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CHAPTER 8: Managing Risk
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1
CHAPTER 8: MANAGING RISK
Chapter Concepts
As mentioned in Chapter 1, one attribute of a project is that it involves a degree of uncertainty. Such
uncertainty can impact the outcome of a project. Risk is an uncertain event that, if it occurs, can
jeopardize accomplishing the project objective. Risk management involves identifying, assessing, and
responding to project risks in order to minimize the likelihood of occurrence and/or potential impact of
adverse events on the accomplishment of the project objective. Addressing risks proactively will
increase the chances of accomplishing the project objective. Waiting for unfavorable events to occur
and then reacting to them can result in panic and costly responses. Managing risk includes taking
action to prevent or minimize the likelihood of occurrence or the impact of such unfavorable events.
Some level of risk planning should be done during the initiating phase of the project life cycle to make
sure, for example, that a contractor understands the risks involved with bidding on a proposed project.
With knowledge of potential risks, the contractor can include contingency or management reserve
amounts in the bid price. On the other hand, if the risks seem too great, the contractor may decide to
not bid on a proposed project, as discussed in the decision to develop a proposal section in Chapter 3.
Subsequently, more detailed risk planning should be done during the planning phase of a project.
A project manager cannot be risk averse. She must accept that risk is a part of project management
and has to address it head-on. Furthermore, the project manager needs to set the tone for
encouraging open and timely discussion of risks among the project team.
Learning Outcomes
After studying this chapter, the learner should be able to:
• Discuss what is involved in managing risks
• Identify and categorize risks
• Assess and prioritize risks
• Prepare a risk response plan
• Develop a risk assessment matrix
• Control risks
Teaching Strategies
1. The two vignettes reinforce the necessity of identifying, assessing, and managing risks in
projects. The first vignette communicates that indirect risks must be managed as well as risks
related to the work being performed on a project. The second vignette examines how global
technology must be managed to help avoid problems when risks such as Hurricane Sandy, the
earthquakes and tsunami in Japan, and cyber security attacks take place and potentially could
cause problems for the financial system.
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2
CHAPTER 8: MANAGING RISK
2. Risk assessment should be completed for every project. Have students identify risks
associated with an activity of their choice, such as a concert that will occur in the area or their
weekend plans. Ask them to evaluate the degree of impact and the likelihood of occurrence.
Have other students offer techniques for managing the risk.
3. Have students examine a project that has recently appeared in the news and identify the risks
that have caused (or might cause) the project to be delayed or to fail. Ask them to suggest
how those risks might be mitigated.
4. The risks for the IS example are listed. Have students examine how to mitigate the risks
suggested for software development projects.
Lecture Notes
1. Real-World Project Management Examples
Vignette A: Critical Risks for Underground Rail
The underground rail construction of Singapore is filled with risks related to the complex ground
structure and a number of risks that are not related to the project activities. The indirect risks must
be managed.
• Singapore’s Mass Rapid Transit system operates five lines and is adding an additional
three fully underground lines by 2020.
o Unpredictable ground conditions leading to ground settlement control issues is
one of the risks the international joint ventures teams is facing.
o Too great a project for a single civil engineering firm, this large-scale project
garnered the collaboration of firms from a number of countries to create a
multifaceted team that matches the complexity of the project and adds additional
management risks.
• Even though the partnerships reduced some of the potential risk associated with the lack
of regional knowledge and awareness of customs, communication problems related to
social and cultural misunderstandings still plague the project progress.
o Risks related to differences in management styles, procurement methods, and
expectations are catalysts for project failure.
o Leading risks identified by the joint venture teams included accounting profit and
loss disagreements, financial distress, lack of competence, over-interference by
parent companies of the contractors, and work allocation disagreements.
o Some risks that were not associated with the actual work being completed to
construct the underground rail. Risks such as policy changes in a contractor’s
parent company, exchange rate fluctuations, language barriers, social and cultural
customs differences, labor and equipment import restrictions, governmental cash
flow issues, and technology transfer disputes all cause delays, conflict, and failure
to complete tasks within the project.
These risks and those directly related to the work being completed must be managed in order for
the underground rail project to be completed by its projected 2020 date. Every risk raises the
probability that the underground rail will not be operational when expected. The completion of the
construction of the underground rail is dependent upon managing risk.
Vignette B: Wrestling with the Grand Challenges of IT
Catherine Bessant is a non-It person in charge of IT. Her management skills are beneficial to
reduce the risks of IT projects.
