The output of Plan Risk Responses is the further updated risk register plus other items.
The risk response owner can be a stakeholder rather than a team member. Think about how the application of risk management can change your real-world projects. The risk occurs; the risk response owner takes the pre-arranged and pre-approved plan for action determined in project planning and informs the project manager. No meeting is needed, just action! How powerful is this!
There can be two kinds of reserves for time and cost; contingency reserves and management reserves. Contingency reserves account for “known unknowns;” items you identified in risk management.
They cover the residual risks in the project. Management reserves account for “unknown unknowns,” items you did not or could not identify in risk management. Projects can have both kinds.
The contingency reserve is calculated and is made part of the cost baseline. Management reserves are estimated (e.g., 5 percent of the project cost) and are made a part of the project budget, not the baseline. Therefore, management approval is needed to make use of management reserves.
Reserves should be managed and guarded throughout the project life cycle. Let’s try an example of calculating contingency reserve.
Exercise You are planning the manufacture of an existing product’s modifications. Your analysis has come up with the following. What is the cost contingency reserve that you would use?
• 30 percent probability of a delay in the receipt of parts with a cost to the project of $9,000
• 20 percent probability that the parts will be $10,000 cheaper than expected
• 25 percent probability that two parts will not fit together when installed, costing an extra $3,500
• 30 percent probability that the manufacture may be simpler than expected, saving $2,500
• 5 percent probability of a design defect, causing $5,000 of rework
Answer The answer is $1,075.
30% × $9,000 Add $2,700
20% × $10,000 Subtract $2,000
25% × $3,500 Add $875
30% × $2,500 Subtract $750
5% × $5,000 Add $250
The exam often asks questions such as:
Answer Document in a watchlist and revisit periodically.
Would you select only one risk response strategy?
Answer No, you can choose a combination of choices.
Answer Watching out for watchlisted (non-critical) risks that become more important.
What is the most important item to address in project team meetings?
How would risks be addressed in project meetings?
Answer By asking, “What is the status of risks? Any new risks? Any change to the order of importance?”