Chapter 3:

IS Project Scope, Cost, Time, Risk Management

Haramaya, Ethiopia
March 14, 2024
 Contents

 Project Scope Management

 Project Scope Management Processes
 Best Practices for Avoiding Scope Problems
 Project Cost Management
 Cost Estimation
 What is Project Scope Management?

• Scope refers to all the work involved in creating the

products of the project and the processes used to create
them.
• A deliverable is a product produced as part of a
project, such as hardware or software, planning
documents, or meeting minutes.
• Project scope management includes the processes
involved in defining and controlling what is or is not
included in a project.

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 Project Scope Management Processes
1. Scope planning: deciding how the scope will be
defined, verified, and controlled.
2. Scope definition: reviewing the project charter and
preliminary scope statement and adding more
information as requirements are developed and
change requests are approved.
3. Creating the WBS: subdividing the major project
deliverables into smaller, more manageable
components.
4. Scope verification: formalizing acceptance of the
project scope.
5. Scope control: controlling changes to project scope.
Project Scope Management Summary

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 1. Scope Planning and the Scope Management
Plan
• The scope management plan is a document that
includes descriptions of how the team will prepare the
project scope statement, create the WBS, verify
completion of the project deliverables, and control
requests for changes to the project scope.
• Key inputs include the project charter, preliminary
scope statement, and project management plan.

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 2. Scope Definition and the Project Scope
Statement
• The preliminary scope statement, project charter,
organizational process assets, and approved change
requests provide a basis for creating the project scope
statement.
• Good scope definition is very important to project success
because it helps improve the accuracy of time, cost, and
resource estimates, it defines a baseline for performance
measurement and project control.
• The main tools and techniques used in defining scope
include expert judgment, data analysis, decision making,
interpersonal and team skills, and product analysis.
March 14, 2024
 3. Creating the Work Breakdown Structure (WBS)

• A WBS is a deliverable-oriented grouping of the work

involved in a project that defines the total scope of the
project.
• WBS is a foundation document that provides the basis
for planning and managing project schedules, costs,
resources, and changes.
• Decomposition is subdividing project deliverables into
smaller pieces.
• A work package is a task at the lowest level of the
WBS.
• WBS Dictionary is a document that describes detailed
information about each WBS item.
 Approaches to Developing WBSs
• Using guidelines: some organizations provide
guidelines for preparing WBSs.
• The analogy approach: review WBSs of similar
projects and tailor to your project.
• The top-down approach: start with the largest items of
the project and break them down.
• The bottom-up approach: start with the specific tasks
and roll them up.
• Mind-mapping approach: mind mapping is a
technique that uses branches radiating out from a core
idea to structure thoughts and ideas.
 4. Scope Verification

• Involves formalizing acceptance of the project

deliverables, Key project stakeholders, such as the
customer and sponsor for the project.
• Scope verification involves formal acceptance of the
completed project scope by the stakeholders.
• Acceptance is often achieved by a customer inspection
and then sign-off on key deliverables.
• If the deliverables are not acceptable, the customer or
sponsor usually requests changes.

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 5. Scope Control
• Scope control involves controlling changes to the
project scope.
• Goals of scope control are to:
• Influence the factors that cause scope changes
• Assure changes are processed according to procedures
developed as part of integrated change control.
• Manage changes when they occur.
• Variance is the difference between planned and
actual performance.
 Best Practices for Avoiding Scope Problems

1. Keep the scope realistic: Don’t make projects so large that

they can’t be completed; break large projects down into a
series of smaller ones.
2. Involve users in project scope management: Assign key users
to the project team and give them ownership of requirements
definition and scope verification.
3. Use off-the-shelf hardware and software whenever possible:
Many IT people enjoy using the latest and greatest
technology, but business needs, not technology trends, must
take priority.
4. Follow good project management processes: As described in
this chapter and others, there are well-defined processes for
 Suggestions for Improving User Input
• Develop a good project selection process and insist
that sponsors are from the user organization.
• Have users on the project team in important roles.
• Have regular meetings with defined agendas, and have
users sign off on key deliverables presented at meetings.
• Deliver something to users and sponsors on a regular
basis.
• Don’t promise to deliver when you know you can’t.
• Co-locate users with developers.
 Suggestions for Reducing Incomplete
and Changing Requirements
• Develop and follow a requirements management
process.
• Use techniques such as prototyping, use case
modeling, and JAD to get more user involvement.
• Put requirements in writing and keep them current.
• Create a requirements management database for
documenting and controlling requirements.
• Provide adequate testing and conduct testing throughout
the project life cycle.

