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46 should form the basis of a Risk Management Plan (R3.1) and mitigation procedures, which will be completed in the sub- Risk Register (R3.12) for later risk management and control. sequent steps. Categorization of the risk list can be extremely helpful to Use risk checklists and experience from similar projects only ensure that no risks have been missed. Categorization of risks to check for missing risks and to help categorize unique can be accomplished through a review of Risk Checklists project risks. (I2.3). On major projects near the end of the planning phase, Upon completion of the risk list, categorize the risk into categorization can be achieved through the application of logical groupings. Use risk checklists and similar project Risk Breakdown Structure (R3.11). risk analyses for possible categorizations. Ideally, the list of risks should be comprehensive and nonoverlapping. This list of risks can be the basis for estimat- ing project contingency and setting the baseline cost estimate. 5.3 Planning Phase Risk Comprehensive and nonoverlapping lists of risks are required Assessment and Analysis for detailed risk and contingency modeling in the later steps (see Chapter 3 for more details). The primary objective of risk assessment is the systematic consideration of risk events focusing on their probability of occurrence and the consequences of such occurrences. The 5.2.4 Planning Phase Risk Identification majority of risk management applications during planning Relationship to Project Complexity will include only a qualitative risk assessment (or even stop at Minor projects are typically not identified as individual risk identification without any risk assessment due to the lack projects until the programming phase or later. During the of scope definition in planning). Rigorous risk analysis is gen- planning phase, minor projects are grouped into what can be erally reserved for only those major projects that are identi- classified as moderately complex or major projects. It is gen- fied in the Planning Phase. erally not until the programming phase that these are iden- Recalling from Chapter 3 (Section 3.4.2), risk assessment and tified as individual projects. Please see Chapter 6 for details analysis is the process of evaluating the risk events documented regarding risk identification on minor projects. in the preceding identification step. Risk assessment and analy- Risk identification on moderately complex projects will sis has two aspects. The first determines the probability of a risk benefit from a large number of sources. Expert Interviews occurring (risk frequency); risks are classified along a contin- (I2.5) will be a key input and formal Assumptions Analysis uum from very unlikely to very likely. The second aspect judges (I2.4) is typically warranted. A Risk Register (R3.12) should the impact of the risk should it occur (consequence severity). always be employed and a Risk Management Plan (R3.1) can Typically, a project's qualitative risk assessment will recog- be warranted on moderately complex projects with a high nize some risks whose occurrence is so likely or whose conse- level of uncertainty. quences are so serious that further quantitative risk analysis Major projects require the highest level of risk identification. is warranted. A key purpose of quantitative risk analysis is to All risk identification tools are applicable to major projects. combine the effects of the various identified and assessed risk The Risk Workshop (R3.6) is the principal tool employed on events into an overall project risk analysis. The overall risk major projects that is not typically applied to moderately com- analysis is used to determine cost and schedule contingency plex projects. Formal Risk Workshops (R3.6) are typically fa- values and to quantify individual impacts of high risk events. cilitated by a professional risk analyst and can have upwards of Ultimately however, the purpose of quantitative analysis is to 20 experts participating, depending upon the specific project not only compute numerical risk values but to provide a basis needs. The time to plan, conduct, and document the workshop for controlling project costs through effective risk manage- should not be underestimated. The benefits of a workshop ment practices. include a comprehensive list of risks and a firm basis for risk analysis and planning. 5.3.1 Planning Phase Risk Assessment and Analysis Inputs 5.2.5 Planning Phase Risk Identification Tips The key inputs for risk assessment and analysis are the The use of appropriate risk identification techniques should probability of a risk occurring (risk frequency) and the impact be intense, but commensurate to project understanding, dur- of the risk should it occur (consequence severity). The physi- ing planning. cal input to risk assessment and analysis is the list of risks from the identification step. In the Planning Phase, this will likely Risk identification should be a creative brainstorming be a high-level list of risks. Determining the risks' probability process. It should not attempt to analyze risks or discuss and impact allows for qualitatively ranking to help planners

