Chapter 11: Project Risk Management

TRUE/FALSE

	1.	Risk management is a frequently overlooked aspect of project management.

ANS:	T	PTS:	1	REF:	422

	2.	Good project risk management never goes unnoticed.

ANS:	F	PTS:	1	REF:	422

	3.	Before you can improve project risk management, you must understand what risk is.

ANS:	T	PTS:	1	REF:	425

	4.	Negative risk management is like investing in opportunities.

ANS:	F	PTS:	1	REF:	425

	5.	The cost for risk management should not exceed the potential benefits.

ANS:	T	PTS:	1	REF:	426

	6.	By reviewing the project scope statement, cost, schedule, and communications management plans, enterprise environmental factors, and organizational process assets, project teams can discuss and analyze risk management activities for their particular projects.

ANS:	T	PTS:	1	REF:	427

	7.	The last step in project risk management is deciding how to address this knowledge area for a particular project by performing risk management planning.

ANS:	F	PTS:	1	REF:	428

	8.	The level of detail included in the risk management plan rarely varies across projects.

ANS:	F	PTS:	1	REF:	429

	9.	Few organizations develop their own risk questionnaires.

ANS:	F	PTS:	1	REF:	431

	10.	You can break down the technology risk category into hardware, software, and network technology.

ANS:	T	PTS:	1	REF:	431

	11.	Potential risks can only be identified early in a project.

ANS:	F	PTS:	1	REF:	434

	12.	The psychology literature shows that individuals, working alone, produce fewer ideas than the same individuals produce through brainstorming in small, face-to-face groups.

ANS:	F	PTS:	1	REF:	434-435

	13.	The Delphi technique is a systematic, interactive forecasting procedure based on independent and anonymous input regarding future events.

ANS:	T	PTS:	1	REF:	435

	14.	It is uncommon for people to identify problems or opportunities without really understanding them.

ANS:	F	PTS:	1	REF:	435

	15.	SWOT analysis can be used during risk identification by having project teams focus on the broad perspectives of potential risks for particular projects.

ANS:	T	PTS:	1	REF:	435

	16.	Risk events refer to specific, certain events that may occur to the detriment or enhancement of the project.

ANS:	F	PTS:	1	REF:	436

	17.	A potential response to the risk event of a defective server might be the inclusion of a clause in a contract with the supplier to replace a defective server within a certain time period at a negotiated cost.

ANS:	T	PTS:	1	REF:	437

	18.	A probability/impact matrix or chart lists the relative probability of a risk occurring on one side of a matrix or axis on a chart and the relative impact of the risk occurring on the other.

ANS:	T	PTS:	1	REF:	439

	19.	Negative and positive risks should always be included in the same probability/impact matrix or chart.

ANS:	F	PTS:	1	REF:	439

	20.	A simple approach to using probability/impact information is to calculate risk factors.

ANS:	F	PTS:	1	REF:	440

	21.	The Microsoft Solution Framework (MSF) includes a risk management model that includes developing and monitoring a top-ten master list of risks.

ANS:	T	PTS:	1	REF:	441

	22.	A risk management review accomplishes one objective: it keeps management and the customer aware of the major influences that could prevent or enhance the project’s success.

ANS:	F	PTS:	1	REF:	441

	23.	The main output of qualitative risk analysis is a decision tree.

ANS:	F	PTS:	1	REF:	442

	24.	Quantitative risk analysis and qualitative risk analysis must be done together.

ANS:	F	PTS:	1	REF:	442

	25.	The lower the EMV, the better.

ANS:	F	PTS:	1	REF:	443

	26.	The Monte Carlo analysis can predict the probability of finishing by a certain date or the probability that the cost will be equal to or less than a certain value.