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 Continued…

• Review changes from a systems perspective.

• Emphasize completion dates to help focus on what’s
most important.
• Allocate resources specifically for handling change
requests/enhancements.

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 Using Software to Assist in Project
Scope Management
• Word-processing software helps create several
scope-related documents.
• Spreadsheets help to perform financial calculations
and weighed scoring models, and develop charts and
graphs.
• Communication software like e-mail and the Web
help clarify and communicate scope information.
• Project management software helps in creating a
WBS, the basis for tasks on a Gantt chart.
• Specialized software is available to assist in project
scope management.
 Project Cost Management
 Importance and Principles of Project Cost
Management
 Resource Planning
 Cost Estimating
 Cost Budgeting
 Cost Control
The Importance of Project Cost Management

• IT projects have a poor track record for meeting

budget goals

• The CHAOS studies found the average cost

overrun (the additional percentage or dollar
amount by which actual costs exceed estimates)
ranged from 180% in 1994 to 56% in 2004; other
studies found overruns to be 33-34 percent
 What Went Wrong?
 The U.S. government, especially the Internal Revenue Service
(IRS), continues to provide examples of how not to manage
costs
◦ A series of project failures by the IRS in the 1990s cost taxpayers more
than $50 billion a year
◦ In 2006, the IRS was in the news for a botched upgrade to its fraud-
detection software, costing $318 million in fraudulent refunds that didn’t
get caught
◦ A 2008 Government Accountability Office (GAO) report stated that
more than 400 U.S. government agency IT projects, worth an
estimated $25 billion, suffer from poor planning and
underperformance
 The United Kingdom’s National Health Service IT
modernization program was called the greatest IT disaster
in history with an estimated $26 billion overrun.
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 What is Cost and Project Cost
Management?
• Cost is a resource sacrificed or foregone to achieve
a specific objective or something given up in
exchange.
• Costs are usually measured in monetary units like
dollars, birr…
• Project cost management includes the processes
required to ensure that the project is completed
within an approved budget.
 Project Cost Management Processes
• Estimating costs: developing an approximation or
estimate of the costs of the resources needed to
complete a project.
• Determining the budget: allocating the overall cost
estimate to individual work items to establish a
baseline for measuring performance.
• Controlling costs: controlling changes to the
project budget.
Project Cost Management Summary

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 Basic Principles of Cost Management
• Most members of an executive board better understand
and are more interested in financial terms than IT terms,
so IT project managers must speak their language.
• Profits are [revenues – (minus) expenditures]
• Profit margin is the ratio of revenues to profits
• Life cycle costing considers the total cost of ownership,
or development plus support costs, for a project.
• Cash flow analysis determines the estimated annual
costs and benefits for a project and the resulting annual
cash flow.
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 Basic Principles of Cost Management
• Tangible costs or benefits are those costs or
benefits that an organization can easily measure in
dollars
• Intangible costs or benefits are costs or benefits
that are difficult to measure in monetary terms
• Direct costs are costs that can be directly related to
producing the products and services of the project
• Indirect costs are costs that are not directly related
to the products or services of the project, but are
indirectly related to performing the project
• Sunk cost is money that has been spent in the past;
when deciding what projects to invest in or
continue, you should not include sunk costs. March 14, 2024
 Continued…

• Learning curve theory states that when many items

are produced repetitively, the unit cost of those
items decreases in a regular pattern as more units
are produced.

• Reserves are dollars included in a cost estimate to

mitigate cost risk by allowing for future situations
that are difficult to predict.
• Contingency reserves allow for future situations that
may be partially planned for (sometimes called known
unknowns) and are included in the project cost
baseline.
• Management reserves allow for future situations that
are unpredictable (sometimes called unknown
unknowns). March 14, 2024
 Estimating Costs
• Project managers must take cost estimates
seriously if they want to complete projects within
budget constraints.

• It’s important to know the types of cost estimates,

how to prepare cost estimates, and typical
problems associated with IT cost estimates.

