Chapter 11: Project Risk ManagementToday’s ScheduleLearning ObjectivesLearning Objectives (cont’d)The Importance of Project Risk ManagementProject Management Maturity by Industry Group and Knowledge Area*Benefits from Software Risk Management Practices*Negative RiskRisk Can Be PositiveRisk UtilityRisk Utility Function and Risk PreferenceAssessing Risk ToleranceInsights from Psychology and Psychometrics on Measuring Risk Tolerance More on Risk AssessmentProject Risk Management ProcessesContingency and Fallback Plans, Contingency ReservesCommon Sources of Risk in Information Technology ProjectsAssessing IT Project RiskInformation Technology Success Potential Scoring SheetBroad Categories of RiskRisk Breakdown StructureFigure 11-3. Sample Risk Breakdown StructureRisk IdentificationBrainstormingDelphi TechniqueInterviewingSWOT AnalysisRisk RegisterRisk Register ContentsRisk Register Contents (cont’d)Qualitative Risk AnalysisProbability/Impact MatrixSample Probability/Impact MatrixFor Thursday, April 12Chapter 11:Project Risk ManagementInformation Technology Project Management,Fourth EditionTuesday, April 10Information Technology Project Management, Fourth Edition 2Today’s ScheduleProject DeliverablesPresentation Order for Tuesday, 4/17Responsible for evaluating risk of assigned project of anotherTest #3 – Thursday, April 19Chapter 11 – Risk ManagementInformation Technology Project Management, Fourth Edition 3Learning ObjectivesUnderstand what risk is and the importance of good project risk management.List common sources of risks in information technology projects.Describe the risk identification process, tools, and techniques to help identify project risks, and a risk register.Information Technology Project Management, Fourth Edition 4Learning Objectives (cont’d)Discuss the qualitative risk analysis process and explain how to calculate risk factors, create probability/impact matrixes, apply the Top Ten Risk Item Tracking technique, and use expert judgment to rank risks.Information Technology Project Management, Fourth Edition 5The Importance of Project Risk Management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.Helps improve project success by helping select good projects, determining project scope, and developing realistic estimates.Information Technology Project Management, Fourth Edition 6Project Management Maturity by Industry Group and Knowledge Area*KEY: 1 = LOWEST MATURITY RATING 5 = HIGHEST MATURITY RATINGKnowledge AreaEngineering ConstructionTelecom-munications Information SystemsHi-Tech ManufacturingScope 3.52 3.45 3.25 3.37Time 3.55 3.41 3.03 3.50Cost 3.74 3.22 3.20 3.97Quality 2.91 3.22 2.88 3.26Human Resources3.18 3.20 2.93 3.18Communications 3.53 3.53 3.21 3.48Risk 2.93 2.87 2.75 2.76Procurement 3.33 3.01 2.91 3.33 *Ibbs, C. William and Young Hoon Kwak. “Assessing Project Management Maturity,” Project Management Journal (March 2000).RISK has the lowest maturity rating of all knowledge areas.Information Technology Project Management, Fourth Edition 7Benefits from Software Risk Management Practices**Kulik, Peter and Catherine Weber, “Software Risk Management Practices – 2001,” KLCI Research Group (August 2001).Information Technology Project Management, Fourth Edition 8Negative RiskA dictionary definition of risk is “the possibility of loss or injury.”Negative risk involves understanding potential problems that might occur in the project and how they might impede project success.Negative risk management is like a form of insurance; it is an investment.Information Technology Project Management, Fourth Edition 9Risk Can Be PositivePositive risks are risks that result in good things happening; sometimes called opportunities.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.Information Technology Project Management, Fourth Edition 10Risk UtilityRisk utility or risk tolerance is the amount of satisfaction or pleasure received from a potential payoff.Utility rises at a decreasing rate for people who are risk-averse.Those who are risk-seeking have a higher tolerance for risk and their satisfaction increases when more payoff is at stake.The risk-neutral approach achieves a balance between risk and payoff.Information Technology Project Management, Fourth Edition 11Risk Utility Function and Risk PreferenceInformation Technology Project Management, Fourth Edition 12Assessing Risk ToleranceWhat is your personal tolerance for risk?Purchasing large items?Buying a home?Investing for the future?Wells Fargo Bank Risk Tolerance (write your answers)Risk Tolerance SurveyPersonal relationships?Information Technology Project Management, Fourth Edition 13Insights from Psychology and Psychometrics on Measuring Risk Tolerance Unfortunately, questionnaires commonly used by financial planners do not adhere to psychometric standards. They are generally too brief (a reliability problem) and contain too many "bad" questions (a validity problem). Bad questions are those dealing with constructs other than risk tolerance, such as risk capacity (how much risk the client can afford to take), time horizons, liquidity, and goals. Although important to the financial planning process, these issues are not part of the construct of risk tolerance. Questions that require explanation are also bad questions. Many of the commonly used "investor risk" questionnaires are actually asset allocation calculators mislabelled as risk tolerance tests. While few planners have the resources to develop and maintain a psychometrically sound questionnaire, all planners should know how to do due diligence on any questionnaire they use. Insights from Psychology and Psychometrics on Measuring Risk Tolerance, by Michael J. Roszkowski, Ph.D.; Geoff Davey; and John E. Grable, Ph.D., CFP at http://www.fpanet.org/journal/articles/2005_Issues/jfp0405-art8.cfmInformation Technology Project Management, Fourth Edition 14More on Risk AssessmentSo, the first problem with industry-standard questionnaires is one of invalid questions dealing with capacity, time