ANS:	T	PTS:	1	REF:	444

	27.	Several PC-based software packages are available that perform Monte Carlo simulations.

ANS:	T	PTS:	1	REF:	445

	28.	Increasing the project manager’s authority is a strategy for mitigating technical and cost risks.

ANS:	T	PTS:	1	REF:	448

	29.	Selecting the most experienced project manager is recommended for reducing schedule risks.

ANS:	T	PTS:	1	REF:	448

	30.	Project risk management does not stop with the initial risk analysis.

ANS:	T	PTS:	1	REF:	450

MULTIPLE CHOICE

	1.	William Ibbs and Young H. Kwak’s study revealed that the ____ industry had the lowest level of project management maturity in the area of risk management.
a.	engineering/construction	c.	information systems	
b.	telecommunications	d.	high-tech manufacturing	

ANS:	C	PTS:	1	REF:	423

	2.	William Ibbs and Young H. Kwak’s study revealed that the ____ industry had the lowest level of project management maturity in the area of quality management.
a.	engineering/construction	c.	information systems	
b.	telecommunications	d.	high-tech manufacturing	

ANS:	C	PTS:	1	REF:	423

	3.	KLCI Research Group’s 2001 survey revealed that ____ percent of the participants said they had procedures in place to identify and assess risk.
a.	75	c.	97	
b.	87	d.	99	

ANS:	C	PTS:	1	REF:	424

	4.	KLCI Research Group’s 2001 survey revealed that ____ percent identified anticipating and avoiding problems as the primary benefit of risk management.
a.	60	c.	89	
b.	80	d.	99	

ANS:	B	PTS:	1	REF:	424

	5.	KLCI Research Group’s 2001 survey revealed that ____ percent of the organizations surveyed had a Project Management Office.
a.	64	c.	85	
b.	75	d.	94	

ANS:	A	PTS:	1	REF:	424

	6.	KLCI Research Group’s 2001 survey revealed that the most frequently cited benefit from software risk management practices is to ____.
a.	prevent surprises	c.	meet customer commitments	
b.	improve ability to negotiate	d.	anticipate/avoid problems	

ANS:	D	PTS:	1	REF:	424

	7.	Utility rises at a decreasing rate for a ____ person.
a.	risk-seeking	c.	risk-neutral	
b.	risk-averse	d.	risk-indifferent	

ANS:	B	PTS:	1	REF:	426

	8.	Those who are ____ have a higher tolerance for risk, and their satisfaction increases when more payoff is at stake.
a.	risk-seeking	c.	risk-neutral	
b.	risk-averse	d.	risk-indifferent	

ANS:	A	PTS:	1	REF:	426

	9.	A ____ person achieves a balance between risk and payoff.
a.	risk-seeking	c.	risk-fearing	
b.	risk-averse	d.	risk-neutral	

ANS:	D	PTS:	1	REF:	426

	10.	There are ____ major processes involved in risk management.
a.	three	c.	five	
b.	four	d.	six	

ANS:	D	PTS:	1	REF:	427

	11.	____ involves deciding how to approach and plan the risk management activities for the project.
a.	Identifying risks	c.	Performing qualitative risk analysis	
b.	Planning risk management	d.	Performing quantitative risk analysis	

ANS:	B	PTS:	1	REF:	427

	12.	____ involves determining which risks are likely to affect a project and documenting the characteristics of each.
a.	Identifying risks	c.	Performing qualitative risk analysis	
b.	Planning risk management	d.	Performing quantitative risk analysis	

ANS:	A	PTS:	1	REF:	427

	13.	____ involves prioritizing risks based on their probability and impact of occurrence.
a.	Performing qualitative risk analysis	c.	Planning risk responses	
b.	Planning risk management	d.	Performing quantitative risk analysis	

ANS:	A	PTS:	1	REF:	427

	14.	____ involves numerically estimating the effects of risks on project objectives.
a.	Performing qualitative risk analysis	c.	Planning risk management	
b.	Planning risk responses	d.	Performing quantitative risk analysis	

ANS:	D	PTS:	1	REF:	427

	15.	____ involves taking steps to enhance opportunities and reduce threats to meeting project objectives.
a.	Performing quantitative risk analysis	c.	Monitoring and controlling risk	
b.	Planning risk responses	d.	Performing qualitative risk analysis	

