Project 7

KitchenHeavenProject_Part5pgs283-285.pdf

Developing a Risk Response Plan 283

Project Case Study: New Kitchen Heaven Retail Store

Ricardo knocks on your office door and asks whether you have a few minutes to talk. “Of course,” you reply, and he takes a seat on one of the comfy chairs at the conference table. You have a feeling this might take a while.

“I think you should know that I’m concerned about the availability of the T1 line. I’ve already put in the call to get us on the list because, as I said last week, there’s a 30‐ to 45‐ day lead time on these orders.”

“We’re only partway through the Planning processes. Do you need to order the T1 so soon? We don’t even know the store location yet,” you say.

“Even though they say lead time is 30 to 45 days, I’ve waited as long as five or six months to get a T1 installed in the past. I know we’re really pushing for the early February store opening, so I thought I’d get the ball rolling now. What I need from you is the location address, and I’ll need that pretty quick.”

“We’re narrowing down the choices between a couple of properties, so I should have that for you within the next couple of weeks. Is that soon enough?”

“The sooner, the better,” Ricardo replies.

“Great. I’m glad you stopped by, Ricardo. I wanted to talk with you about risk anyway, and you led us right into the discussion. Let me ask you, what probability would you assign to the T1 line installation happening six months from now?”

“I’d say the probability for six months is low. It’s more likely that if there is a delay, it would be within a three‐ to four‐month time frame.”

“If they didn’t get to it for six months, would it be a showstopper? In other words, is there some other way we could transfer Jill’s data until the T1 did get installed?”

“Sure, we could use other methods. Jill won’t want to do that for very long, but workarounds are available.”

“Good. Now, what about the risk for contractor availability and hardware availability and delivery schedules?” you ask.

You and Ricardo go on to discuss the risks associated with the IT tasks. Later, you ask Jill and Jake the same kinds of questions and compile a list of risks. In addition, you review the project information for the Atlanta store opening because it’s similar in size

Heldman, Kim. PMP: Project Management Professional Exam Study Guide : Updated for the 2015 Exam, John Wiley & Sons, Incorporated, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/gcu/detail.action?docID=4185201. Created from gcu on 2021-10-07 20:15:32.

C o p yr

ig h t ©

2 0 1 5 . Jo

h n W

ile y

& S

o n s,

I n co

rp o ra

te d . A

ll ri g h ts

r e se

rv e d .

284 Chapter 6 ■ Risk Planning

and scope to this store. You add the risks from that store opening to your list as well. You divide some of the risks into the following categories: IT, Facilities, and Retail. A sample portion of your list appears as follows, with overall assignments made based on Perform Qualitative Risk Analysis and the probability and impact matrix:

■ Category: IT

■ T1 line availability and installation. Risk score: Low

■ Contractor availability for Ethernet installation. Risk score: Medium

■ POS and server hardware availability. Risk score: Medium

■ Category: Facilities

■ Desirable location in the right price range. Risk score: High

■ Contractor availability for build‐out. Risk score: Low

■ Availability of fixtures and shelving. Risk score: Low

■ Category: Retail

■ Product availability. Risk score: Medium

■ Shipment dates for product. Risk score: Medium

After examining the risks, you decide that response plans should be developed for the last two items listed under the IT source, the first item under Facilities, and both of the risks listed under Retail.

Ricardo has already mitigated the T1 connection and installation risk by signing up several months ahead of the date when the installation is needed. The contractor availability can be handled with a contingency plan that specifies a backup contractor should the first choice not be available. For the POS terminals and hardware, you decide to use the transfer strategy. As part of the contract, you’ll require these vendors to deliver on time, and if they cannot, they’ll be required to provide and pay for rental equipment until they can get your gear delivered.

The Facilities risk and Retail risks will be handled with a combination of acceptance, contingency plans, and mitigation.

You’ve calculated the expected monetary value for several potential risk events. Two of them are detailed here.

Desirable location has an expected monetary value of $780,000. The probability of choosing an incorrect or less than desirable location is 60 percent. The potential loss in sales is the difference between $2.5 million in sales per year that a high‐producing store generates versus $1.2 million in sales per year that an average store generates.

C o p yr

ig h t ©

2 0 1 5 . Jo

h n W

ile y

& S

o n s,

I n co

rp o ra

te d . A

ll ri g h ts

r e se

rv e d .

Understanding How This Applies to Your Next Project 285

The expected monetary value of the product availability event is $50,000. The probability of the event occurring is 40 percent. The potential loss in sales is $125,000 for not opening the store in conjunction with the Home and Garden Show.

Project Case Study Checklist

■ Plan Risk Management

■ Identify Risks

■ Documentation reviews

■ Information‐gathering techniques

■ Perform Qualitative Risk Analysis

■ Risk probability and impact

■ Probability and impact rating

■ List of prioritized risks

■ Perform Quantitative Risk Analysis

■ Interviewing

■ Expected monetary value

■ Plan Risk Responses

■ Avoidance, transference, mitigation, and acceptance strategies

■ Risk response plans documented

Understanding How This Applies to Your Next Project Risk management, and all the processes it involves, is not a process I recommend you skip on a project of any size. This is where the Boy Scouts of America motto, “Be Prepared,” is wise advice. If you haven’t examined what could be lurking around the corner on your project and come up with a plan to deal with it, then you can be assured you’re in for some surprises. Then again, if you like living on the edge, never knowing what might occur next, you’ll probably find yourself back on the job‐hunting scene sooner than you planned (oh, wait, you didn’t plan because you’re living on the edge).

