

First of all, he or she needs to encourage the senior management to get their support for the project risk management activities. The project manager is responsible to develop the risk management plan and to give the approval on this risk management plan which will become a component of the overall project management plan. The project manager responsible to facilitate an open and honest communication about risk within the project team, with senior management and with key stakeholders on the project. The planned risk responses.

The process will have an output of the risk response plans. These risk response plans and associated actions should be approved by the project manager before the implementation. On regular basis. The project manager should monitor the reporting of the risk status to the key stakeholders on the project with recommendations for appropriate strategic decisions. The status reports and requirements of communication of the stakeholders should be documented in the communications management plan, but it shall be the project manager responsibility to make sure that the risk status reports are delivered to the right key stakeholders at the right time.

The last role will be monitoring the efficiency of the risk management activities, to audit the risk responses for their effectiveness and to document the reasons learned for future organizational use. Now, for the general responsibility for project risk management, it should be included as an integral part of all other project processes. Since project risk can affect project objectives, anyone with an interest in achieving those objectives should play a role in project risk management. Even you are a cost controller. You are the project manager. You are working in the procurement department; you are working in the planning team. Any department or anyone with an interest in achieving the project objectives, the scope, quality, cost, the schedule should play a role in the project risk management. Roles and responsibilities for project risk management should be clearly defined and communicated, and individuals should be held responsible and accountable for the results. Responsibility should also be allocated for ensuring that risk related lessons learning are captured and documented for the future used on the projects within the organization. This is all for the responsibility of the project risk management. Thanks so much. I will see you at the next lecture.