ANS:	B	PTS:	1	REF:	427

	16.	____ involves monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project.
a.	Performing quantitative risk analysis	c.	Monitoring and controlling risk	
b.	Planning risk responses	d.	Performing qualitative risk analysis	

ANS:	C	PTS:	1	REF:	427

	17.	____ are predefined actions that the project team will take if an identified risk event occurs.
a.	Fallback plans	c.	Contingency plans	
b.	Contingency reserves	d.	Contingency allowances	

ANS:	C	PTS:	1	REF:	429

	18.	____ are developed for risks that have a high impact on meeting project objectives, and are put into effect if attempts to reduce the risk are not effective.
a.	Fallback plans	c.	Contingency plans	
b.	Contingency reserves	d.	Contingency allowances	

ANS:	A	PTS:	1	REF:	429

	19.	According to the Standish Group’s success potential scoring sheet, ____ has the highest relative importance.
a.	executive management support	c.	proper planning	
b.	clear statement of requirements	d.	user involvement	

ANS:	D	PTS:	1	REF:	430

	20.	“If the information technology project is to produce a new product or service, will it be useful to the organization or marketable to others?” applies to which risk category? ____
a.	Financial risk	c.	Structure/process risk	
b.	Technology risk	d.	Market risk	

ANS:	D	PTS:	1	REF:	431

	21.	“Will the project meet NPV, ROI, and payback estimates?” applies to which risk category? ____
a.	Financial risk	c.	Structure/process risk	
b.	Technology risk	d.	Market risk	

ANS:	A	PTS:	1	REF:	431

	22.	“Is there a project champion?” applies to which risk category? ____
a.	Financial risk	c.	Structure/process risk	
b.	Technology risk	d.	People risk	

ANS:	D	PTS:	1	REF:	431

	23.	In a risk breakdown structure, competitors, suppliers, and cash flow are categories that fall under ____ risk.
a.	business	c.	organizational	
b.	technical	d.	project management	

ANS:	A	PTS:	1	REF:	432

	24.	Poor conflict management, poor project organization and definition of responsibilities, and absence of leadership are risk conditions associated with the ____ project management knowledge area.
a.	Integration	c.	Time	
b.	Quality	d.	Human Resources	

ANS:	D	PTS:	1	REF:	433

	25.	Unenforceable conditions or contract clauses, and adversarial relations are risk conditions associated with the ____ project management knowledge area.
a.	Integration	c.	Procurement	
b.	Quality	d.	Human Resources	

ANS:	C	PTS:	1	REF:	434

	26.	____ is a fact-finding technique for collecting information in face-to-face, phone, e-mail, or instant-messaging discussions.
a.	Brainstorming	c.	The Delphi technique	
b.	SWOT analysis	d.	Interviewing	

ANS:	D	PTS:	1	REF:	435

	27.	A(n) ____ represents decision problems by displaying essential elements, including decisions, uncertainties, causality, and objectives, and how they influence each other.
a.	risk breakdown structure	c.	process flow chart	
b.	influence diagram	d.	system flow chart	

ANS:	B	PTS:	1	REF:	436

	28.	A project manager can chart the probability and impact of risks on a ____.
a.	risk ranking chart	c.	probability/impact matrix	
b.	risk probability table	d.	risk assessment matrix	

ANS:	C	PTS:	1	REF:	438

	29.	____ are/is a qualitative risk analysis tool, and in addition to identifying risks, it maintains an awareness of risks throughout the life of a project.
a.	Risk factor analysis	c.	Risk registering	
b.	Probability/impact matrices or charts	d.	Top Ten Risk Item Tracking	

ANS:	D	PTS:	1	REF:	441

	30.	A(n) ____ is a diagramming analysis technique used to help select the best course of action in situations in which future outcomes are uncertain.
a.	decision tree	c.	Monte Carlo analysis	
b.	EMV	d.	watch list	

