Project Management Exam 3

Project risk

uncertain event or condition in the future, if it occurs, will have a positive or negative impact on one or more project objectives (scope, schedule, cost, quality, etc.)

Positive risks (opportunities)

the risks with positive effects or favorable situation in the organizational environment.

• Arrival of new technology,

• Removal of an international trade barrier

Negative risks (threats)

external elements in the environment that arise from political, economic, social, and technological forces and can cause problems for the business.
v New regulation, an increased trade barrier, or emergence of substitute products.

v Technological developments may make your offerings obsolete.

v Market changes may result from the changes in competitions or demographic shifts.

v The political situation determines governmental policies.

Internal risks

refers to risks that we face from our own company or within our own organization.

Examples of Internal Risks

v The project costs being exceeded because of inaccurate estimates or due to scope creep

v The project schedule is taking longer than expected

v The project performance or quality fail to deliver as planned.

v Personnel and resource management issues

v Labor shortages or poor morale

v Outdated technology or infrastructure

External risks

refers to risks that are outside the control of the project team which are difficult to predict.

v The project governance related to business management, changes in leadership

v The strategic approach related to using a wrong and unsuitable technology

v The market changes related to competition, currency fluctuation

v The legal issues related to changes in regulatory requirements, contract or patent

v The environmental issues related to earthquakes, storms, strikes

v Events that directly impact the project's effectiveness and are completely out of our control

Project risk management

art and science of identifying, analyzing, and responding to risk throughout the project lifecycle for meeting project objectives.

Plan risk management

refers to the process of defining how to conduct risk management activities for a project

Risk management objectives

v Increase the probability and impact of positive events

v Decrease the probability and impact of adverse events

Project manager’s responsibilities

v Develop a systematic approach to risk management

v Develop an open and honest communication for risk identification

v Address risks proactively throughout the project

v Focus on preventative instead of reactive problem solving

Risk Management Processes

Risk Identification

• Brainstorm, check previous projects, talk to experts • Risk register

Risk Assessment (quantification),

Risk Mitigation (response development),

Risk monitoring and control

What is the output of the Risk Management Processes

Risk Management Plan (RMP)

Tools and Techniques: Information Gathering

• Brainstorming

• Diagramming tech

• Interviewing stakeholders

• SWOT analysis

Root cause analysis

analytical technique used to determine the basic underlying reason that causes a variance/defect/risk. may underlie more than one variance/defect/risk

Risk trigger

indication that a risk is about to occur or has occurred

Trigger Condition

event or a situation that indicated a risk is about to occur

Diagramming technique

useful during the risk identification process and is a system or process flow chart

• helps you recognize risks and find new risks int the process flow,

• geographically shows the logical sequence of steps in a process from start to finish

Risk Categories

group of potential causes to risk, which can be grouped into categories such as:

• Technical

• Organizational - v Lack of prioritization of projects v Inadequate funding v Inadequate resource assignment

• Project Management - v Poor allocation of the resources v Inexperienced resources

• External - v Legal or regulatory requirements v Supplier and contractor risks

Risk register

tool project managers use to track and monitor any risks that might impact thier projects

• list of identifies risk with potential responses, root causes, categories, and probability and impact

• “a document in which the results of risk analysis and risk response planning are recorded.

a living document with a list of risks along with their status, impact and other key details.

v Risk categories v Identified risks v Potential causes v Potential responses

Plan risk responses

the process of figuring out options and actions needed to reduce threats and enhance opportunities to project objectives

Risk response

document that address risks by their priority and includes identification and assignment of a owner for each risk

Risk strategies

Acceptance, Transfer, Mitigation (Control), Avoidance

Acceptance Risk Strategy

Adopting a wait-and-see attitude to take action when triggers are met

Do noth, cure is expensive than risk consequences

Mitigation (Control)

• reduce probability/impact through active measure

• bring down risk probability by proactive apporaches (training, buy vs build, etc)

Transfer

reduce probability/impact through change of ownership (outsource or buy insurance)

Avoidance

v Eliminate risk by accepting another alternative (e.g., changing the design)

v Elect to not do part of the project associated with the risk (do risk/return analysis; revisit scope)

Qualitative Risk Analysis

process of prioritizing risks by assessing and combining their probability of occurrence and impact to the project.

