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Saturday, 27 January 2007 17:09

Risk Factors

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One of the first inputs to risk management is the project charter. The charter is needed in risk management planning because it identifies the business need of the project and the overall product description. Risks that can prevent the project from satisfying the business need of the project must be addressed. The product description must also be evaluated to determine what risks may be preventing the project work from obtaining the acceptable product description. 

The types of risk:

  • Business
  • Pure
  • Known
  • Unknown

 

Risk and the WBS - The work breakdown structure (WBS) serves as an input to the risk management planning processes. The WBS is needed to help the project manager, and the project team identify the components of the project and what risks may be unique to a particular area of the project versus a risk shared across the entire project.

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. The best way to do that is through a Risk Breakdown Structure (RBS)

 

Risk Breakdown Structure - Applies a full hierarchical approach used in the WBS, with as many levels as are required to provide the necessary understanding of risk exposure to allow effective management. Such a hierarchical structure of risk sources is known as a Risk Breakdown Structure (RBS). The RBS is described as “A source-oriented grouping of project risks that organizes and defines the total risk exposure of the project. Each descending level represents an increasingly detailed definition of sources of risk to the project.” The RBS is therefore a hierarchical structure of potential risk sources. The value of the WBS lies in its ability to scope and define the work to be done on the project; similarly the RBS can be an invaluable aid to understanding the risks faced by the project. Just as the WBS forms the basis for many aspects of the project management process, so the RBS can be used to structure and guide the risk management process.

risk-rbs.gif

 


Risk Factors
Risk factors are characterized as follows:

  • Risk event: Precisely what might happen to the detriment of the project?
  • Risk probability: How likely the event is to occur
  • Impact: The extent of loss or gain that could result

 

Probability and 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. It lists the risks and then labels each one as high, medium, or low in terms of its probability of occurrence and its impact if it did occur. It 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).  A probability-impact matrix multiples the value for the risk probability by the risk impact for a total risk score. The scores within the probability-impact matrix can be referenced against the performing organization’s policies for reaction. The specific combinations of probability and impact that lead to a risk being rated as “high,” “moderate,” or “low” importance.

risk-pim.gif

 

 

Read 5538 times Last modified on Thursday, 10 December 2009 22:16

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