• One generally doesn’t think of the author Shakespeare when thinking about project
management. Catherine Bessant, Bank of America’s Global Technology and Operations
Executive, does. Bessant says, “Shakespeare’s lessons, every one of them, are timeless
lessons.” Her goal is to build systems that are elastic and foundationally strong yet nimble
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3
CHAPTER 8: MANAGING RISK
enough to last for 30 years and through the challenges of hurricanes, tsunamis,
earthquakes, cyber attacks, and other risks.
o Attention to risk management and mitigation decisions is an even greater
challenge when the team is more than 100,000 employees and contractors who
handle all the technology and operations for the financial services giant.
o Technology continues to be advancing rapidly and regulatory requirements are
ever changing.
o Bessant’s team must maintain the robustness in their systems necessary to
withstand every potential devastating event that puts Bank of America’s customers
at risk of not achieving their business objectives.
• The unification has worked to simplify processes for risk mitigation through a series of boot
camps to intensely focus on creating risk management strategies.
o The first boot camp reduced risks and increased understanding of operational
risks for the capabilities of the technology operations.
o Controls were examined process-by-process during the second boot camp to
analyze the procedures for any risks.
o During the third boot camp, the project team identified specific issues, including
business continuity and cyber security, and ways to mitigate risks.
• Tests such as Hurricane Sandy, the earthquakes and tsunami in Japan, and cyber security
attacks have shown the developed risk mitigation strategy has performed extraordinarily.
The Global Technology and Operations team of Bank of America wrestled the challenges in their
risk management and mitigation plan. They reversed the negative potential effects of the
challenges and escaped the serious consequences of the events and incidents, which might have
caused the customers to fall. You, too, can be successful controlling risks through management
and mitigation plans.
2. Identify Risks
• A risk is an uncertain event that, if it occurs, can jeopardize accomplishing the project
objective.
• Risk identification includes determining which risks may adversely affect the project
objective and what the impact of each risk might be if it occurs.
• Sometimes a sponsor identifies major risks in the project charter when the project is
authorized.
• A common approach to identifying the sources of risks is brainstorming.
• The risks should be those that are somewhat likely to occur and/or can have a significant
negative impact on accomplishing the project objective.
• Establishing risk categories may help to identify and evaluate risks. Some categories are
technical, schedule, cost, human resources, external, or sponsor/customer.
• Historical information from past projects is another source that can be helpful in identifying
possible risks.
• The project team can progressively elaborate on and identify new risks, as well as the
estimated impacts of previously identified risks, as more information is known or becomes
clear.
3. Assess Risks
• Risk assessment includes determining the likelihood that the risk event will occur and the
degree of impact the event will have on the project objective.
• Risks can then be prioritized based on their likelihood of occurrence and degree of impact.
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4
CHAPTER 8: MANAGING RISK
• Risks on the critical path should be given higher priority, because if they occur, they will
have a greater impact on the schedule than will activities on a path that has a large
positive value of total slack.
• Figure 8.1 depicts a risk assessment matrix, a tool for assessing
and managing risks.
5. Control Risks
• Risk control includes implementing risk response plans and monitoring risks. Risk
response plans should be implemented as appropriate when their trigger point is reached.
• Risk monitoring includes regularly reviewing the risk assessment matrix throughout the
project.
• Regularly review and evaluate all risks to determine whether there are any changes to the
likelihood or potential impact of any of the risks.
• Project meetings are a good forum for regularly reviewing, updating, and addressing risks.
• Track and document which risks actually occurred and their impact.
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5
CHAPTER 8: MANAGING RISK
8. Summary
• Risk is an uncertain event that, if it occurs, can jeopardize accomplishing the project
objective.
• Risk management includes identification, assessment, control, and response to project
risks in order to minimize the likelihood of occurrence and/or the potential impact of
adverse events on the accomplishment of the project objective.
• Risk identification includes determining which risks may adversely affect the project
objective and estimating what the potential impacts of each risk might be if they occur.
• Assessing each risk means determining the likelihood that the risk event will occur and the
degree of impact it will have on the project objective, and then prioritizing the risks.
• A risk response plan is a defined set of actions to prevent or reduce the likelihood of
occurrence or the impact of a risk, or to implement if the risk event occurs.
• Regularly review and evaluate all risks to determine whether there are any changes to the
likelihood or potential impact of any of the risks, or whether any new risks have been
identified.
Questions
1. Describe what needs to be done to manage risk on a project. When should this be done?
How can a risk assessment matrix help in this process?
