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Project Risk and Cost Analysis

Book Description

Project Risk and Cost Analysis focuses on risk in the context of project management, primarily in the area of risk’s effects on project costs, with emphasis on the many modern tools that help you and your organization quantify and manage project risk.  You will learn how to perform a formal risk and cost analysis, apply the Earned Value Method to risk management, and adjust schedule and budget reserves appropriately for your project conditions. The book follows the basic project risk management approach as laid out in A Guide to the Project Management Body of Knowledge (PMBOK® Guide), 4th Edition, popularly known as the PMBOK® Guide, along with other sources listed in the bibliography and suggested reading. This is an ebook version of the AMA Self-Study course. If you want to take the course for credit you need to either purchase a hard copy of the course through amaselfstudy.org or purchase an online version of the course through www.flexstudy.com.

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Contents
  5. Exercise-and-Exhibits
  6. About This Course
  7. How to Take This Course
  8. Introduction
  9. Pre-Test
  10. Chapter 1: Introduction to Project Risk and Cost Analysis
    1. Learning Objectives
    2. Fundamental Concepts of Risk and Risk Management
    3. Risk Defined
    4. The Value of a Risk
    5. Types of Risk
    6. Risk Management Defined
    7. Cost Analysis and Risk Management Planning
    8. Recap
    9. Review Questions
  11. Chapter 2: Risk Identification
    1. Learning Objectives
    2. Identifying Risks
    3. Risk Register
      1. Risk ID
      2. Description of Risk
      3. Category of Risk
      4. Where Found?
      5. Probability of Occurrence
      6. Nature and Degree of Impact
      7. Risk Rating
      8. Disposition
      9. Comments
    4. How to Identify Risks
    5. Systematic Risk Identification
      1. Documentation
      2. Brainstorming
      3. Diagramming Techniques
      4. Checklists
      5. Expert judgment
    6. Output from Risk Identification Process
    7. Recap
    8. Review Questions
  12. Chapter 3: Qualitative Risk Analysis
    1. Learning Objectives
    2. Introduction to Risk Analysis
      1. Qualitative Risk Analysis
      2. Quantitative Risk Analysis
    3. Qualitative Risk Analysis
      1. Start
      2. Impact
      3. Probability
      4. Urgency
      5. Ownership
      6. Solution
      7. Acceptability
    4. Risk Triage and Other Risk Analysis Processes
    5. Recap
    6. Review Questions
  13. Chapter 4: Tools for Qualitative Risk Analysis
    1. Learning Objectives
    2. Qualitative Risk Analysis Tools
    3. Assessing Probability and Impact
      1. Establishing Ranges
      2. Risk Thresholds
    4. Combining Probability and Impact
      1. Calculating Risk Scores with Non-Numerical Information
    5. Developing a Risk Ranking for a Project
    6. Updating the Risk Register and Developing a Risk Information Sheet
    7. Recap
    8. Review Questions
  14. Chapter 5: Statistical Foundations of Quantitative Risk and Cost Analysis
    1. Learning Objectives
    2. Quantitative Risk and Cost Analysis Fundamentals
      1. A Statistic
      2. The Law of Large Numbers
      3. Probability, Odds, and Throwing Dice
    3. Basic Rules of Probability
    4. Distribution
    5. Normal Distribution
      1. Measures of Central Tendency: Mean, Median, and Mode
      2. Normal and and Other Distributions
      3. Standard Deviation
    6. Other Types of Distributions
    7. Recap
    8. Review Questions
  15. Chapter 6: Risk Cost Analysis
    1. Learning Objectives
    2. Introduction to Cost Risk Analysis
    3. Classical Risk
    4. Risk Cost Analysis
      1. Insurance as a Model for Risk Cost Analysis
      2. Contingency Allowance and Contingency Reserve
    5. Pricing Insurance Risk
      1. Risk Premiums
      2. Insurance Risk with Low Variation
