fosco frongiaSenior project manager| ENTE PATRIMONIALE CHIESA GESU' CRISTO SUGFino Mornasco, Como, Italy
Today I was reading the article from the money files blog entitled: How to Construct Your Project Budget by Elizabeth Harrin I was reflecting about risk response budget: basically it is defined including the Expected Monetary Value (EMV) we calculated for every risk quantitatively analyzed. The EMV is determined by risk impact and probability (I x P). This manner to proceed is challenging due to it is based on this consideration: the probability that all risks defined would happen during the life of the project is extremely reduced. I think this is the correct manner to proceed in the most part of the cases because normally are satisfied these two conditions below: A) The number of risk identified and budgeted is sufficient to cover all risk which really occurs (at least with sufficient probability). B) The EMV of them is balanced or, in other words, there are not risks which EVM is sensibly superior respect the other ones. If these two conditions are not realized probably we should apply different criteria. Two examples, which are based in very extreme scenarios, can explain my thought better: A) no more than two risks individuated with these parameters risk a: I=1.000 P= 60% EV=600; risk b: I=600 P=10% EM=60 in this case the contingency will be 660 but will we be so relaxed to include it in our budget? B) A sufficient number of risks individuated (e.g. 50) and total contingency ( I x P) =1.000 the risk a is characterized by EVM= 500 and P=60%. re we sure that our total contingency will be sufficient? What do you think about my though and, are there other criteria already defined to solve this kind of situations? Saving Changes...
It all depends on the risk tolerance of the stakeholders. You do not need to compute the quantitative values for each risk, because I am sure if you assume ''ALL RISKS WILL OCCUR'' your contingency alone would be 100 times more than the total project budget. What you need to do is understand the risk tolerance, qualify only those risks which are within the risk tolerance, in the qualitative risk analysis. Only the remaining qualified risks will be computed in detail in quantitative risk analysis, plus the overall risk to the project is computed. If you perceive that project is very risky and we cannot afford it, we can always get the decision not to do the project any further, or if it is sensitive enough, enormous amounts of budget can be allocated as contingency. Saving Changes...
Stéphane ParentSelf Employed / Semi-retired| Leader MakerPrince Edward Island, Canada
First of all, you willl find that many risks'' impact cannot be easily translated into a financial amount. You should still evaluate them for appropriate risk response.
Second, your contingency reserve cannot simply cover financial impact X probability of each risk. You must also include the cost of the risk mitigation and contingency processes. Saving Changes...
Good discussion guys for people like me who don''t have much knowledge in PMI-RMP. Saving Changes...
fosco frongiaSenior project manager| ENTE PATRIMONIALE CHIESA GESU' CRISTO SUGFino Mornasco, Como, Italy
Many thanks for your answers, I agree with all of you and this is the correct manner to proceed. My question is based on the assumption that the risk budget should be determined with a statistical approach but it is valid when the number of risk quantitatively analyzed is "sufficient" wide to allow to consider EMV "method". In peculiar cases, few risks and one or few risks with EMV very predominant, perhaps we need to consider a different approach before to decide if proceed or not with our project. Saving Changes...