March 14, 2024

 Cost Management Plan

• A cost management plan is a document that

describes how the organization will manage cost
variances (adjustments) on the project

• A large percentage of total project costs are often

labor costs[ but HR Cost in IT Domain], so project
managers must develop and track estimates for labor
 Typical Problems with IT Cost Estimates
• Estimates are done too quickly
• Lack of estimating experience
• Human beings are biased toward
underestimation
• Management desires accuracy
• High Variability in IT
 Sample Cost Estimate

• Before creating an estimate, know what it will be used for,

gather as much information as possible, and clarify the
ground rules and assumptions for the estimate.
• If possible, estimate costs by major WBS categories
• Create a cost model to make it easy to make changes to
and document the estimate
Surveyor Pro Project Cost Estimate
 Determining the Budget

• Cost budgeting involves allocating the project cost

estimate to individual work items over time.
• The WBS is a required input to the cost budgeting
process since it defines the work items
• Important goal is to produce a cost baseline
• A time-phased budget that project managers use to
measure and monitor cost performance
Surveyor Pro Project Cost Baseline
 Controlling Costs
• Project cost control includes:
• Monitoring cost performance
• Ensuring that only appropriate project changes are
included in a revised cost baseline
• Informing project stakeholders of authorized
changes to the project that will affect costs
• Many organizations around the globe have
problems with cost control
 Earned Value Management (EVM)
• EVM is a project performance measurement
technique that integrates scope, time, and cost data.
• Given a baseline (original plan plus approved
changes), you can determine how well the project
is meeting its goals.
• You must enter actual information periodically to
use EVM
• More and more organizations around
the world are using EVM to help
control project costs.
 Earned Value Management Terms
• The planned value (PV), formerly called the budgeted cost
of work scheduled (BCWS), also called the budget, is that
portion of the approved total cost estimate planned to be
spent on an activity during a given period.
• Actual cost (AC), formerly called actual cost of work
performed (ACWP), is the total of direct and indirect costs
incurred in accomplishing work on an activity during a
given period.
• The earned value (EV), formerly called the budgeted cost of
work performed (BCWP), is an estimate of the value of the
physical work actually completed.
• EV is based on the original planned costs for the project or
activity and the rate at which the team is completing work
on the project or activity to date.
 Rate of Performance
• Rate of performance (RP) is the ratio of actual work
completed to the percentage of work planned to have
been completed at any given time during the life of the
project or activity
• Brenda Taylor, Senior Project Manager in South
Africa, suggests this term and approach for
estimating earned value
• For example, suppose the server installation was
halfway completed by the end of week 1: the rate of
performance would be 50% because by the end of
week 1, the planned schedule reflects that the task
should be 100 percent complete and only 50 percent
of that work has been completed
Earned Value Formulas
Earned Value Calculations for One
Activity after Week One
 Rules of Thumb for Earned Value
Numbers
• Negative numbers for cost and schedule variance
indicate problems in those areas.
• CPI and SPI less than 100% indicate problems
• Problems mean the project is costing more than
planned (over budget) or taking longer than planned
(behind schedule)
• The CPI can be used to calculate the estimate at
completion (EAC), an estimate of what it will cost to
complete the project based on performance to date;
the budget at completion (BAC) is the original total
budget for the project
Earned Value Chart for Project after Five
Months
 Using Software to Assist in Cost
Management
• Spreadsheets are a common tool for resource planning,
cost estimating, cost budgeting, and cost control.
• Many companies use more sophisticated and
centralized financial applications software for cost
information
• Project management software has many cost-related
features, especially enterprise PM software
• Portfolio management software can help reduce costs
 Project Time Management
• Contents
• Time Management
• Importance of Project Schedules
• Schedules and Activities
• Sequencing and Scheduling Activity
• Project Network Diagrams
 Project Time Management
• Project time management involves the processes
required to ensure timely completion of a project.
• With all the possibilities for schedule conflicts, it is
important for project managers to use good project
schedule management.
• Individual work styles and cultural differences may
also cause schedule conflicts.
 Importance of Project Schedules
• Managers often cite delivering projects on time as
one of their biggest challenges
• Time has the least amount of flexibility; it passes
no matter what happens on a project
• Schedule issues are the main reason for conflicts on
projects, especially during the second half of projects
 Project Time Management Processes
• Planning schedule management: determining the policies,
procedures, and documentation that will be used for planning,
executing, and controlling the project schedule.
• Activity definition: identifying the specific activities/tasks that the
project team members and stakeholders must perform to produce the
project deliverables.
• Activity sequencing: identifying and documenting the relationships
between project activities.
• Activity resource estimating: estimating how many total resources a
project team should use to perform project activities.
• Activity duration estimating: estimating the number of work periods
that are needed to complete individual activities.
• Schedule development: analyzing activity sequences, activity
resource estimates, and activity duration estimates to create the
project schedule
• Schedule control: controlling and managing changes to the project
 Planning Schedule Management

