Foundation Guide for PMP/CAPM Certification Exam

Fast PMP Exam Preparation for Working Professionals!

The Foundation Guide for PMP and CAPM

Certification Exams Series Presents

Risk Management

Shivshanker Shenoy
PMP
www.PMExamSmartNotes.com

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Foundation Guide for PMP/CAPM Certification Exam

Copyright notice
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Acknowledgements
All the images used in this study guide are available under Creative Commons license and credit is mentioned below
individual images.

Trademark Notice
PMI is a registered trademark and service mark of the Project Management Institute, Inc.
PMP and CAPM is a registered certification mark of the Project Management Institute, Inc.
PMBOK is a registered trademark of the Project Management Institute, Inc.

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Foundation Guide for PMP/CAPM Certification Exam

Foreword
Whenever you had to study a 'heavy' book, did you wish for a simpler guide just to get the gist of the subject?
Something like a crash-course guide that you could go through and get a handle on the stuff?
I always thought about and looked for such resources whenever I had to study a new subject (the reason I love
Wikipedia). It was a similar feeling I had when I took up PMBOK guide to study.
And when I was in a position to prepare a short guide, there was no time to waste.
So here is this guide in front of you. The very fact that you have decided to read this would mean that you might be
one of these
(a) seriously preparing for PMP or CAPM exam
(b) performing the duties of a project manager (project practitioner)
(c) simply curious to know about a systematic way of project management
You will not be disappointed.
Even the basic form of the foundation guide came to well over 200 pages, so I decided to split it into modules. One
covering project management basics and one each for the 10 knowledge areas, so you can pick up the one you wish
to understand and run through it easily.

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Foundation Guide for PMP/CAPM Certification Exam

This guide, of course, comes to you free of cost. The only aim of this guide is to provide you with a quick and succinct
account of project management concepts from PMBOK.
For all the details of concepts highlighted in this book, do visit www.PMExamSmartNotes.com blog. It will make your
exam preparation a breeze, I promise!
PS: This study guide is best viewed in 100% (or 1:1) resolution. Zooming out beyond this may slightly blur some of
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Foundation Guide for PMP/CAPM Certification Exam

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Shiv Shenoy
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Foundation Guide for PMP/CAPM Certification Exam

Table of contents
What is Risk? .................................................................................................................................................................................................................................... 8
Risk attitude of organization ...................................................................................................................................................................................................... 9
Planning to manage risk on the project ................................................................................................................................................................................ 11
Identifying project risks

............................................................................................................................................................................................................ 11

Analyzing project risks qualitatively ...................................................................................................................................................................................... 13

Analyzing project risks quantitatively ................................................................................................................................................................................... 13
Planning risk responses

............................................................................................................................................................................................................. 14

Strategies for negative risks or threats .................................................................................................................................................................................. 15

Strategies for positive risks or opportunities....................................................................................................................................................................... 17
Controlling project risks ............................................................................................................................................................................................................. 18

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Foundation Guide for PMP/CAPM Certification Exam

Risk Management
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Image credit: epSos.de
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Foundation Guide for PMP/CAPM Certification Exam

What is risk?
A possibility of change in the expected outcome of a task or event implies a risk. Every activity has an inherent
risk in it. Even walking on the road has its own risks, like getting hit by a truck.
Simplest of the tasks on a project has risks. For instance, as project release gets closer project's software architect
may fall sick, thereby increasing the risk of delivery. Any of scope, cost, schedule and quality of the project may be
affected due to materialization of a risk.
On the day you wanted to buy that project management software, you come across a discount code that saves you
50% on the cost! This is also a risk - although a positive one. Positive risk is called an opportunity.
If risk occurs on a project it may lead to a positive or negative impact on one or more of project objectives.

There are known unknowns and unknown unknowns on a project. What does this
mean?
Known unknowns are identified risks on the project. If you have only one architect working on the project you
know that if he has an emergency there is no one to fill in for him during his absence. Such risks cost you money when
they materialize. This expenditure is covered from contingency reserves.

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Foundation Guide for PMP/CAPM Certification Exam

Unknown unknowns are those risks that you cannot proactively identify. During project execution, your lead
developer may find out that a piece of scope has never been covered in requirements documentation. You cannot
plan for these types of risks. When unknown unknowns occur, their expenditure is covered from management
reserves.
Every organization has some amount or risk tolerance. Degree or tolerance depends on factors such as nature and
complexity of project, extent of rewards in the offering. If you are building a nuclear reactor the amount of risk
tolerance would be much lower, whereas you may exhibit more risk tolerance for a software product that is looking to
time the market.

