Risk Assessment and Management

Risk Breakdown Structure (RBS)

• A risk breakdown structure (RBS) is a hierarchical structure that breaks down risks into categories and subcategories.
• It is used to identify, categorize, and prioritize risks in a project.

Risk Assessment

• Risk assessment involves evaluating the probability and impact of each risk event.
• Scenario analysis is used to assess the significance of each risk event in terms of probability and impact.
• A risk assessment form is used to evaluate the severity, probability, and detection difficulty of risk events.
• The risk severity matrix prioritizes which risks to address.

Failure Mode and Effects Analysis (FMEA)

• FMEA extends the risk severity matrix by including ease of detection in the equation: Risk Value = Impact x Probability x Detection.
• FMEA is used to evaluate the risk of failure of a product or process.

Risk Response Development

• The four main strategies for responding to risks are:
  • Mitigating Risk: reducing the likelihood or impact of a risk event.
  • Avoiding Risk: eliminating or avoiding a risk event.
  • Transferring Risk: passing the risk to another party (e.g. through insurance).
  • Escalating Risk: notifying higher management of a risk event.

Contingency Planning

• A contingency plan is an alternative plan that will be used if a possible foreseen risk event becomes a reality.
• Contingency planning involves identifying potential risks and developing alternative plans to mitigate or respond to them.

PERT and PERT Simulation

• PERT (Program Evaluation and Review Technique) is a method for planning and controlling projects.
• PERT assumes each activity duration has a range that statistically follows a beta distribution.
• PERT uses three time estimates for each activity: optimistic, pessimistic, and most likely.
• PERT simulation involves computing the probability of meeting different project durations.

Activity Time Calculations

• The weighted average activity time is computed using the formula: te = (a + 4m + b) / 6.
• The variability in the activity time estimates is approximated using the formula: σ^2 = ((b - a) / 6)^2.

Probability of Completing the Project

• The probability of completing the project in a specified time can be computed using the formula: Z = (TS - TE) / σ.
• The Z value is used to determine the probability of meeting the project deadline using statistical tables.