• The first step in project time management is planning

how the schedule will be managed throughout the life of
the project.
• The project charter often mentions planned project start
and end dates, which serve as the starting points for a
more detailed schedule.
• After reviewing the project management plan, project
charter, enterprise environmental factors, and
organizational process assets, the project team uses expert
judgment, analytical techniques, and meetings to develop
the schedule management plan.
 Planning Schedule Management cont.…
• In general, a schedule management plan includes
the following information:
• Project schedule model development

• Level of accuracy and units of measure

• Control thresholds

• Rules of performance measurement

• Reporting formats

• Process descriptions
 Defining Activities
• Involves identifying the specific actions that will
produce the project deliverables in enough detail to
determine resource and schedule estimates.
• The activity list is a tabulation of activities to be
included on a project schedule.
• The list should include the activity name, an activity
identifier or number, and a brief description of the
activity.
 Defining Activities cont.…

• The activity attributes provide more schedule-related information

about each activity, such as predecessors, successors, logical
relationships, leads and lags, resource requirements, constraints,
imposed dates, and assumptions related to the activity.

• It include Scope statement and WBS help define what will be

done.

• Activity definition involves developing a more detailed WBS and

supporting explanations to understand all the work to be done so
you can develop realistic cost and duration estimates.
 Activity Sequencing
• Involves reviewing the activity list and attributes, project
scope statement, milestone list and approved change
requests to determine the relationships between activities.
• A dependency or relationship is the sequencing of project
activities or tasks
• You must determine dependencies in order to use critical
path analysis**.
• The Critical Path Method is techniques used for doing project
planning, that are made up of a number of individual "activities."
 Three Types of Dependencies
• Mandatory dependencies: inherent/essential in the
nature of the work being performed on a project,
sometimes referred to as hard logic.
• Discretionary dependencies: defined by the project
team; sometimes referred to as soft logic and should be
used with care since they may limit later scheduling
options.
• Don’t start detailed design work until users sign-off on all
the analysis – good practice but can delay project
• External dependencies: involve relationships between
project and non-project activities
• Delivery of new hardware; if delayed can impact project
schedule
 Project Network Diagrams
• Network diagrams are the preferred technique for
showing activity sequencing.
• What is Network Diagram?
• A network diagram is a schematic display of the
logical relationships among, or sequencing of, project
activities.
• Two main formats are the arrow and precedence
diagramming methods
 Project Network Diagrams cont.…
• Sample Activity-on-Arrow (AOA) Network Diagram
for Project X
 Arrow Diagramming Method (ADM)
• Also called activity-on-arrow (AOA) network
diagrams
• Activities are represented by arrows
• Nodes or circles are the starting and ending points of
activities
• Can only show finish-to-start dependencies
• Can omit activities that have no dependencies
 Process for Creating AOA Diagrams

1. Find all of the activities that start at node 1. Draw their finish nodes and
draw arrows between node 1 and those finish nodes. Put the activity letter or
name and duration estimate on the associated arrow .

2. Continuing drawing the network diagram, working from left to right. Look
for bursts and merges. Bursts occur when a single node is followed by two
or more activities. A merge occurs when two or more nodes precede a single
node.