To manage risk on a project, the team needs to identify and assess risks to determine their impact
and likelihood. Identification and assessment of risk occurs throughout the project. Project team
meetings are good times to review risks and the risk management plan. The risk assessment
matrix helps the process by organizing the identified risks and assessing the risks' impact,
likelihood, degree of impact, the action trigger for the risk, who is responsible, and the response
plan.
2. From your experience working on projects, list and categorize three risks. Was the
response plan for those projects adequate to mitigate these risks? How would you respond
to these risks now?
Risk categories could include technical, schedule, cost, human resources, external, or
sponsor/customer and other categories. Answers should include an evaluation of the response
plan for the risks and how the risk could have been mitigated if they were not adequately
addressed. Students should also define a trigger point and a risk response plan for the risks.
3. What risks for a project have the highest priority? Does the priority for a risk change as the
project progresses?
Risks that have the highest priority are those on the critical path and those that have high degree
of impact and high likelihood of occurrence. Yes, the priority of a risk can increase or decrease in
priority as the project progresses due to the evolving project environment.
4. How does project risk change as a project progresses? What changes are made to the risk
assessment matrix as the changes occur?
As the project progresses, some initial risks may no longer be a factor and other risks may be
identified that need to be addressed. The risk assessment matrix is adjusted to update the
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6
CHAPTER 8: MANAGING RISK
likelihood of occurrence, the degree or impact, the action trigger, the responsibility, and the
response plan.
Internet Exercises
Assign the Internet Exercises to your students as homework or complete them together in a computer
lab.
The search for "project risk management" results in a number of sites that define project risk
management and offers tools and suggestions for how to perform project risk management. Have
students compare the tools in the websites with the risk assessment matrix presented in the chapter.
The website for the Software Program Managers Network identifies proven industry and government
software best practices and contains a number of resources to convey the best practices to managers
of large-scale software-intensive acquisition programs. The 16 critical success factors are categorized
into project integrity, construction integrity, and product stability and integrity. The “lesson learned”
section of the site has lists of lessons learned by experienced project managers to help managers of
new projects avoid the mistakes and pitfalls experienced by their predecessors. The web links page is
an alphabetical listing of resources to help in project management of the large-scale software-intensive
projects.
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
7
CHAPTER 8: MANAGING RISK
Group Activity
Divide the course participants into the same groups as for the previous chapter’s group activity and
answer the questions listed above.
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8
Another random document with
no related content on Scribd:
frequently in the Chartularies, while the term Anglic is used for the
Teutonic. Thus, in a perambulation of the lands of Kingoldrum in
Forfarshire, in 1256, we have ‘Hachethunethouer quod Anglice
dicitur Midefeld,‘ and ‘Marresiam quamdam quæ Scotice dicitur
Moynebuche.’[850] And in the fourteenth century Fordun gives us a
very distinct account of the distribution of the vernacular dialect in his
day. He says, ‘The manners and customs of the Scots vary with the
diversity of their speech. For two languages are spoken amongst
them, the Scottish (Scotica) and the Teutonic (Theutonica); the latter
of which is the language of those who occupy the seaboard and
plains, while the race of Scottish speech (Scoticæ linguæ) inhabits
the Highlands and outlying districts.’[851]
Α.D. 1478-1560. The dynasty of the Celtic kings of the Isles
Period of came to an end in 1478, when the last Lord of the
neglected Isles was forfeited; and there followed upon their
education and no
fall a period of great confusion in the Highlands,
learning.
