The Risky Business of Small Projects (Part Three)

Risk Knowledge Area

In this space, I have discussed some tools for Risk Management on a project.  One of my favorites I learned about after reading Tom Kendrick’s 2009 book, Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project.  In it, he describes a “Project Appraisal.”  This is something I wrote about in a prior post, but for the purposes of today, I will simply define it as similar to a home appraisal.  The idea is to use comps – realtors use the term “comparables” – from similar projects, make adjustments for dissimilarities, and then evaluate the results for feasibility and against the company’s tolerance for risk.  Here’s an example:

Project Appraisal

I revisit this technique because it’s an example of a qualitative assessment of risk.  Although not identified by PMI as an output of the Perform Qualitative Risk Management process, it certainly qualifies as one.  Today I will address this process in detail, which is part of the Risk Management Knowledge Area:

Initiating Process Group

Planning Process Group

Executing Process Group

Monitoring and Controlling Process Group

  • N/A
  • Plan Risk Management
  • Identify Risks
  • Perform Qualitative Risk Management
  • Perform Quantitative Risk Management
  • Plan Risk Responses
  • N/A
  • Control Risks

Perform Qualitative Risk Management is officially defined by PMI in the 5th edition of the Project Management Body of Knowledge as, “the process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact” (p. 309).  Given that definition, you might wonder why I characterized the Project Appraisal tool as “qualitative.”  That’s because the “Change in Effort” numbers are not always based on measurable differences but on gut feel.  For example, how can you state with certainty that the complexity of a project is 10% different from a prior effort?

This is a great illustration of the difficulties with qualitative risk assessments.  They give the appearance of exactness because they sometimes use numbers to prioritize risks.  People assume those numbers are based on something measured, when that may not be the case.  Let’s look at Perform Qualitative Risk Management further to examine why this is so.

In this process, teams assign a probability of occurrence (Pf) and a severity of consequence (Cf) to each risk.  These are based upon tables the project defines in the Project Management Plan (the output of the Plan Risk Management process).  A simple impact table appears below, and a team could assign a Cf of Moderate or .20.  However, note the definitions are based on ranges or words such as “major.”  What exactly constitutes a “major” change to scope?  25% change?  50%?  However, notice the precision given to a risk with a moderate impact to scope:  .20.  Sounds pretty precise to me.

Impact Assessment Table

The team would then use another table (not shown) to assess the severity of consequence, and the combination of the two – Pf x Cf – is the risk rating.  That risk rating is then compared to those of other threats, and a prioritized list can then be created and managed by the team.

This article is part of a series that examines the use of all 49 process within the context of small projects, so let’s discuss that now.  Small projects need to perform the Perform Qualitative Risk Management process.  In fact, it may be the easiest and most cost-effective way for them to manage risk on their projects.  As we’ll see in the next post, Quantitative Risk Management is more complicated and requires exactness and measurements to perform – both may be beyond the needs and resources of smaller projects.  Given that some assessment of risks needs to occur so that Project Managers know where to focus valuable budget dollars to mitigate, this process is where small projects should invest.

Stay tuned for Perform Quantitative Risk Management, the subject of my next post.

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