ANS:	A	PTS:	1	REF:	442

	31.	____ analysis simulates a model’s outcome many times to provide a statistical distribution of the calculated results.
a.	Decision tree	c.	Monte Carlo	
b.	EMV	d.	Watch list	

ANS:	C	PTS:	1	REF:	444

	32.	What is the first step in a Monte Carlo analysis?
a.	Determine the probability distribution of each variable.	
b.	For each variable, such as the time estimate for a task, select a random value based on the probability distribution for the occurrence of the variable.	
c.	Assess the range for the variables being considered.	
d.	Run a deterministic analysis or one pass through the model using the combination of values selected for each one of the variables.	

ANS:	C	PTS:	1	REF:	444

	33.	____ involves eliminating a specific threat, usually by eliminating its causes.
a.	Risk avoidance	c.	Risk transference	
b.	Risk acceptance	d.	Risk mitigation	

ANS:	A	PTS:	1	REF:	447

	34.	____ involves shifting the consequence of a risk and responsibility for its management to a third party.
a.	Risk avoidance	c.	Risk transference	
b.	Risk acceptance	d.	Risk mitigation	

ANS:	C	PTS:	1	REF:	448

	35.	____ involves reducing the impact of a risk event by reducing the probability of its occurrence.
a.	Risk avoidance	c.	Risk transference	
b.	Risk acceptance	d.	Risk mitigation	

ANS:	D	PTS:	1	REF:	448

	36.	____ involves doing whatever you can to make sure the positive risk happens.
a.	Risk exploitation	c.	Risk enhancement	
b.	Risk sharing	d.	Risk acceptance	

ANS:	A	PTS:	1	REF:	449

	37.	____ involves allocating ownership of the risk to another party.
a.	Risk exploitation	c.	Risk enhancement	
b.	Risk sharing	d.	Risk acceptance	

ANS:	B	PTS:	1	REF:	449

	38.	____ involves changing the size of the opportunity by identifying and maximizing key drivers of the positive risk.
a.	Risk exploitation	c.	Risk enhancement	
b.	Risk sharing	d.	Risk acceptance	

ANS:	C	PTS:	1	REF:	449

	39.	____ applies to positive risks when the project team cannot or chooses not to take any actions toward a risk.
a.	Risk enhancement	c.	Risk sharing	
b.	Risk acceptance	d.	Risk exploitation	

ANS:	B	PTS:	1	REF:	449

	40.	____ risks are a direct result of implementing a risk response.
a.	Tertiary	c.	Residual	
b.	Primary	d.	Secondary	

ANS:	D	PTS:	1	REF:	449

COMPLETION

	1.	Risk management can have a(n) ____________________ impact on selecting projects, determining the scope of projects, and developing realistic schedules and cost estimates.

ANS:	positive

PTS:	1	REF:	422

	2.	A project ____________________ is an uncertainty that can have a negative or positive effect on meeting project objectives.

ANS:	risk

PTS:	1	REF:	425

	3.	Given that all projects involve ____________________ that can have negative or positive outcomes, the question is how to decide which projects to pursue and how to identify and manage project risk throughout a project’s life cycle.

ANS:	
uncertainties
uncertainty

PTS:	1	REF:	426

	4.	The idea of striving to balance risks and opportunities suggests that different organizations and people have different ____________________ for risk.

ANS:	
tolerances
tolerance

PTS:	1	REF:	426

	5.	____________________ is the amount of satisfaction or pleasure received from a potential payoff.

ANS:	
Risk utility
Risk tolerance

PTS:	1	REF:	426

	6.	The main output of the ____________________ process is the start of a risk register.

ANS:	identifying risks

PTS:	1	REF:	427

	7.	A(n) _________________________ documents the procedures for managing risk throughout the project.

ANS:	risk management plan

PTS:	1	REF:	428

	8.	_________________________ are provisions held by the project sponsor or organization to reduce the risk of cost or schedule overruns to an acceptable level.