when the clans which had been united under their
sway were thrown loose, and struggled for the possession of their
lands. During this period of darkness education was neglected, and
all knowledge of the cultivated or written Irish seems to have
perished out of the land. It is during this period that a solitary
exception, Dean Macgregor of Lismore, endeavoured to rescue from
oblivion the oral literature of the Highlands by transcribing, in 1512,
such poems as he could collect; but he was fain to write them down
in a phonetic spelling, which has rendered his collection valuable, as
indicating the pronunciation of the language at the time, and the
degree of divergence between the spoken dialects and the standard
Irish.[852] His collection, however, contains also several poems by
Irish bards, and among others some of a religious cast by Teague og
O’Huggin, whose death is recorded in the Annals of the Four
Masters in 1448 as ‘chief preceptor of the poets of Erin and Alban;’
and the same annals record in 1554 the death of Teague O’Coffey,
‘chief teacher of poetry in Erin and Alban.’ A contract of fosterage, by
Sir Roderick Macleod, in 1614, in Gaelic, has been preserved, which
is written in the Irish character; but it is evident that he had to resort
to Ireland for his scribe, as the writer of it is obviously an Irishman,
and he alone subscribes as a witness in the Irish written language,
the three other witnesses all bearing Gaelic names, and two of them,
respectively ministers of Duirinish and Bracadale, in Skye, being
unable to do so.[853]
After 1520 Scotch The spoken language of the Highlands now
Gaelic called Irish, begins to be called Irish in place of Scotch. John
and the name Major, who wrote in 1520, not long after the Dean
Scotch passes
of Lismore had made his collection, thus
over to Lowland
Scotch. describes the languages in his day: ‘In the island
of Britain there are three different languages, as
we know, which are mutually unintelligible. The first towards the
south is the Welsh (Vallica), which the Britonised Britons use. The
second, more extended than the first, the wild Scots and Islanders
use, and this is Irish, though somewhat broken (Hibernica licet
quodammodo fracta). The third language, the principal one in the
island, is the English (Anglicana), which the English and the civilised
Scots have.’[854] Thus, what Fordun called Scotica in the fourteenth
century, John Major calls Hibernica in the sixteenth; and what
Fordun termed Teutonica, Major calls Anglicana. The expression
used by John Major, with regard to the Gaelic spoken in the
Highlands and Islands, shows that the differences between it and the
written language of Ireland were then quite apparent. While,
however, all learning had perished out of the Gaelic-speaking part of
the country, there had arisen a literature in the language of the
lowlands. Barbour, who was archdeacon of Aberdeen, leads the way
not long after Fordun’s time; but he terms the language in which he
wrote ‘Inglis,’ or English.[855] He was followed in the next century by
Wyntoun, prior of Lochleven, in his Metrical Chronicle. But Gawin
Douglas, who wrote in the same Lowland dialect in 1516, terms the
language in which he wrote ‘Scottés,’ or Scotch. We thus find in the
beginning of the sixteenth century the term Scotic, or Scotch,
passing from the written Gaelic to the Anglican dialect of the
Lowlands, and the spoken Gaelic of the Highlands coming to be
denominated Irish.
After Reformation The Reformation, however, soon after gave
Scotch Gaelic rise to a religious literature, which was printed for
becomes a written the use of the Gaelic-speaking people; but here
language.
too it became necessary to resort to Ireland for
the written language. Bishop Carsewell printed, in 1567, a translation
of John Knox’s liturgy, with a prefatory epistle, in which he says that
‘we, the Gael of Alban and Erin, have laboured under the want that
our dialects of the Gaelic have never been printed;’ and the
language he uses is unquestionably the written Irish of the time. In
the following century translations of the metrical version of the
Psalms, of Calvin’s Cathechism, and of the Bible, were printed in
Gaelic by the Synod of Argyll and by the Rev. R. Kirke of
Balquhidder. These were thoroughly Irish in form, and the latter was
simply taken from the Irish version of the Bible. Various editions of
the Bible were issued in the succeeding century by the Society for
Propagating Christian Knowledge in Scotland; but, from the
divergence which now existed between the spoken language of the
people and the written language of Ireland, it was found that these
translations were not readily understood, and in each succeeding
edition they were brought nearer to the spoken idiom, till, for the
cultivated Irish, which formed their written dialect in common with
Ireland, there was now substituted a written Scotch Gaelic, in all
respects assimilated to the spoken language. There can be little
doubt that the spoken or vernacular language remained throughout
pretty much the same, exhibiting in a greater or less degree those
features which distinguished it from the spoken dialects of Ireland;
and to this language the Highlanders themselves have never given
any other name than the simple designation of Gaelic. It possessed,
too, an oral literature in the popular poetry and prose tales of the
Highlanders, handed down by recitation; and in 1741 a vocabulary of
this Scottish Gaelic was first printed by Alexander Macdonald,
schoolmaster of Ardnamurchan, a scholar and a good Gaelic poet.
Ten years later he printed a collection of his own poems, written in
the vernacular dialect of the Highlands. To this work he gave the title
of ‘Resurrection of the Ancient Language of Alban,’[856] and in the
preface announced that it was only the prelude to a greater
collection of poetry ‘from those of the earliest composition to modern
times; their antiquity either proved by historical accounts, or
ascertained by the best traditions; with a translation into English
verse, and critical observations on the nature of such writings, to
render the work useful to those that do not understand the Gaelic
language.’[857] It is to be regretted that he never carried this intention
into effect. In 1764 the poems of Duncan Ban Macintyre, also
composed in the vernacular, were printed, and these collections
were followed by numerous others, till this oral literature of the
Scottish Gaelic, too, assumed a written form.
And thus, at length, has been created a standard of written Scotch
Gaelic, which has stereotyped the language spoken by the
Highlanders in its native form and idiom.
819.
820.
BEING