Risk Management - PMP Exam - PMBOK 5

Course details

One of the main aspects of project planning is Risk Management Planning, which consists of six processes Project Management Processes. We will start by putting a Risk Management Plan, identifying the roles and responsibilities as well as the hows and whos of Risk Management. Then we will move on to identifying risks that might take place in the project. After that, and since we probably would end up with a large list of risks, we would perform a Qualitative Risk Analysis to prioritize risks in the project and to make sure that we focus on the most important risks. Then we will move on to perform Quantitative Risk Analysis in order to examine the impacts of these risks, i.e. in order to understand how to build up the contingency reserves for our project. Last but not least, we will move on to Planning Risk Responses and Strategies for managing the Risk Response Plans. After these five processes, in the Monitoring and Controlling phase, we will have only one Risk Management Process which is to control risks throughout the project.

So let's start first by explaining the very basics of Risk and Risk Management. What is the definition of risk? The risk is an event that might take place throughout the project and that has an impact on the project objectives. So basically for an event to be a risk, it should have two characteristics: 1) the probability or the likelihood of the risk to happen and 2) the impact that the risk would cause on a project, and by impact, we mean the positive and negative impact of the event. Most people think that risks should only be considered if they have a negative impact on the project objectives and that is not true. You should consider both, you should consider the risks that might cause negative impacts as well as risks that might cause positive impacts on the project.

Risk Appetite indicates the willingness of an organization or a stakeholder to take risks. We call people and organizations that are willing to take risks Risk Takers while other organizations and people are risk averse as they have low appetite of taking risks.

Risk Tolerance is the limit or the point where an organization may select a different risk response if a risk reaches this point. 

Risk Threshold is the threshold at which we might want to take a corrective action in the project. So to sum it all up, an organization's risk attitude may include its appetite for uncertainty, its thresholds for risk levels that are unacceptable or its Risk Tolerance at which point the organization may select a different risk response.