Aug 1997 PM217: Project Management (Question 3) Suggested Solutions

3.	(a) Name two sources of risk on a project.		[2]
	One mark should be awarded for each correctly named source (up to a maximum of two marks). Examples include the following:
		Technical risk.
		Market risk.
		Financial risk.
		Human risk.

	(b) Discuss the concept of standard deviation with relation to risk.		[2]
	The concept of standard deviation is important in risk analysis. Standard deviation measures the variability of an estimate.		[1]
	Standard deviation can be taken to be a measure of risk: the larger the standard deviation of an estimate, the greater its variability and risk.		[1]

	(c) Risk response planning is one way of managing risk. Describe three further ways in which risk may be managed.		[6]
	One mark is available for each correctly named means of managing risk, and a further mark is available for each satisfactory elaboration (up to a maximum of six marks). Examples include the following:
		Risk identification: the process of identifying things which may go wrong with a project.
		Risk assessment: the process of identifying the potential results of things going wrong with a project.
		Documentation.

	(d) Describe three ways in which risk response planning helps in risk management.		[6]
	One mark is available for each correctly named way, and a further mark is a available for each satisfactory elaboration (up to a maximum of six marks). Examples include the following:
		The development of, and adherence to, system standards can help us both to avoid problems and to deal with them effectively once they arise. As an instrument of risk avoidance, standards keep us from taking the wrong steps.
		The employment of insurance. When we purchase insurance we are effectively transferring the risk from our shoulders onto those of the insurer. In project work, insurance typically focuses on direct property damage, legal liability, indirect consequential loss and personnel issues, such as life insurance.
		The development of planning alternatives is a risk response strategy: the best known approach is contingency planning. With this approach, we map out different contingencies. In serious project work, where the consequences of failure may be disastrous, the contingency plans may be very detailed. A looser approach is to establish a contingency fund to cope with unforeseen events. How the funds are expanded and the problems fixed are not defined in detail but are left up to discretion of the project staff who are wrestling with the problem.

	(e) Describe how modelling can be used to assist risk management.		[4]
	Modelling using PERT/CPM allows developers to create mathematical models of projects.		[1]
	This enables the integration of schedule, budget, and resource management factors.		[1]
	Once the model is ready, developers can use it to test different scenarios.		[1]
	It is also possible that questions regarding the project can be asked.		[1]