ANS:	
Contingency reserves
Contingency allowances

PTS:	1	REF:	430

	9.	A(n) _________________________ is a hierarchy of potential risk categories for a project.

ANS:	risk breakdown structure

PTS:	1	REF:	432

	10.	Inadequate planning, poor resource allocation, poor integration management, and lack of post-project review are risk conditions associated with the ____________________ project management knowledge area.

ANS:	integration

PTS:	1	REF:	433

	11.	____________________ is a technique by which a group attempts to generate ideas or find a solution for a specific problem by amassing ideas spontaneously and without judgment.

ANS:	Brainstorming

PTS:	1	REF:	434

	12.	The basic concept of the ____________________ is to derive a consensus among a panel of experts who make predictions about future developments.

ANS:	Delphi technique

PTS:	1	REF:	435

	13.	____________________ based on risks that have been encountered in previous projects provide a meaningful template for understanding risks in a current project.

ANS:	Checklists

PTS:	1	REF:	436

	14.	System or process ____________________ are diagrams that show how different parts of a system interrelate.

ANS:	flowcharts

PTS:	1	REF:	436

	15.	A(n) ____________________ is a document that contains results of various risk management processes.

ANS:	risk register

PTS:	1	REF:	436

	16.	____________________ are indicators or symptoms of actual risk events.

ANS:	Triggers

PTS:	1	REF:	437

	17.	The ____________________ is the person who will own or take responsibility for the risk.

ANS:	risk owner

PTS:	1	REF:	437

	18.	____________________ are numbers that represent the overall risk of specific events, based on their probability of occurring and the consequences to the project if they do occur.

ANS:	Risk factors

PTS:	1	REF:	440

	19.	A(n) ____________________ is a list of risks that are low priority, but are still identified as potential risks.

ANS:	watch list

PTS:	1	REF:	442

	20.	_________________________ is the product of a risk event probability and the risk event’s monetary value.

ANS:	
EMV
Expected monetary value
Expected monetary value (EMV)
EMV (Expected monetary value)

PTS:	1	REF:	442

	21.	Many professionals use ____________________ to help make several common business decisions, such as determining break-even points based on different assumptions.

ANS:	sensitivity analysis

PTS:	1	REF:	446

	22.	Risk ____________________ involves accepting the consequences should a risk occur.

ANS:	acceptance

PTS:	1	REF:	448

	23.	Examples of risk ____________________ include using proven technology, having competent project personnel, using various analysis and validation techniques, and buying maintenance or service agreements from subcontractors.

ANS:	mitigation

PTS:	1	REF:	448

	24.	____________________ risks are risks that remain after all of the response strategies have been implemented.

ANS:	Residual

PTS:	1	REF:	449

	25.	Project teams sometimes use ____________________—unplanned responses to risk events—when they do not have contingency plans in place.

ANS:	workarounds

PTS:	1	REF:	450

ESSAY

	1.	List and briefly describe the six major processes involved in risk management.

ANS:	
Planning risk management involves deciding how to approach and plan the risk management activities for the project. By reviewing the project scope statement; cost, schedule, and communications management plans; enterprise environmental factors; and organizational process assets, project teams can discuss and analyze risk management activities for their particular projects. The main output of this process is a risk management plan.

Identifying risks involves determining which risks are likely to affect a project and documenting the characteristics of each. The main output of this process is the start of a risk register, as described in more detail later in this chapter.

Performing qualitative risk analysis involves prioritizing risks based on their probability and impact of occurrence. After identifying risks, project teams can use various tools and techniques to rank risks and update information in the risk register. The main output is risk register updates.

Performing quantitative risk analysis involves numerically estimating the effects of risks on project objectives. The main output of this process is also risk register updates.

Planning risk responses involves taking steps to enhance opportunities and reduce threats to meeting project objectives. Using outputs from the preceding risk management processes, project teams can develop risk response strategies that often result in updates to the risk register, project management plan, and other project documents as well as risk-related contract decisions.