3. Continue drawing the project network diagram until all activities are included
on the diagram that have dependencies.

4. As a rule of thumb, all arrowheads should face toward the right, and no
arrows should cross on an AOA network diagram.
Task Dependencies
 Precedence Diagramming Method (PDM)

• More popular than ADM method and used by

project management software
• Activities are represented by boxes
• Arrows show relationships between activities
• Better at showing different types of dependencies
Sample PDM Network Diagram
 Activity Resource Estimating
• Before estimating activity durations, you must have a
good idea of the quantity and type of resources that
will be assigned to each activity.
• Consider important issues in estimating resources
• How difficult will it be to do specific activities on this
project?
• What is the organization’s history in doing similar
activities?
• Are the required resources available or need to be
acquired?
• A resource breakdown structure (RBS) is a
hierarchical structure that identifies the project’s
resources by category and type.
 Activity Duration Estimating
• Duration includes the actual amount of time
worked on an activity plus elapsed ( passed) time.
• Effort is the number of workdays or work hours
required to complete a task.

• Effort does not normally equal duration

• People doing the work should help create
estimates, and an expert should review them.
 Three-Point Estimates
• Instead of providing activity estimates as a discrete
number, such as four weeks, it’s often helpful to create
a three-point estimate.
• An estimate that includes-
• 1) an optimistic (hopefully/positive),
• 2) most likely, and
• 3) pessimistic (negative) estimate,
• E.g. three weeks for the optimistic, four weeks for the
most likely, and five weeks for the pessimistic estimate
• Three-point estimates are performing Program
evaluation and review technique [PERT] estimates.
 Schedule Development
• Uses results of the other time management processes to
determine the start and end date of the project.
• Ultimate goal is to create a realistic project schedule that
provides a basis for monitoring project progress for the
time dimension of the project.
• The main outputs of this process are the project
schedule, a schedule baseline, schedule data, project
calendars, project management plan updates, and project
documents updates.
• Important tools and techniques include Gantt charts,
critical path analysis, critical chain scheduling, and
PERT analysis.
 Gantt Charts
• Gantt charts provide a standard format for displaying project
schedule information by listing project activities and their
corresponding start and finish dates in a calendar format.
• Gantt Chart for Project X
 Assignment
• What is Gantt Chart? Explain
• Draw a Gantt Chart for Student Management
Information System in Project Management Process
Steps–
Initiating- 2 Days
Planning- 5 Days
Designing- 15 Days
Executing- 60 Days
Monitoring and Controlling- 84 Days
Closing- 2 Days

http://www.smartsheet.com/blog/gantt-chart-excel
 Critical Path Method (CPM)
• CPM is a network diagramming technique used to
predict total project duration.
• A critical path for a project is the series of activities
that determines the earliest time by which the
project can be completed.
• The critical path is the longest path through the
network diagram and has the least amount of slack
or float.
• Slack or float is the amount of time an activity may
be delayed without delaying a succeeding activity or
the project finish date.
 Finding the Critical Path

• First develop a good project network diagram

• Add the durations for all activities on each path through the
project network diagram
• The longest path is the critical path
 Consider the following project network diagram. Assume all
times are in days. E=1
C=2 4
A=2 B=5
start 1 2 3 6 finish

D=7 5 F=2

A. How many paths are on this network diagram?

B. How long is each path?
C. Which is the critical path?
D. What is the shortest amount of time needed to complete this project?
Determining the Critical Path for Project X
 Controlling the Schedule
• The goal of schedule control is to know the status of the
schedule, influence the factors that cause schedule
changes, determine that the schedule has changed, and
manage changes when they occur.
• Make sure the schedule is realistic and followed
• Alert top management well in advance if there are schedule
problems.
• Verify schedule progress – just because a team member
says a task was completed on time doesn’t always mean
that it was.
 Controlling the Schedule cont..

• Some of the tools and techniques include:

• Performance reviews, where progress reports are often provided

• A schedule change control system

• A scheduling tool and/or project management software

• Variance analysis, such as analyzing float or slack and using earned value
• What-if scenario analysis, which can be done manually or with the aid of software

• Adjusting leads and lags

• Schedule compression, such as crashing and fast tracking

• Resource optimization techniques, such as resource leveling

 Project Risk Management
• Contents
• The Importance of Project Risk Management
• Common Sources of Risk in IT or IS projects
• Risk Identification
• Risk Quantification
• Risk Response Development and Control
 The Importance of Project Risk Management

• A dictionary definition of risk is “the possibility of

loss or damage”.

