Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project

by Tom Kendrick Pmp

Overview

Projects—especially complex ones—are inherently risky. Between time constraints, technical challenges, and resource issues, things can easily go wrong—making the identification of potential risks an essential component of every project manager's job.

Fully updated and consistent with the Risk Management Professional (RMP) certification and the Guide to the Project Management Body of Knowledge (PMBOK®), Identifying and Managing Project Risk remains the definitive resource for project managers seeking to guard against failure.

Drawing on real-world situations and hundreds of examples, the book outlines the risk management process and provides proven methods for project risk planning. Readers will learn how to use high-level risk assessment tools, implement a system for monitoring and controlling projects, and properly document every consideration. Analyzing aspects such as project scope, available resources, and scheduling, the third edition also offers fresh guidance on program risk management, qualitative and quantitative risk analysis, simulation and modeling, and significant "non-project" risks.

This practical book will help readers eliminate surprises and keep projects on track.

Product Details

ISBN-13:	9780814436080
Publisher:	AMACOM
Publication date:	03/25/2015
Edition description:	3rd Special ed.
Pages:	400
Sales rank:	367,828
Product dimensions:	6.20(w) x 9.10(h) x 1.50(d)
Age Range:	18 Years

About the Author

TOM KENDRICK, PMP has over 35 years of project and program experience, including senior positions with Hewlett-Packard and Visa. A respected author, he received PMI's David I. Cleland Project Management Literature Award for the previous edition of this book.

Read an Excerpt

Introduction

Your mission, Jim, should you decide to accept it ...

So began every episode of the classic TV series Mission:

Impossible, and what followed chronicled the execution of that week's

impossible mission. The missions were seldom literally impossible a though; careful planning, staffing, and use of the (seemingly unlimited)

budget resulted in a satisfactory conclusion just before the deadline—

the final commercial.

Today's projects should also probably arrive on a tape that "will self-destruct in five seconds." Compared with project work done in the past, current projects are more time constrained, pose greater technical challenges, and rarely seem to have enough resources. All of this leads to increased project risk—culminating too often in the "impossible project."

As a leader of complex projects, you need to know that techniques exist to better deal with risk in projects like yours. Used effectively a these processes will help you recognize and manage potential problems. Often, they can make the difference between a project that is possible and one that is impossible. This is what Identifying and

Managing Project Risk is about. Throughout this book, examples from modern projects show how to apply the ideas presented to meet the challenges you face. This is not a book of theories; it is based on data collected in the recent past from hundreds of complex projects worldwide.

A database filled with this information, the Project Experience

Risk Information Library (PERIL), forms much of the foundation for this book. These examples are used to identify sources of risk, and they demonstrate practical responses that do not always resort to brute force.

The structure of the book also reflects the changes adopted in the most recent edition of the Guide to the Project Management Body of Knowledge (PMBOK® Guide) from the Project Management Institute (PMI®, the professional society for project managers). The Risk section of the PMBOK® Guide is one of the key areas tested on the Project

Management Professional (PMP®) certification examination administered by PMI. This book is also consistent with the PMI® Practice

Standard for Project Risk Management and the topics relevant to the PMI

Risk Management Professional (PMI-RMP®) Certification.

The first half of the book addresses risk identification, which relies heavily on thorough project definition and planning. The initial six chapters show the value of these activities in uncovering sources of risk. The remainder of the book covers the assessment and management of risk, at the detail (activity) level as well as at the project level and above. These chapters cover methods for assessing identified risks, establishing an overall risk plan for the project, making project adjustments, ongoing risk tracking, project closure, and the relationship between project risk management and program, portfolio, and enterprise risk management.

It is especially easy on modern projects to convince yourself that there is little to be learned from the past and that established ideas and techniques "no longer apply to my project." Tempting though it is to wear these hindsight blinders, wise project managers realize that their chances of success are always improved when they take full advantage of what has gone before. Neither project management in general nor risk management in particular is all that new. Broad principles and techniques for both have been successfully used for more than a century. Even though many lessons can be learned from current projects (as the PERIL database illustrates), there is also much to be absorbed from earlier work.

As a graphic reminder of this connection, each chapter in this book concludes with a short description of how some of the principles discussed relate to a very large historical project: the construction of the Panama Canal. Taking a moment every so often to consider this remarkable feat of engineering reinforces the importance of good project management practices—and may provide some topical relief from what can be occasionally dry subject matter.

Risk in projects comes from many sources, including two that are generally left out of even the better books on the subject: (1) the inadequate application (or even discouragement) of project management practices and (2) the all too common situation of wildly aggressive project objectives that are established without the backing of any realistic plan. These risks are related because only through adequate understanding of the work can you detect whether objectives are impossible, and only by using the information you develop can you hope to do anything about it.