Monitoring and controlling risk involves monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project. The main outputs of this process include change requests and updates to the risk register, organizational process assets, project management plan, and project documents.

PTS:	1	REF:	427-428

	2.	List and describe four methods for identifying risks.

ANS:	
Brainstorming is a technique by which a group attempts to generate ideas or find a solution for a specific problem by amassing ideas spontaneously and without judgment. This approach can help the group create a comprehensive list of risks to address later in the qualitative and quantitative risk analysis processes. An experienced facilitator should run the brainstorming session and introduce new categories of potential risks to keep the ideas flowing. After the ideas are collected, the facilitator can group and categorize the ideas to make them more manageable. Care must be taken, however, not to overuse or misuse brainstorming. Although businesses use brainstorming widely to generate new ideas, the psychology literature shows that individuals, working alone, produce a greater number of ideas than the same individuals produce through brainstorming in small, face-to-face groups. Group effects, such as fear of social disapproval, the effects of authority hierarchy, and domination of the session by one or two very vocal people often inhibit idea generation for many participants.

An approach to gathering information that helps prevent some of the negative group affects found in brainstorming is the Delphi Technique. The basic concept of the Delphi Technique is to derive a consensus among a panel of experts who make predictions about future developments. Developed by the Rand Corporation for the U.S. Air Force in the late 1960s, the Delphi Technique is a systematic, interactive forecasting procedure based on independent and anonymous input regarding future events. The Delphi Technique uses repeated rounds of questioning and written responses, including feedback to earlier-round responses, to take advantage of group input, while avoiding the biasing effects possible in oral panel deliberations. To use the Delphi Technique, you must select a panel of experts for the particular area in question.

Interviewing is a fact-finding technique for collecting information in face-to-face, phone, e-mail, or instant-messaging discussions. Interviewing people with similar project experience is an important tool for identifying potential risks. For example, if a new project involves using a particular type of hardware or software, someone with recent experience with that hardware or software could describe problems he or she had on a past project. If someone has worked with a particular customer, he or she might provide insight into potential risks involved in working for that group again.It is important to be well-prepared for leading interviews; it often helps to create a list of questions to use as a guide during the interview.

It is not uncommon for people to identify problems or opportunities without really understanding them. Before suggesting courses of action, it is important to identify the root cause  of a problem or opportunity. Root cause analysis often results in identifying even more potential risks for a project.

Another technique is a SWOT analysis of strengths, weaknesses, opportunities, and threats, which is often used in strategic planning. SWOT analysis can also be used during risk identification by having project teams focus on the broad perspectives of potential risks for particular projects. For example, before writing a particular proposal, Cliff Branch could have a group of his employees discuss in detail what their company’s strengths are, what their weaknesses are related to that project, and what opportunities and threats exist. Do they know that several competing firms are much more likely to win a certain contract? Do they know that winning a particular contract will likely lead to future contracts and help expand their business? Applying SWOT to specific potential projects can help identify the broad risks and opportunities that apply in that scenario.

Three other techniques for risk identification include the use of checklists, analysis of  assumptions, and creation of diagrams:
• Checklists, based on risks that have been encountered in previous projects, provide a meaningful template for understanding risks in a current project. You can use checklists similar to those developed by the Standish Group and other IT research consultants to help identify risks on information technology projects.
• It is important to analyze project assumptions to make sure they are valid. Incomplete, inaccurate, or inconsistent assumptions might lead to identifying more risks.
• Diagramming techniques include using cause-and-effect diagrams or fishbone diagrams, flow charts, and influence diagrams. The fishbone diagrams help you trace problems back to
their root cause. System or process flowcharts are diagrams that show how different parts of a system interrelate. For example, many programmers create flowcharts to show programming logic. Another type of diagram, an influence diagram, represents decision problems by displaying essential elements, including decisions, uncertainties, causality, and objectives, and how they influence each other.