• Project risk management is the art and science of

identifying, analyzing, and responding to risk
throughout the life of a project and in the best
interests of meeting project objectives.

• Risk management is often overlooked in projects, but

it can help improve project success by helping select
good projects, determining project scope, and
developing realistic estimates.
 cont.…
• A general definition of project risk is an uncertainty
that can have a negative or positive effect on meeting
project objectives.

• The goal of project risk management is to minimize

potential negative risks while maximizing potential
positive risks.

• Risk utility or risk tolerance is the amount of

satisfaction or pleasure received from a potential
payoff.
 Negative and Positive Risk
• Negative risk involves understanding potential
problems that might occur in the project and how
they might impede project success. It is like a form
of insurance; It is an investment.

• Positive risks are risks that result in good things

happening; sometimes called opportunities.
 Project Risk Management Processes
• Identifying risks: determining which risks are likely to affect a
project and documenting the characteristics of each.
• Planning risk management: deciding how to approach and plan the
risk management activities for the project.
• Performing qualitative risk analysis: prioritizing risks based on
their probability and impact of occurrence.
• Performing quantitative risk analysis: numerically estimating the
effects of risks on project objectives
• Planning risk responses: taking steps to enhance opportunities and
reduce threats to meeting project objectives.
• Monitoring and controlling risks: monitoring identified and residual
risks, identifying new risks, carrying out risk response plans, and
evaluating the effectiveness of risk strategies throughout the life of the
project.
 Risk Management Planning
• The main output of risk management planning is a
risk management plan,
• A plan that documents the procedures for managing
risk throughout a project.
• The project team should review project documents and
understand the organization’s and the sponsor’s
approaches to risk.
• The level of detail will vary with the needs of the
project.
 Contingency and Fallback Plans,
Contingency Reserves
• Contingency plans are predefined actions that the
project team will take if an identified risk event
occurs.
• Fallback plans [apatkal vaikalpik plan] are
developed for risks that have a high impact on
meeting project objectives and are put into effect if
attempts to reduce the risk are not effective.
• Contingency reserves or allowances are provisions
held by the project sponsor or organization to reduce
the risk of cost or schedule overruns to an acceptable
level.
 Common Sources of Risk in IT Projects
• Several studies show that IT projects share some
common sources of risk.

• The Standish Group developed an IT success

potential scoring sheet based on potential risks.

• Other broad categories of risk help identify potential

risks.
Information Technology Success
Potential Scoring Sheet
Success Criterion Relative Importance
User Involvement 19
Executive Management support 16
Clear Statement of Requirements 15
Proper Planning 11
Realistic Expectations 10
Smaller Project Milestones 9
Competent Staff 8
Ownership 6
Clear Visions and Objectives 3
Hard-Working, Focused Staff 3
Total 100
 Broad Categories of Risk
 Market risk

