Concepts
Projects, regardless of industry or area, come with inherent risks that can potentially derail progress or even bring it to a complete halt. For a Project Management Professional (PMP) or a Risk Management Professional (RMP), conducting a comprehensive risk analysis is a fundamental segment of any project. As referenced in the Project Management Body of Knowledge (PMBOK Guide) published by the Project Management Institute (PMI), risk analysis entails identifying, quantifying, and deciding how to manage potential project risks.
Let’s delve into how to analyze a project’s general risks, applicable to your preparation for the PMI Risk Management Professional (PMI-RMP) Examination.
Identification of Project Risks
The first step in project risk analysis is to identify potential risks. This can be achieved through brainstorming sessions with the project team, conducting interviews with subject matter experts (SMEs), scrutinizing project documentation, and using tools such as SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), or PESTLE analysis (Political, Economic, Social, Technological, Legal, and Environmental).
For example, a project might be at risk due to changing market dynamics (economic), personnel changes (social), or unforeseen environmental regulations.
Quantification of Project Risks
Once risks are identified, the next crucial step is to quantify or prioritize them. This is typically done through the Probability and Impact Matrix, a tool advocated by PMI. The matrix plots the probability of each risk against its potential impact on the project if it occurs.
For example, a risk with a high impact and high probability would be a high-priority risk, while a risk with a low impact and low probability would be a low-priority risk.
| Probability / Impact | Low Impact | High Impact |
|---|---|---|
| Low Probability | Low Priority Risk | Medium Priority Risk |
| High Probability | Medium Priority Risk | High Priority Risk |
Planning Risk Responses
Post risk quantification, the project team needs to plan responses based on the priority. High priority risks usually necessitate proactive and intensive response strategies, whereas low priority risks might be dealt with through a watch and monitor approach. The PMBOK Guide describes four strategies for dealing with negative risks or threats: avoid, transfer, mitigate, and accept.
For instance, for a high-impact, high-probability risk like software failure, the team might choose to mitigate (e.g., by testing rigorously) or even avoid (e.g., by using mature software technologies).
Monitoring and Controlling Risks
Finally, the project team needs to continuously monitor and control identified risks. Regular risk reviews must be conducted to check whether the risks have changed, new risks have emerged, or any risk responses have been successful or need adjusting.
For example, regular project meetings could include a standing agenda item to discuss the current risk register and any new risks that have emerged.
Risk analysis is a critical component in project management and an essential part of PMI-RMP exam preparation as well. Understanding and managing risks effectively can be the distinguishing factor between a successful project and a failed one. Therefore, potential PMI-RMP candidates should build a thorough understanding of how to analyze and manage a project’s general risks.
Answer the Questions in Comment Section
A Project Risk Analysis allows the project manager to anticipate events that could delay the project.
- True
- False
Answer: True
Explanation: A Project Risk Analysis helps identify potential risks in advance, allowing mitigating actions to be planned out accordingly.
Risk appetite indicates a person or organization’s readiness to take risks.
- True
- False
Answer: True
Explanation: Risk appetite reflects how much risk an individual or organization is prepared to accept in pursuing their objectives before action is deemed necessary.
Risk mitigation strategies include transferring, accepting, avoiding, and enhancing the risk.
- True
- False
Answer: False
Explanation: Common risk mitigation strategies include transferring, accepting, avoiding, and mitigating the risk. Enhancement is more related to opportunities rather than risks.
Risk Identification process involves qualitative and quantitative risk analysis.
- True
- False
Answer: False
Explanation: Risk identification is the initial process of identifying and documenting potential project risks. Qualitative and quantitative risk analysis are separate subsequent processes.
Which of the following is NOT a tool or technique used in performing qualitative risk analysis?
- A. Risk probability and impact assessment
- B. Risk data quality assessment
- C. Sensitivity analysis
- D. Risk categorization
Answer: C. Sensitivity analysis
Explanation: Sensitivity analysis is actually a technique used in quantitative risk analysis, which uses statistical techniques to quantify risk.
Performing a SWOT analysis can be beneficial for Risk Management purposes.
- True
- False
Answer: True
Explanation: A SWOT analysis helps to identify Strengths, Weaknesses, Opportunities, and Threats, which are integral to effective Risk Management.
When identifying risks, the project team must only focus on threats and ignore any potential opportunities.
- True
- False
Answer: False
Explanation: While risks can include threats to a project, they can also include potential opportunities.
Residual risks are those that will remain after the risk response plan has been fully implemented.
- True
- False
Answer: True
Explanation: Residual risks are the risks that remain after planned responses have been taken into consideration and implemented.
Which of the following is NOT a basic principle of Risk Management?
- A. Proactive not reactive
- B. Driven by targets and deadlines
- C. Systematic and structured
- D. Continuous and iterative
Answer: B. Driven by targets and deadlines
Explanation: While meeting targets and deadlines is important in project management, it’s not a specific principle of Risk management.
Failure Modes and Effects Analysis (FMEA) is a proactive method for evaluating a process to identify where and how it might fail.
- True
- False
Answer: True
Explanation: FMEA is a step-by-step approach for identifying all possible failures in a design, a manufacturing or assembly process, or a product or service.
The Risk Management Plan includes all the following aspects, EXCEPT:
- A. Defining how risks will be identified
- B. Assigning a risk owner for each identified risk
- C. Defining how risks impact will be analyzed qualitatively and quantitatively
- D. Setting up project contingency reserves
Answer: D. Setting up project contingency reserves
Explanation: While related, setting up project contingency reserves is typically part of cost management, rather than the risk management plan.
Project risk threshold refers to the level of risk above which risks are acceptable.
- True
- False
Answer: False
Explanation: Project risk threshold is the level of risk at or below which risks are generally accepted. Risks above this level would require mitigation or other responses.
Great post! Analyzing general risks is crucial for project success.
Absolutely, identifying risks early can save both time and cost.
Can someone explain how qualitative risk analysis differs from quantitative risk analysis?
Loved the insights on risk mitigation strategies!
What tools would you recommend for effective risk management in complex projects?
Thanks for this informative article!
I think you missed discussing the role of risk owners in this article.
Great article!