Risk attitude of an organization

The three concepts related to risks that an organization can exhibit
Risk tolerance amount of risk that organization can withstand before it reacts to take an evasive measure
Risk appetite amount of risk the organization can afford to take in anticipation of reward
Risk threshold the is the point of risk level at which organization decides whether to accept risk. Below
threshold organization will accept risk, above threshold organization will not tolerate risk.
Project Risk Management Knowledge Area has 6 processes, 5 of them in planning process group alone! Why? Because,
you prepare for a risk before you give it a chance to materialize. Most of risk related processes are executed in
planning state before the actual project work starts. A risk involved with an activity has a chance of materialization the
moment work is started!

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Foundation Guide for PMP/CAPM Certification Exam

Planning to management
This project management activity is a to
create a plan that identifies methods of
managing risks, assigns responsibilities for
people who handle risks, outlines risk
budget, defines risk categories, and identifies
probability and impact matrix.
This project management activity creates a
plan that identifies methods of identifying
risks, assigns responsibilities to people to
handle them, outlines risk budget, defines
risk categories, and identifies probability and
impact matrix and overall risk management.
As a planning activity this is carried out after
most of the other planning exercises are
completed - such as scope, cost, schedule
and communication. Why? Simply because
of these need to be studied in order to
assess risks inherent in them.

all
Image credit: Jscreationzs / FreeDigitalPhotos.net

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Foundation Guide for PMP/CAPM Certification Exam

Identifying project risks

This is the project management activity to come up with risk register. This risk register contains list of identified risks,
their sources, and potential responses.
Todd planned for a weekend camping trip with his
friends. They planned the route, camping gear,
compass, sleeping bags, food, beer, but overlooked
one important risk associated with such trips.
When an unplanned risk materializes, it can
cripple the project or bring it to a grounding
halt.
Todd and his friends partied into the night, enjoyed
the campfire, and went to sleep well after mid-night.
A grizzly bear decided to say hello in the wee hours
of morning.
Identifying risks is one of the easiest processes,
really. Our brains are wired to look for things that
can go wrong, and that is what is required for
Image credit: Greencolander

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Foundation Guide for PMP/CAPM Certification Exam

this process. Only caution to be exercised is to keep things in the realm of practicality.
Who identifies risks?
It could be the same team that worked on risk planning. Or it can be the team and few more people that know about
the project and/or have experience working with similar project. Some organizations have risk management experts
to help project teams identify risks.
Involving the team increases a sense of ownership in
them. Also, when team actively thinks about risks they
develop a mental frame that helps them deal with the
risks in case they materialize.

Analyzing project risks

qualitatively
This is the project management activity where risks in
the risk register are ranked and prioritized based on
urgency, probability of them coming true, and potential
impact.

Image credit: Stuart Miles / FreeDigitalPhotos.net

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Foundation Guide for PMP/CAPM Certification Exam

You identified all possible risks on the project in Identify Risks process. Next logical step is to prioritize them, so that
high priority ones are addressed first. Prioritization is done based on probability of occurrence and impact on
project objectives if and when they materialize.
Since this analysis is qualitative in nature, to some extent subjective,
this can be done with relative ease. Once prioritized, this list then forms
a basis for performing quantitative risk analysis.

Analyzing project risks

quantitatively
This is the project management activity where risks in the risk register
are analyzed using statistical tools and their priorities are updated.
This project management activity is done as a supporting action, to
back your qualitative analysis of risks with some solid numbers. It may
also be possible that certain risks could not be analyzed qualitatively
and hence you use quantitative risk analysis to prioritize them.
In some cases this project management activity is treated as optional,
especially when there is lack of data, and after analyzing the risks
qualitatively the team moves to the exercise of planning risk responses.
Image credit: Zuzzuillo / FreeDigitalPhotos.net
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Foundation Guide for PMP/CAPM Certification Exam

What is the difference between qualitative and quantitative risk analysis?

Qualitative risk analysis is more subjective in nature, based on facts and figures from previous experience. However,
quantitative risk analysis produces statistical numbers for each of the risks, thus making it easier to prioritize them.
This project management activity is analyzes effect of risks on project objectives.

Planning risk
responses
This is the project management activity for developing
actions to enhance opportunities and reduce threats
to project objectives posed by risks.
Once risks are identified and prioritized, the next step
is to plan for possible responses for each of them.
Kathy from Landscaping project should think about,
what if there is torrential downpour on the day
jogging tracks are being fixed?
what if a large amount of exotic plant saplings die
within first 2 weeks due to unfavorable soil or
weather condition?

Image credit: lorda

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Foundation Guide for PMP/CAPM Certification Exam

what if the lone designer on the team quits halfway through the project?
In this project management activity you think of ways to reduce threats and enhance opportunities to project
objectives.

Where do we start?
The risk register, of course. That is where all risks are listed. We also look at the risk management plan, which talks
about methods of managing risks, responsibilities for people who handle risks, outlines risk budget, defines risk
categories, and identifies probability and impact matrix.