Identifying and Managing Project Risk is intended to help leaders of today's complex projects (and their managers) successfully deliver on their commitments. Whether you develop products, provide services a create information technology solutions, or deal with complexity in other types of projects, you will find easy-to-follow, practical guidance to improve your management of project risk, along with effective practices for aligning your projects with reality. You will learn how to succeed with seemingly impossible projects by reducing your risks with minimal incremental effort.

Table of Contents

Contents

Acknowledgments vii

Introduction 1

CHAPTER 1: Why Project Risk Management? 4

The Doomed Project
• Risk
• Opportunities and Risks
• Benefits of Project

Risk Management
• Costs of Project Risk Management
• The Project Risk

Management Process
• Anatomy of a Failed Project: The First Panama

Canal Project

CHAPTER 2: Planning for Risk Management 22

Project Selection
• Overall Project Planning Processes
• Defining Risk

Management for the Project
• Risk Management Infrastructure for the

Organization
• The PERIL Database
• A Second Panama Canal Project:

Sponsorship and Initiation (1902—1904)

CHAPTER 3: Identifying Project Scope Risk 49

Sources of Scope Risk
• Defining Deliverables
• High-Level Risk

Assessment Tools
• Setting Limits
• Work Breakdown Structure

• Other Scope-Related Risks
• Documenting the Risks
• Panama Canal:

Setting the Objective (1905—1906)

CHAPTER 4: Identifying Project Schedule Risk 79

Sources of Schedule Risk
• Activity Definition
• Estimating Activity Duration

• Activity Sequencing
• Documenting the Risks
• Panama Canal:

Planning (1905—1907)

CHAPTER 5: Identifying Project Resource Risk 108

Sources of Resource Risk
• Resource Planning
• Staff Acquisition

• Outsourcing
• Effort Estimates Adjusted for Risk
• Cost Estimates,

Budgets, and Risk
• Documenting the Risks
• Panama Canal:

Resources (1905—1907)

CHAPTER 6: Managing Project Constraints and

Documenting Risks 136

Analyzing Constraints
• Managing Opportunities
• Scope Modification

• Resource Modification
• Schedule Modification
• Assessing Options and

Updating Plans
• Seeking Missing Risks
• Creating a Risk Register
• Panama Canal:

Improving the Plan (1906)

CHAPTER 7: Quantifying and Analyzing Activity Risks 161

Qualitative and Quantitative Risk Analysis
• Probability and Impact
• Qualitative

Risk Assessment
• Quantitative Risk Assessment
• Panama Canal: Risks (1906—1914)

CHAPTER 8: Managing Activity Risks 189

Root Cause Analysis
• Categories of Risk
• Selecting Risks to Address

• Risk Response Planning
• Dealing with Risk Causes
• Implementing Preventative

Ideas
• Dealing with Risk Effects
• Documenting Your Risk Plans and Risk Owners

• Managing a Specific Risk
• Bow Tie Analysis for Documenting Risk Responses

• Panama Canal: Risk Plans (1906—1914)

CHAPTER 9: Quantifying and Analyzing Project Risk 232

Project-Level Risk
• Aggregating Risk Responses
• Project Modeling and

Simulations
• Integrated Schedule/Cost Assessment
• System Analysis

• Critical Chain Considerations
• Questionnaires and Surveys
• Analysis of Scale

• Project Appraisal
• Scenario Analysis
• Project Metrics
• Financial Metrics

• Panama Canal: Overall Risks (1907)

CHAPTER 10: Managing Project Risk 276

Project Documentation Requirements
• Project Start-Up
• Selecting and

Implementing Project Metrics
• Establishing Reserves and Managing for

Contingency
• Project Baseline Negotiation
• Project Plan Validation

• Specification Change Control
• Panama Canal: Adjusting the Objective (1907)

CHAPTER 11: Monitoring and Controlling Risky Projects 299

Don't Panic
• Applying the Plan
• Project Monitoring
• Collecting Project Status

• Metrics and Trend Analysis
• Responding to Issues
• Communication and Risk

Reporting
• Project Archive
• Managing Risk Reserves
• Project Reviews and Risk

Reassessment
• Taking Over a Troubled Project
• Panama Canal: Risk-Based

Replanning (1908)

CHAPTER 12: Closing Projects 321

Project Closure
• Project Retrospective Analysis
• Panama Canal: Completion (1914)

CHAPTER 13: Program, Portfolio, and Enterprise Risk Management 330

Project Risk Management in Context
• Program Risk Management
• Portfolio Risk

Management
• Enterprise Risk Management
• Panama Canal: Over the Years

CHAPTER 14: Conclusion 367

Choosing to Act
• Managing Your Risks
• Panama Canal: The Twenty-First Century

APPENDIX: Selected Detail from the PERIL Database 373

Scope Risks
• Schedule Risks
• Resource Risks

Index 381

Editorial Reviews

Detailed, well-organized and comprehensive, Identifying and Managing Project Risk takes you through the planning, assessment and responses required for any kind of project of any size.” —Soundview

From the Publisher