Risk Management
5
Threat Responses
Avoid, Mitigate, Transfer, Accept, Escalate
5
Opportunity Responses
Exploit, Enhance, Share, Accept, Escalate
EMV
Quant Tool
Expected Monetary Value = Probability × Impact
red cells demand a response, green cells monitor
Probability × Impact
vendor delay
scope churn
key person
tool rollout
Impact →
how to read this
- › Each risk gets rated on two axes. How likely is it to happen? (probability · Y-axis) How bad if it does? (impact · X-axis).
- › Multiply the two scores — that's the cell number. Cells are color-graded so high-score risks jump out visually.
- › Plot your actual risks as dots. R1 (vendor delay) is high-impact but low-probability. R2 (scope churn) sits in the medium zone.
- › Response depends on zone: red cells need Avoid/Transfer/Mitigate. Yellow cells need Mitigate. Green cells just get monitored.
- › Re-plot the risks after each response action. Good mitigation drags dots toward the bottom-left corner.
Expected Monetary Value
EMV = Probability × Impact
Risk A has 30% probability of $100,000 impact. EMV = 0.30 × 100,000 = $30,000. That is the reserve you should consider for that risk.
Response Strategies
Threats
- Avoid · eliminate the cause
- Mitigate · reduce probability or impact
- Transfer · shift impact to another party
- Accept · active or passive
- Escalate · beyond project authority
Opportunities
- Exploit · ensure it happens
- Enhance · increase probability or impact
- Share · partner to capture value
- Accept · active or passive
- Escalate · beyond project authority
Exam Traps
Risk tolerance belongs to the organization
The PM does not set risk tolerance. A risk-averse organization demands conservative responses. A risk-seeking org accepts more. The exam expects you to match the response to organizational appetite.
Contingency reserve is for known risks, management reserve is for unknowns
Contingency reserve covers identified risks in the register and is controlled by the PM. Management reserve covers unknown-unknowns and is controlled by the sponsor. The exam tests this ownership distinction.
Accept is not the same as ignore
Active acceptance creates a contingency plan and reserves funds. Passive acceptance only acknowledges the risk. Neither means ignoring the risk.
Transfer does not eliminate the risk
Insurance, warranties, and fixed-price contracts shift the financial impact to another party. The risk still exists and must still be tracked.
Proactive beats reactive
PMI rewards proactive risk management. Waiting for a risk to become an issue is always wrong.
EMV for decisions
Use EMV for go/no-go decisions and build vs buy. It gives you the weighted dollar value of uncertain outcomes.
Before a road trip you think about what could go wrong. Flat tire. Bad weather. Traffic. Running out of gas. That is your risk register. You cannot manage a risk you have not named.
You rate each risk by probability and impact. Flat tire is unlikely but high impact. Traffic is likely but low impact. You color the matrix and focus on red cells.
A flat tire has a 10% chance and would cost $200 in repairs and lost time. EMV = 0.10 × 200 = $20. That is the weighted cost you should reserve for the trip.
Avoid by taking a different route. Mitigate by checking tire pressure. Transfer by buying AAA. Accept by carrying a spare. Escalate if the whole trip is at risk.
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