Strategies for negative risks or threats

We saw this briefly in a previous lesson on risks. There are four ways to deal with threats. Let us look at them with an
example.
Meeting with an accident is a real risk involved with driving a car. How can one deal with it?

Avoid - change project plan, adjust one or more project objectives such as reducing scope or changing schedule
to avoid a risk.
For our example, this would mean not driving a car at all.

Transfer - transfer some or all of the risk, and ownership of response to a third party.
This comes at a premium however. If it is a work that a third party vendor has expertise in, it is wise to sign a
contract and transfer the responsibility and risk of the work.

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Foundation Guide for PMP/CAPM Certification Exam

For our example, this would amount to taking an insurance. In case of an accident, at least financial losses will be
covered.

Mitigate - is about reducing the probability of risk by taking certain actions in advance. It could be measures like
adding more tests around the hi-risk areas, making simpler designs, reducing complexity of components, having
development checklists, or assigning best resources for developing risky modules/parts.
For our example, regularly servicing the car, learning the traffic rules and driving etiquette, not consuming alcohol while
driving :-) and driving within prescribed speed limits would help mitigating the likelihood of accident to some extent.

Accept - at times there is nothing one can do to avoid risk and project management team decides to deal with it if
and when it occurs. Passive acceptance would be doing nothing about it at all. Active acceptance would be
allocating specific contingency cost, schedule, resource budget for such risks.
For our example, this would be just not doing anything about it. Drive without a worry in the world. If it happens, driver's
driving instincts may save the day. Wear seat-belts.

Strategies for positive risks or opportunities

Taking most benefit from a positive risk, or opportunity, is as important as dealing with negative risks on a project.
From overall project perspective, such benefits may negate some of the damage caused by risks that do materialize.

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A friend tells you about a piece of real estate available for purchase near an upcoming airport project. The total amount to
be invested is out of your reach. If you get to invest in it, the price is expected to be doubled every year for next 3-4 years and
it makes for a great investment opportunity right now.
What would you do?

Exploit - plan in such a way that you remove all uncertainties and make sure that this risk happens for sure.
Example of exploiting a risk on project could be creating vacancy for getting that star performer who is just
coming out of another project.
For our example, take all your savings even take up a loan if necessary. Go for the investment.

Share - share with a third party and get some of the benefits of this opportunity.
For our example, team up with the friend who can invest partially and two of you together buy that piece of land.

Enhance - doing all that is possible to increase likelihood of this risk materialization.
For our example, go for aggressive bargain, if possible offer all-cash-deal to get it.

Accept - just like one of the responses for negative risk, this is just not doing anything actively to pursue the
opportunity but being prepared to take the benefit if it materializes.

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Foundation Guide for PMP/CAPM Certification Exam

Controlling project risks

This is the project management activity to actually
implement risk response plans, track and monitor
residual risks, and identify new risks.
Monitoring and Controlling risks is essentially
managing expected and unexpected changes.
While planning for risk you referred to various
subsidiary plans in Plan Risk Management
process, realizing that risks may materialize in any
of the areas such as Cost, Schedule,
Communication or Scope. You even identified risk
categories such as Resources, Technical, External,
Project - because risks can appear in any of these
areas as well. Essentially you sliced and diced
project objectives and other elements to ensure
that we scan all the areas where things can go
wrong.

Image credit: LeonArts.at

Then you went ahead and identified very specific risks - actual risks, residual risks and secondary risks. And then you
meticulously planned for dealing with each of them in Plan Risk Responses process.

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Foundation Guide for PMP/CAPM Certification Exam

Residual risks are the smaller risks remaining even after identifying responses for bigger risks.
Secondary risks are the new risks that come up due to responses planned to manage risks.

All of this effort is like preparing for the battle. The true usefulness of it is determined in the way we monitor and
control risks through the duration of project.
It is almost impossible to think about all of the risks upfront during planning stage itself. Environments change,
stakeholders change, and even requirements change as project progresses. This leads to changes in the risks, their
nature and planned responses.
This is a project management activity to look out for identified, residual and secondary risks, identify any new risks, to
take quick corrective action when any risks materialize, to plan for further preventive actions when you identify a
trend of a new risk, and to measure effectiveness of risk responses.

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About Shiv
Shiv Shenoy has worked over 15 years in technical, management and mentoring roles for
Software Services and Product Development companies in Enterprise, Web and Mobile
domains. He has helped several start-ups to conceptualize product idea, build prototype and

take it to the market with version 1.0 and beyond. He mentors professionals on project-,
product- and technology management.
Shiv is a passionate techno-manager, blogger, mentor, photography enthusiast and painter.
Shiv helps working professional that are hard pressed for time sail through PMP and CAPM

project management certification courses, by turning his own exam notes into easily
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