 Financial risk

 Technology risk

 People risk

 Structure/process risk
 A risk breakdown structure(RBS)
• RBS is a hierarchy of potential risk categories for a
project like WBS The timing of risk management is also
an important consideration.
• Sample Risk Breakdown Structure:
 Potential Negative Risk Conditions
Associated with Each Knowledge Area
 Identifying Risks
• Identifying risks is the process of understanding what
potential events might hurt or enhance a particular
project
• Risk identification tools and techniques include:
• Brainstorming
• The Delphi Technique
• Interviewing
• SWOT analysis
 Cont..
• Brainstorming is a technique by which a group attempts to
generate ideas or find a solution for a specific problem by
amassing ideas spontaneously and without judgment.
• The Delphi Technique is used to derive a consensus among a
panel of experts who make predictions about future
developments. Provides independent and anonymous input
regarding future events.
• Interviewing is a fact-finding technique for collecting
information in face-to-face, phone, e-mail, or instant-
messaging discussions.
• SWOT analysis (strengths, weaknesses, opportunities, and
threats) can also be used during risk identification.
 Risk Register
• The main output of the risk identification process is a list
of identified risks and other information needed to begin
creating a risk register.
• A risk register is:
• A document that contains the results of various risk management
processes and that is often displayed in a table or spreadsheet
format.
• A tool for documenting potential risk events and related
information.
• Risk events refer to specific, uncertain events that may
occur to the detriment or enhancement of the project.
 Risk Register Contents
• An identification number for each risk event [ID]
• A rank for each risk event [RANK]
• The name of each risk event [NAME]
• A description of each risk event [DESCRIPTION]
• The category under which each risk event falls
[CATEGORY]
• The root cause of each risk [ROOT CAUSE]
• Triggers for each risk; triggers are indicators or
symptoms of actual risk events [INDICATORS]
• Potential responses to each risk [RESPONSE]
 Risk Register Contents (continued)
• The risk owner or person who will own or take responsibility for
each risk [HANDLER]
• The probability and impact of each risk occurring
• [PROBABILITY]
• The status of each risk [STATUS]
Sample Risk Register
 Performing Qualitative Risk Analysis
• Assess the likelihood and impact of identified risks to
determine their magnitude and priority.
• Risk quantification tools and techniques include:
• Probability/impact matrixes
• The Top Ten Risk Item Tracking
• Expert judgment
 Probability/Impact Matrix
• A probability/impact matrix or chart lists the relative
probability of a risk occurring on one side of a matrix or
axis on a chart and the relative impact of the risk
occurring on the other.
• List the risks and then label each one as high, medium, or
low in terms of its probability of occurrence and its
impact if it did occur.
• Can also calculate risk factors
• Numbers that represent the overall risk of specific
events based on their probability of occurring and the
consequences to the project if they do occur.
 Top Ten Risk Item Tracking
• Top Ten Risk Item Tracking is a qualitative risk
analysis tool that helps to identify risks and maintain an
awareness of risks throughout the life of a project
• Establish a periodic review of the top ten project risk
items
• List the –
• current ranking,
• previous ranking,
• number of times the risk appears on the list over a period
of time, and a summary of progress made in resolving the
risk item
Example of Top Ten Risk Item Tracking
 Watch List
• A watch list is a list of risks that are low priority but
are still identified as potential risks.

• Qualitative analysis can also identify risks that should

be evaluated on a quantitative basis.
 Performing Quantitative Risk Analysis
• Often follows qualitative risk analysis, but both can
be done together
• Large, complex projects involving leading edge
technologies often require extensive quantitative risk
analysis
• Main techniques include:
• Decision tree analysis
• Simulation
• Sensitivity analysis
 Decision Trees and Expected Monetary Value
(EMV)
• A decision tree is a diagramming analysis technique
used to help select the best course of action in
situations in which future outcomes are uncertain.

• Estimated monetary value (EMV) is the product of a

risk event probability and the risk event’s monetary
value.
• You can draw a decision tree to help find the EMV.
 Simulation
• Simulation uses a representation or model of a system
to analyze the expected behavior or performance of
the system.
• Monte Carlo analysis simulates a model’s outcome
many times to provide a statistical distribution of the
calculated results.
• To use a Monte Carlo simulation, you must have three
estimates.
• (most likely, pessimistic, and optimistic) plus an
estimate of the likelihood of the estimate being
between the most likely and optimistic values.
 Planning Risk Responses
• After identifying and quantifying risks, you must
decide how to respond to them.
• Four main response strategies for negative risks
• Avoid – eliminate the threat by eliminating the cause
• Mitigate – Identify ways to reduce the probability or
the impact of the risk
• Accept – Nothing will be done
• Transfer – Make another party responsible for the
risk (buy insurance, outsourcing, etc.)
General Risk Mitigation Strategies for
Technical, Cost, and Schedule Risks
 Response Strategies for Positive Risks
• Risk exploitation
• Risk sharing
• Risk enhancement
• Risk acceptance
 Monitoring and Controlling Risks
• Involves executing the risk management process to
respond to risk events
• Workarounds are unplanned responses to risk events that
must be done when there are no contingency plans
• Main outputs of risk monitoring and control are:
• Risk register updates
• Organizational process assets updates
• Change requests
• Updates to the project management plan and other project
documents
 Using Software to Assist in Project Risk
Management
• Risk registers can be created in a simple Word or Excel
file or as part of a database.
• More sophisticated risk management software, such as
Monte Carlo simulation tools, help in analyzing project
risks.
• You can purchase add-ons for Excel and Project 2007 to
perform simulations.
Results of Good Project Risk Management
• Unlike crisis management, good project risk management
often goes overlooked.