In all seriousness, as with most of the Planning processes I’ve discussed so far, risk management should be scaled to match the complexity and size of your project. If you’re working on a small project with a handful of team members and a short timeline, it doesn’t make sense to spend a lot of time on risk planning. However, it does warrant spending

C o p yr

ig h t ©

2 0 1 5 . Jo

h n W

ile y

& S

o n s,

I n co

rp o ra

te d . A

ll ri g h ts

r e se

rv e d .

286 Chapter 6 ■ Risk Planning

some time identifying project risk, determining impact and probability, and documenting a plan to deal with the risk.

My favorite Identify Risks technique is brainstorming. I like its cousin the Nominal Group technique too. Both techniques help you quickly get to the risks with the greatest probability and impact because, more than likely, these are the first risks that come to mind. Identify Risks can also help the project team find alternative ways of completing the work of the project. Further digging and the ideas generated from initial identification might reveal opportunities or alternatives you wouldn’t have thought about during the regular Planning processes.

After you’ve identified the risks with the greatest impact to the project, document response plans that are appropriate for the risk. Small projects might have only one or two risks that need a response plan. The plans might consist of only a sentence or two, depending on the size of the project. I would question a project where no risks require a response plan. If it seems too good to be true, it probably is.

The avoid, transfer, and mitigate strategies are the most often used strategies to deal with risk, along with contingency planning. Of these, mitigation and contingency planning are probably the most common. Mitigation generally recognizes that the risk will likely occur and attempts to reduce the impact.

I have used brainstorming and the Nominal Group technique to strategize response plans for risks on small projects. When you’re working on a small project, you can typically identify, quantify, and create response plans for risks at one meeting.

Identifying positive risk, in my experience, is fairly rare. Typically, when my teams perform Identify Risks, it’s to determine what can go wrong and how bad the impact will be if it does. The most important concept from this chapter that you should apply to your next project is that you and your team should identify risks and create response plans to deal with the most significant ones.

Summary Congratulations! You’ve completed another fun‐filled, action‐packed chapter, and all of it on a single topic—risk. Risk is inherent in all projects, and risks pose both threats to and opportunities for the project. Understanding the risks facing the project better equips you to determine the appropriate strategies to deal with those risks and helps you develop the response plans for the risks (and the level of effort you should put into preparing those plans).

The Plan Risk Management process determines how you will plan for risks on your project. Its only output is the risk management plan, which details how you’ll define, monitor, and control risks throughout the project. The risk management plan is a subsidiary of the project management plan.

The Identify Risks process seeks to identify and document the project risks using information‐gathering techniques such as brainstorming, the Delphi technique,

C o p yr

ig h t ©

2 0 1 5 . Jo

h n W

ile y

& S

o n s,

I n co

rp o ra

te d . A

ll ri g h ts

r e se

rv e d .

Exam Essentials 287

interviewing, and root cause analysis. This list of risks gets recorded in the risk register, the only output of this process.

Perform Qualitative Risk Analysis and Perform Quantitative Risk Analysis involve evaluating risks and assigning probability and impact values to them. Many tools and techniques are used during these processes, including risk probability and impact assessment, probability and impact matrix, interviewing, probability distributions, expert judgment, sensitivity analysis, decision tree analysis, and simulation.

A probability and impact matrix uses the probability multiplied by the impact value to determine the risk score. The threshold of risk based on high, medium, and low tolerances is determined by comparing the risk score based on the probability level to the probability and impact matrix.

Monte Carlo simulation is a technique used to quantify schedule or cost risks. Decision trees graphically display decisions and their various choices and outcomes, and they are typically used in combination with expected monetary value.

The Plan Risk Responses process is the last Planning process and culminates with an update to the risk register documenting the risk response plans. The risk response plans detail the strategies you’ll use to respond to risk and assign individuals to manage each risk response. Risk response strategies for negative risks include avoidance, mitigation, and transference. Risk strategies for positive risks include exploit, share, and enhance. Acceptance is a strategy for both negative and positive risks.

Contingency planning involves planning alternatives to deal with risk events should they occur. Contingency reserves are set aside to deal with risks associated with cost and time according to the stakeholder tolerance levels.

Exam Essentials

Be able to define the purpose of the risk management plan. The risk management plan describes how you will define, monitor, and control risks throughout the project. It details how risk management processes (including Identify Risks, Perform Qualitative Risk Analysis, Perform Quantitative Risk Analysis, Plan Risk Responses, and Control Risks) will be implemented, monitored, and controlled throughout the life of the project. It describes how you will manage risks but does not attempt to define responses to individual risks. The risk management plan is a subsidiary of the project management plan, and it’s the only output of the Plan Risk Management process.

Be able to name the purpose of Identify Risks. The purpose of the Identify Risks process is to identify all risks that might impact the project and then document them and identify their characteristics.

Be able to define the purpose of Perform Qualitative Risk Analysis. Perform Qualitative Risk Analysis determines the impact the identified risks will have on the project and the

C o p yr

ig h t ©

2 0 1 5 . Jo

h n W

ile y

& S

o n s,

I n co

rp o ra

te d . A

ll ri g h ts

r e se

rv e d .