Risk has two primary dimensions

probability and impact

= f(probability, impact)

• a probability of occurence of an event and impact/consequence off the event occurring (amount at stake)

Probability

The probability of risk occurring can range from 0% to 100 %

how likely each risk is going to happen

impact

how bad it would be for the project if each risk did happen, The size varies in terms of cost

Expected Monetary Value (EMV)

a tool to quantify the project risk in term of cost, helps PMs to evaluate the potential costs of project risks

calculated by p x i

• multiplying the probability of a risk event occurring with the impact of that risk on cost

Positive EMV

indicated that the risk has a positive impact or benefit if it occurs (+)

negative EMV

indicates that the risk has a negative cost if it occurs (-)

Project schedule

a timetable that, at minimus shows

• what needs to be done, start and end dates for all activities, who the resources are and the project due date.

project schedule

developed by a pm by analyzing all task durations, sequences, and resources needed

How to develop a project schedule

• identify all activities and determine logical order

• assign resources to each activity

• estimate time required for that activity

• consider project budget, quality, and risk factors

Project schedule baseline

when the project schedule is approved by the client, and after this approval the change control process should be used to modify the project schedule baseline.

Activity

distinct, scheduled portion of work performed during the course of a project

• manageable chunk of work in a project

• typically starts with an actionable verb

Duration

the total number of work periods required to complete a schedule activity, usually expressed as workdays

A project network consists of…

a set of circles or boxes called nodes (which represent activities), and arrows called arcs (which define the precedence relationship between activities)

• the main idea for both networks is to determine the critical path

Activity on Node

also called precedence diagraming method (pdm), where nodes designate activities

Activity-on-arrow

also called Arrow Diagramming Method (ADM), arrows designate activities

Network Analysis

used the forward pass and backward pass routine to analyze the project network

Milestones

a significant event in the project schedule with zero duration, shows major deliverables and their specific completion dates and are difficult to change (require sponsor approval)

Path

sequence of connected activities in a project network

Sequencing project activities

process that involves taking the activities and milestones and sequences them in the logical order in which the work will be performed, results in a project schedule network diagram

Network diagram

graphical representation of the logical relationships/dependencies between project tasks

Successor activity

a dependent activity that logically comes after another activity in a schedule

Predecessor activity

an activity that logically comes before a dependent activity in a schedule

Precedence Diagramming Method (PDM)

a method for developing a project schedule in which tasks are linked by logical relationships (dependencies) to show the tasks’ sequences.

How many dependencies does precedence diagramming method (PDM) have?

Finish to Start, Finish to Finish, Start to Start, Start to Finish

Lead

the amount of time a successor activity can be advanced with respect to a predecessor activity

the overlap between the first and second activity.

Lag

the amount of time a successor activity will be delayed with respect to a predecessor activity. It is a waiting time between activities. the delay between the first and second activity

Estimate Activity Durations process

utilizes scope and resource information such as who will be doing the work, resource availability, and number of resources assigned to estimate durations for the activities of the project.

key benefit - it provides the amount of time each activity will take to complete, which is very helpful in developing the project’s schedule.

Analogous estimating

refers to a method for estimating the duration or cost of a task using data from similar projects.

❖ It is less accurate, less costly and takes less time to estimate

❖ It uses historical information and expert judgement

Parametric estimating

refers to a method that uses an algorithm to calculate duration or cost of a task using data from project parameters.

❖ Activity duration = quantity of work to be performed x labor hours

One-Point estimation or Bottom-Up estimating

refers to a method for estimating the duration or cost of a task based on expert judgement, historical information, educated guess, etc.

❖ It is the most accurate estimate and the most time-consuming exercise

❖ Sometimes forces people to add padding to their estimates (not recommended)

3-Point or PERT (Program Evaluation and Review Technique) estimation

refers to a technique that uses a weighted average of three numbers (optimistically, most likely, pessimistically) to develop a final estimate.

Optimistic time estimate (O):

Shortest possible time to complete an activity under perfect circumstances

Most likely time estimate (M):

Most likely time to complete an activity under normal circumstances.

Pessimistic time estimate (P):

Longest possible time to complete an activity under a worst-case scenario.

PERT: Program Evaluation and Review Technique

a project management planning tool used to calculate the time it will take to finish a project.

a visual method for identifying task sequencing and dependencies and for finding the critical path of a project

Estimates the most likely time needed to complete a project

Critical Path Method (CPM)

a method to estimate the project duration.

❖ Used to plan very large projects

❖ Used single time estimates for each activity

❖ Focus on longest sequence of activities

❖ Used to determine how to complete a project early

Critical path

the longest sequence of activities that must be finished on time to complete a project, any delays in critical tasks will delay the whole project

sequence of activities that represents the longest path through the project, which determines the shortest possible duration

Forward pass and backward pass methods are used to determine the critical path. The critical path is indicated by the activities with zero slack.

Forward pass

Finds Early Start and Early Finish, critical path method tech for calculating the early start and early finish dates

Earliest start time (ES)

the earliest time an activity can start.

