RISK ANALYSIS & MANAGEMENT

• Risk– possibility that an undesirable event (called the

risk event) could happen– Involve uncertainty and loss– Events that are bound to happen are not risks– Unique to current project?

Risk Identification

• Project risks– Affect project plan

• Technical risks– Affect quality

• Business risks– Affect viability of the product

Risk Estimation

• Risk probability– Occurrence of a risk

• Risk impact– Cost of risk

• Existing (known) risks

Risk exposure

• Expected value of the risk event– Calculated by multiplying the risk probability with

the cost of the risk event.

Risk decision tree

• A technique that is used to visualize the risks of alternatives available.– The top level branch splits based on alternates

available– The next split is based on the probabilities of events

happening– Each leaf node has the risk exposure for that event– The sum of the risk exposures for all leafs under the

top level split gives the total exposure for that choice.

Risk Mitigation• Process of proactive strategy of trying to find

ways to either decrease the probability of risk or its impact

Risk Management plan

Example 1

• Consider a project that has 0.5% probability of an undetected fault that would cost the company 100,000 in fines. Calculate the risk exposure

• 0.005 * 100,000 + 0.995 * 0 = 500• Consider the use of an additional review that

would cost 100 but eliminate such a fault by 50%.• 0.0025 * 100,100 + 0.0095 * 100 = 250.25+ 99.75

= 350

Example II