Risk identification is a critical factor in the process of risk management. According to the Project Management Institute (PMI), risk identification is the first and essential step in the process of risk management. It consists of determining which risks might affect the project and documenting their characteristics. For those preparing for the PMI Risk Management Professional (PMI-RMP) exam, mastering the method of performing a detailed analysis of risk identification exercise results is essential.
Principles in Risk Identification Exercise
The risk identification process primarily focuses on understanding what could go wrong, how, and the potential implications. This process involves the recognition of inherent risks, the circumstances or events that could affect the project adversely, and the potential consequences if these risks materialize. Many techniques are used for this task including brainstorming, checklists, and root cause analysis.
The characteristics of identified risks may include their causes, their potential impact, their potential response, and the timeframe in which the risks might occur. Using these characteristics, risk identification helps to recognize the threats and opportunities that could affect the project, thereby creating a foundation for further steps in the project risk management process like risk assessment and risk response planning.
Analysis of Risk Identification Results
To enhance your understanding, let’s consider an example of risk identification and a detailed analysis for a hypothetical technology project.
Table 1 shows the risks identified related to this project.
| Risk | Causes | Impact | Potential Response | Timeframe |
|---|---|---|---|---|
| Technical complexity | Inexperience with technology, significant integration | Project delays, Higher costs | Employ expert, Additional training | Throughout project |
| Vendor reliability | Dependence on single vendor, Lack of backup plan | Supply disruption, Quality issues | Diversify vendors, Backup plan | Initial stage |
| Regulatory changes | Changing legal environment | Additional compliance cost, Legal action | Regular updates, Legal consultation | Every quarter |
After the identification of risks, a detailed analysis follows. This analysis involves risk assessment which quantitatively and qualitatively evaluates the identified risks. For instance, the threats of technical complexity and vendor reliability are assessed using quantitative measures, such as the number of affected project activities or the cost of potential delays.
Qualitative risk assessment also applies where measures like the probability of risk occurrence and its impact on project objectives are gauged. The assessment uses a Risk Probability and Impact Matrix. Table 2 provides a hypothetical instance of qualitative risk assessment for our example project.
| Risk | Probability | Impact | Risk Score |
|---|---|---|---|
| Technical complexity | High | High | 25 |
| Vendor reliability | Medium | High | 20 |
| Regulatory changes | Low | Medium | 10 |
The risk score, determined by multiplying the probability and impact scores, helps the project team prioritize risks and establish the severity of each identified risk.
The PMI-RMP concept thus endeavors to arm potential risk management professionals with proactive strategies that identify and assess risks on a timely basis, fostering the implementation of appropriate risk responses that ensure project success.
Conclusion
A detailed analysis of risk identification results provides a complete picture of the potential uncertainty that could affect the project’s objectives. This analysis forms the basis for risk responses and overall project decision-making. It emphasizes the necessity to consider both threats and opportunities while managing project risks. As a potential PMI-RMP, thorough training in risk identification and detailed risk analysis forms a substantial part of your proficiency in promoting project success against a backdrop of potential uncertainty and volatility.
Practice Test
True or False: The process of risk identification should be repeated through the entire life cycle of a project.
- True
- False
Answer: True.
Explanation: Risk identification is not a one-time event. Risks could emerge any time during the project lifecycle, hence identification should be ongoing.
Multiple Select: Which of the following are techniques for risk identification?
- (a) Expert Judgement
- (b) SWOT Analysis
- (c) Delphi Technique
- (d) Critical Path Method
Answer: (a) Expert Judgement, (b) SWOT Analysis (c) Delphi Technique
Explanation: All except Critical Path Method are techniques for risk identification. Critical Path Method is a technique used for scheduling in project management.
True or False: It is highly recommended to use a single source during risk identification.
- True
- False
Answer: False.
Explanation: To perform a detailed risk analysis, it is wise to utilize multiple sources. More sources provide a diverse range of risk factors which increases the thoroughness of the analysis.
Single Select: Which document is updated after the risk identification exercise?
- (a) Risk Register
- (b) Issue Log
- (c) Stakeholder Register
- (d) Project Charter
Answer: (a) Risk Register
Explanation: Risk register is the document where every identified risk is recorded.
True or False: Only project managers are responsible for risk identification.
- True
- False
Answer: False.
Explanation: Although project managers have significant responsibilities in risk management, all team members, as well as stakeholders, contribute to risk identification.
Multiple Select: Which of the following could be useful tools for risk identification?
- (a) Risk Breakdown Structure (RBS)
- (b) Ishikawa Diagrams
- (c) Force Field Analysis
- (d) Gantt Chart
Answer: (a) Risk Breakdown Structure (RBS), (b) Ishikawa Diagrams and (c) Force Field Analysis
Explanation: RBS, Ishikawa Diagrams, and Force Field Analysis are used in risk identification. Gantt Chart is a type of bar chart used in project scheduling.
True or False: Identified risks are always negative in nature.
- True
- False
Answer: False.
Explanation: While many risks have negative consequences, not all do. Some carry potential positive impacts on the project, these are known as opportunities.