Early finish (EF)

the earliest time an activity can finish, This would be ES + activity duration

backward pass

critical path method technique for calculating the late start and late finish dates.

Late start (LS)

the latest time an activity can start and not delay the project, This would be LF - activity duration.

Late finish (LF)

the latest time an activity can finish and not delay the project

Slack/float

the amount of time a project activity that is not on the critical path can be delayed without delaying the early start of the next activity or the entire project.

indicates how flexible the project schedule can be. More slack time means that project scheduling is more flexible.

❖ LS – ES (LS minus ES) = Slack ❖ LF – EF (LF minus EF) = Slack

Formulas for calculating the expected duration (PERT value)

❖ Beta distribution formula: E = (O + 4M + P) / 6 (most commonly used). The three estimates are normally provided or given based on previous experience, knowledge, or expert judgement.

❖ The expected duration of a path is equal to the sum of the expected times of activities on that path.

❖ The standard deviation (SD) of each activity’s time is estimated as one-sixth of the difference between the pessimistic and optimistic time estimates.

❖ The variance is the square of the standard deviation

Cost

common cause of project failure.

a resource to achieve specific objective in managing projects. It usually measured in monetary units like dollar

Project managers need to consider time, resources and scope to determine overall ____

Project cost management

includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.

Project Cost Management Challenges

Lack of resources: The project manager will have a significant difficulty to secure the necessary resources (people, materials, or technology) to complete the project successfully on-time.

Poor cost estimation: This is the most common issue in failing projects. Poor estimation/forecasting occur when a project manager is not experienced enough (e.g., cost, scope, schedule). Poor cost estimation often leads to cost overruns

A well-defined, bottom-up approach

very helpful in estimating costs and creating a budget for the project.

Why should PMs take cost estimates seriously?

if they want to complete projects on a budget

Fixed cost (1 of 4 main types of cost)

This type of cost does not change as production change throughout the life of a project.

Variable Cost:

This type of cost varies with the amount of work/production and changes month to month.

Direct Cost

This type of cost is directly attributable to the project work. It occurs only because of the project.

Indirect Cost

an overhead cost or cost that is incurred for the benefit of more than one project. It is not associated with one specific project.

Project Cost Management

concerned with the cost of all the resources needed to complete project activities.

Cost management plan can establish:

units of measure, level of precision, level of accuracy

Level of precision:

the degree to which cost estimates will be rounded up or down. For example, rounding up $695.96 to $697.

Level of accuracy:

The acceptable range (e.g., ±10%) used in determining realistic cost estimates

Estimate Costs

the process of developing an approximation of the cost of resources needed to complete project work.

using these inputs to estimate costs: v Cost management plan v Quality management plan v Scope baseline and project schedule v Resource requirements v Risk register v Previous projects

Activity-based estimates

• Cost for an activity is based on the costs for labor and materials (preferred)

Detailed estimates from all sources are reorganized

An activity can have costs from more than one vendor

Reserve

refers to the extra money in project budget to be used if necessary,

money is budgeted for dealing with unplanned but predictable cost increases.

contingency reserve

the money held to pay for predictable but unspecified extra costs.

Project manager performs risk management process to determine this through a method such as expected Monetary value (EMV).

Management reserve

refers to the money assigned to the project for unknown possible costs and money that senior management controls

ex) if something happens during the project that changes the scope, so basically the money primarily available for changing project scope.

Estimated cost

refers to the total project cost estimates that the project manager makes. Then the management prepares the overall project budget.

Budgeted cost

refers to a budget that the management has prepared and allocated to the project. It shows how the money will be spent

Estimated cost should not ______ budgeted cost

exceed

Determine Budget

the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

Cost Baseline

a time-phased budget used to monitor, measure, and control cost performance during the project.

It includes contingency reserves but not the management reserves.

Control account

a management control point where scope, cost and schedule are integrated and compared to the earned value (EV) for performance measurement.

comprises of the amount allocated for the completion of the work in the work packages. Since the work packages are linked to the organizational units, organizational unit wise budget consumption also can be monitored effectively. This is the cost aggregation

Cost Baseline Formula

Cost Estimate + Contingency Reserve

Project Budget Formula

= Cost Baseline + Management Reserve

Control Costs

the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline

Earned Value Management (EVM)

common method of project performance and progress measurement throughout the project lifecycle in terms of the cost and schedule control.

• integrates project schedule, costs, and scope to measure the overall project performance

• compares the budgeted and actual costs of a project

• helps project managers with project forecasting (future performance)

used when there is a risk to on-time and on-budget project delivery and cost and schedule needs to be managed

answers - “ Are we ahead of or behind schedule?”