      3. Insurance Risk with High Variation
      4. Additional Factors in Risk Decisions
      5. Black Swan Events
      6. Developing a Final Risk Price
    6. Recap
    7. Review Questions
  16. Chapter 7: Quantitative Cost Analysis Tools
    1. Learning Objectives
    2. Quantitative Cost Analysis
    3. Cost Estimating Under Uncertainty
    4. Cost Risk Analysis Tools
      1. Cost-Benefit Analysis
      2. Expected Monetary Value (EMV)
      3. Decision Tree Analysis
      4. Sensitivity Analysis
    5. Recap
    6. Review Questions
  17. Chapter 8: Quantitative Schedule Analysis Tools
    1. Learning Objectives
    2. Sensitivity Analysis for Scheduling Issues
    3. Schedule Risk Analysis
    4. Schedule Development
    5. Network Diagramming and Critical Path Analysis
      1. Forward and Backward Pass
      2. Critical Path and Float
      3. Types of Schedule Risk
    6. Three-Point Estimating Techniques
      1. Program Evaluation and Review Technique (PERT)
      2. Monte Carlo Simulation
    7. Recap
    8. Review Questions
  18. Chapter 9: Risk Response Planning
    1. Learning Objectives
    2. Organizing for Risk Response Planning
    3. Residual and Secondary Risk
      1. Residual Risk
      2. Secondary Risk
    4. Multi-Stage Solutions
    5. Managing Threats
      1. Avoidance
      2. Transfer
      3. Mitigation
    6. Managing Opportunities
      1. Exploit
      2. Enhance
      3. Share
    7. Managing Acceptance
      1. Contingent Responses
      2. Acceptance
    8. Implementing Risk Response Strategies
    9. Recap
    10. Review Questions
  19. Chapter 10: Risk Monitoring and Control
    1. Learning Objectives
    2. Risk Management Processes in Project Execution, Monitoring and Control, and Closeout
    3. Risk Management Plans and Policies
      1. Risk Management Policy Development
      2. Philosophy, Approach, Scope
      3. Risk Management Methodology and Process
    4. Project Risk Monitoring and Control Systems
      1. Managing the Project Risk Environment
      2. Establishing Risk Metrics and Early Warning Indicators
      3. Earned Value Project Management
      4. Implementing and Monitoring Risk Responses
      5. Corrective Actions and Unplanned Responses
      6. Watching “Watch and Wait” Risks
    5. Change Management and Risk
      1. Planning for Changes
      2. Managing Unplanned Change
    6. Revisiting Risk Identification and Risk Analysis
      1. Closing Risks
    7. Risk Management and Project “Lessons Learned”
    8. Recap
    9. Review Questions
  20. Answers to Exercises and Case Studies
    1. Exercise 1-1. Managing Important Risks
    2. Exercise 1-2. Your Current Risk Management Process
    3. Exercise 1-3. What You Spend on Risk Management
    4. Exercise 2-1. Risk Identification Practice
    5. Exercise 2-2. SWOT Analysis
    6. Exercise 3-1. Cause-and-Effect Diagram
    7. Exercise 4-1. Establishing Risk Thresholds
    8. Exercise 4-2. Ranking Risks
    9. Exercise 4-3. Prepare a Risk Information Sheet
    10. Exercise 5-1. Probability Practice
    11. Exercise 5-2. Calculate a Standard Deviation
    12. Exercise 6-1. Greater Accident Variation
    13. Exercise 6-2. Premium Income and Claims Outlays
    14. Exercise 6-3. Pricing Risk
    15. Exercise 7-1. Deterministic or Probabilistic?
    16. Exercise 7-2. Calculating Expected Monetary Value (EMV)
    17. Think About It … (Decision Tree)
    18. Exercise 7-3. Decision Tree
    19. Exercise 7-4. Sensitivity Analysis
    20. Exercise 8-1. Critical Path
    21. Exercise 8-2. Scheduling with PERT Estimates
    22. Exercise 8-3. Calculating Standard Deviation for a Path or Network
    23. Exercise 9-1. Risk Response Planning
    24. Exercise 9-2. Residual and Secondary Risk
    25. Exercise 9-3. Types of Risk Response
    26. Exercise 10-1. Earned Value Method (EVM) Performance Index Ratios
  21. Bibliography and Recommended Reading
  22. Glossary
  23. Post-Test
  24. Index