PTS:	1	REF:	434-436

	3.	Describe Decision Trees and Expected Monetary Value.

ANS:	
A decision tree is a diagramming analysis technique used to help select the best course of action in situations in which future outcomes are uncertain. A common application of decision tree analysis involves calculating expected monetary value. Expected monetary value (EMV) is the product of a risk event probability and the risk event’s monetary value. To create a decision tree, and to calculate expected monetary value specifically, you must estimate the probabilities, or chances, of certain events occurring. Probabilities are normally determined based on expert judgment.

To calculate the expected monetary value (EMV) for each project, multiply the probability by the outcome value for each potential outcome for each project and sum the results. Because the EMV provides an estimate for the total dollar value of a decision, you want to have a positive number; the higher the EMV, the better. Using EMV helps account for all possible outcomes and their probabilities of occurrence, thereby reducing the tendency to pursue overly aggressive or conservative risk strategies.

PTS:	1	REF:	442-444

	4.	What are the basic steps in performing a Monte Carlo analysis?

ANS:	
1. Assess the range for the variables being considered. In other words, collect the most likely, optimistic, and pessimistic estimates for the variables in the model. For example, if you are trying to determine the likelihood of meeting project schedule goals, the project network diagram would be your model. You would collect the most likely, optimistic, and pessimistic time estimates for each task. This step is similar to collecting data for performing PERT estimates. However, instead of applying the same PERT weighted average formula, you go on to the following steps when performing a Monte Carlo simulation.

2. Determine the probability distribution of each variable. What is the likelihood of that variable falling between the optimistic and most likely estimates? For example, if an expert assigned to do a particular task provides a most likely estimate of ten weeks, an optimistic estimate of eight weeks, and a pessimistic estimate of fifteen weeks, you then ask what the probability is of completing that task between eight and ten weeks. The expert might respond that there is a 20 percent probability.

3. For each variable, such as the time estimate for a task, select a random value based on the probability distribution for the occurrence of the variable. For example, using the above scenario, you would randomly pick a value between eight weeks and ten weeks 20 percent of the time and a value between ten weeks and fifteen weeks 80 percent of the time.

4. Run a deterministic analysis or one pass through the model using the combination of values selected for each one of the variables. For example, the one task described above might have a value of 12 on the first run. All of the other tasks would have one random value assigned to them on that first run, also, based on their estimates and probability distributions.

5. Repeat Steps 3 and 4 many times to obtain the probability distribution of the model’s results. The number of iterations depends on the number of variables and the degree of confidence required in the results, but it typically lies between 100 and 1,000. Using the project schedule as an example, the final simulation results will show you the probability of completing the entire project within a certain time period.

PTS:	1	REF:	444-445

	5.	What are the four basic response strategies for negative risks? Describe each strategy.

ANS:	
1. Risk avoidance or eliminating a specific threat, usually by eliminating its causes. Of course, not all risks can be eliminated, but specific risk events can be. For example, a project team may decide to continue using a specific piece of hardware or software on a project because they know it works. Other products that could be used on the project may be available, but if the project team is unfamiliar with them, they could cause significant risk. Using familiar hardware or software eliminates this risk.

2. Risk acceptance or accepting the consequences should a risk occur. For example, a project team planning a big project review meeting could take an active approach to risk by having a contingency or backup plan and contingency reserves if they cannot get approval for a specific site for the meeting. On the other hand, they could take a passive approach and accept whatever facility their organization provides them.

3. Risk transference or shifting the consequence of a risk and responsibility for its management to a third party. For example, risk transference is often used in dealing with financial risk exposure. A project team may purchase special insurance or warranty protection for specific hardware needed for a project. If the hardware fails, the insurer must replace it within an agreed-upon period of time.

4. Risk mitigation or reducing the impact of a risk event by reducing the probability of its occurrence. Suggestions for reducing common sources of risk on information technology projects were provided at the beginning of this chapter. Other examples of risk mitigation include using proven technology, having competent project personnel, using various analysis and validation techniques, and buying maintenance or service agreements from subcontractors.

PTS:	1	REF:	447-448