Single Select: In order to perform detailed analyses, risks should be …
- (a) Quantified
- (b) Ignored
- (c) Deferred
- (d) Discarded
Answer: (a) Quantified
Explanation: Quantifying risks help in performing a detailed analysis as it scales the potential impact of each risk.
True or False: Trivial risks that have little impact on the project should be recorded.
- True
- False
Answer: True.
Explanation: All identified risks should be recorded, regardless of their perceived size or impact at the time of identification.
Single Select: What is crucial to effective risk management?
- (a) Taking quick decisions
- (b) Ignoring marginal risks
- (c) Open and honest communication
- (d) Not assigning risk responsibilities to team members
Answer: (c) Open and honest communication
Explanation: Effective risk management depends on transparent communication among all team members and stakeholders. It ensures all potential risks are identified, analyzed, and mitigated efficiently.
True or False: The success of a project entirely depends on the avoidance of risks.
- True
- False
Answer: False.
Explanation: The success of a project relies not on the avoidance of risks but on the effective identification and management of them.
Multiple Select: Which of the following are risk categories?
- (a) Operational
- (b) Technical
- (c) Political
- (d) Functional
Answer: (a) Operational, (b) Technical, (c) Political
Explanation: Functional is not a risk category. Other potential risk categories include financial and environmental.
True or False: The number of identified risks in a project indicates its complexity.
- True
- False
Answer: True.
Explanation: A project with more risks is generally more complex, as it presents more potential issues to manage and mitigate.
Single Select: What determines the risk appetite of the organization?
- (a) Number of risks
- (b) Type of projects
- (c) Stakeholder preferences
- (d) Project Budget
Answer: (c) Stakeholder preferences
Explanation: Stakeholder preferences greatly shape the risk appetite of an organization. Their risk tolerance levels and strategic objectives guide risk management decisions.
True or False: Brainstorming sessions are a common method for risk identification.
- True
- False
Answer: True.
Explanation: Brainstorming encourages free and open communication, allowing participants to contribute their ideas and suggestions which support the process of risk identification.
Interview Questions
What are the major steps involved in the risk identification process?
The main steps include: the identification of possible risks, decoding and documenting their characteristics, categorizing the risks, determining the risk impact and likelihood, presenting the information in a risk register, and review.
What is the significance of risk identification in a risk management process?
Risk identification is critical as it helps in recognizing potential risks that might impact the overall project objectives. By categorizing these risks in advance, project managers can initiate suitable strategies to either reduce or eliminate them.
What are the common tools used in risk identification?
Brainstorming, checklists, assumption analysis, SWOT analysis, and Delphi technique are common tools used for risk identification.
What is the main outcome of the risk identification process?
The main outcome is a detailed risk register that documents all identified risks, their characteristics, categories, and assessed impact and potential likelihood.
How often should risk identification be conducted during a project?
Risk identification should be an ongoing exercise throughout the project life cycle. As the project advances, new risks may emerge while some existing ones may change or even disappear. Therefore, it is imperative to have continual risk identification.
How do you prioritize risks identified during risk identification?
Prioritizing risks is done based on their likelihood of occurrence and potential impact on the objectives of the project.
What role does risk appetite play in risk identification and analysis?
Risk appetite helps in prioritizing and making decisions about risks. If the project team has a high risk appetite, they might be willing to take on more risks for potential high rewards. Conversely, if the team has a low risk appetite, they would prefer lower-risk activities.
What is a risk register in the context of risk identification?
A risk register, also known as a risk log, is a document that keeps track of all the identified risks, their nature, likelihood, potential impact, and the responses planned to mitigate them.
How does the Delphi technique assist in risk identification?
The Delphi technique is a structured form of communication among a group of experts. Through several rounds of anonymous responses, consensus on risks can be reached, reducing the chance of any bias in risk identification.
Why is it important to use various methods in risk identification?
Different risk identification methods have varied strengths and weaknesses. Using multiple methods allows for a more comprehensive understanding of potential risks, which can lead to a more effective risk management plan.
How does risk categorization assist in the risk management process?
Risk categorization helps in organizing risks based on their characteristics, source, impact areas, etc. This approach can also allow for grouping risks and adopting streamlined strategies for effective risk management.
What is the key outcome from performing a detailed analysis of risk identification exercise results?
The detailed analysis of risk identification results leads to the development of a risk response plan. This plan outlines strategies to mitigate the impact of risks should they occur.
How do you determine the impact and likelihood of identified risks?
The impact and likelihood of potential risks are usually determined through expert judgment, historical data, and other analytical techniques such as Monte Carlo simulation.
What is the role of root cause analysis in risk identification?
In risk identification, root cause analysis helps understand the fundamental reason behind a potential risk. By identifying and rectifying the root cause, the risk can be effectively mitigated.
What’s the contribution of stakeholders in the risk identification process?
Stakeholders can contribute significantly to the risk identification process as they provide diverse perspectives and insights. They help in uncovering uncertainties and potential risks that may otherwise go unnoticed.
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