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47 focus on the most critical risks or quantitatively modeled to managing the highest priority risks. The use of quantitative determine cost and schedule contingency estimates. expert inputs and application of an Estimate Ranges Monte The risk identification step will have identified risks, but Carlo Analysis (R3.5) tool will yield a definitive contingency the identification step should stop short of assessment or estimate and detailed sensitivity analysis of the risks that con- analysis. In the risk assessment and analysis step, risk inputs tribute to the contingency. will be elicited from planners, functional experts, estimators, Recalling from Chapter 3 (Section 3.4.3.4), the type of out- and analysts to gain a clear picture of the risks. puts that a tool produces is a function of the analytical rigor, na- ture of assumptions, or amount of input data. Results from risk analyses may be divided into three groups according to their 5.3.2 Planning Phase Risk Assessment primary output: 1) single parameter output measures; 2) mul- and Analysis Tools tiple parameter output measures; and 3) complete distribution Risk assessment and analysis tools that can be used in the output measures. Please refer to Sections 3.4.3 and 3.4.5 for a Planning Phase are listed in Table 5.2. Note that minor proj- full description of risk assessment and analysis outputs. ects are not included in the Planning Phase as explained in Section 5.2.4. Refer to the Appendix A for complete tool 5.3.4 Planning Phase Risk Assessment descriptions. and Analysis Relationship to Project Complexity 5.3.3 Planning Phase Risk Assessment Project complexity is a key indicator of which risk assessment and Analysis Outputs and analysis tools to apply. Moderately complex projects will Planning Phase risk assessment and analysis outputs will generally apply a qualitative risk assessment to produce a rank- depend on the type of decision required and the rigor in the ing of risks. Risk ranking is commonly accomplished through selected tools for assessment or analysis. The use of qualita- the use of Risk Priority Rankings (R3.7), P x I Matrixes (R3.8), tive expert input (I2.5 Expert Interviews) and the application Risk Comparison Tables (R3.9) and/or Risk Maps (R3.10). of a Risk Priority Ranking (R3.7), Probability x Impact Ma- Early planning estimates are often described by ranges. An trix (P x I) (R3.8), or Risk Comparison Table (R3.9) tools will Estimate Range Three Point Estimates (R3.4) can be used to yield a ranked set of risks that can help focus management on produce the range on moderately complex projects. On those moderately complex projects that are identified during plan- ning that need a separate contingency estimate, Contingency-- Percentages (R3.2) or Contingency--Identified (R3.3) tools Table 5.2. Planning phase risk assessment can be applied. and analysis tools. Major projects that are identified during the Planning Phase can use more rigorous risk ranking and contingency estima- Tool Moderately tion tools. The risk management process often begins with Complex Risk Analysis Workshops (R3.6) and generates a stochastic Minor Major (N/A) estimate of cost and schedule through an Estimate Range Monte Carlo Analysis (R3.5). The resulting risk-based range I2.5 Expert Interviews estimate is then updated throughout project development. R3.2 ContingencyPercentage Please see Chapter 6, Section 6.3.4 for a more detailed de- R3.3 ContingencyIdentified scription of how risk analysis and contingency estimation are related to project complexity at the programming phase. R3.4 Estimate RangesThree Point Estimate R3.5 Estimate RangesMonte Carlo Analysis 5.3.5 Planning Phase Risk Assessment R3.6 Risk Workshops and Analysis Tips R3.7 Risk Priority Ranking A clear understanding of risk significance is helpful in the R3.8 Probability x Impact Matrix (P x I) planning phase. On major identified projects near the end of the planning phase, a rigorous estimate of contingency can R3.9 Risk Comparison Table also be helpful. R3.10 Risk Map The goal of risk assessment is not to eliminate all risk from R3.13 Risk Management Information System the project. Rather, the goal is to recognize the significant