Midterm Exam: Project Risks

Midterm Exam Instructions

• When quoting a reference, use proper APA style citations (Author, Year of publication, page#) Cite only references from our course readings, sessions 1-6.
• Use double spacing and only 12-point font.

Question 1a & b: Reading and Organizing Risk Data (2 points per question):

1a) Each person needs to be able to read data charts and graphs with risk data. Go to the article by Kendrick (2008) uploaded in Content, Session 7. Locate the Pareto chart, which demonstrates “frequency/most often occurring” risks.  He identified 270 projects with scope risks and 192 with schedule risks.

Question 1a: What is the amount of Weeks of Project Impact for schedule risks in projects that he analyzed, per the Pareto chart on page 4 of his article?

 Question 1b: Go to Figure 2-3: “Total Project Impact by Root-Cause Category”.  What is the “average impact in weeks” for risks due to inadequate estimates of activities?

Question 2:  Identifying Project Risks (4 points) Read the short case “Tampa Bay Water Desalination Plant”,  on p.12 of the article assigned “Mitigation of Risk in Construction:  Strategies for Reducing Risk and Maximizing Profitability” (McGraw-Hill, 2012).  This article was assigned in “Content” during session 3 and you can find it there.

In order to “catagorize” and number identified project risks, many teams worldwide use a risk breakdown structure (RBS).  Use of an RBS is very useful for team discussion in any work setting.   Create an RBS (see example in Content, Session 7)  and then identify, categorize and number a) project management risks and b) potential budget risks in this Tampa case study.

Question 3   Risk Mgt. Tools and Methods in Performing Qualitative and Quantitative Analysis  (worth 4 points, two points per question). 

Review Chapter 6, p.143, section x6.4.3 “Monte Carlo Simulation” in the

The Standard for Risk Management in Portfolios, Programs, and Projects (PMI, 2019) required since readings from this PMI Standards have been assigned every week. 

1. With only a 23% probability of meeting their forecasted $2.2M budget, what range of costs could you present to your upper managers as a PM for the probable “range” that this project might cost?  Review the reading assigned in this question (PMI, 2019, p.143).  This is known as the “range of uncertainty”.   
2. Why is “forecasting” different than “planning” a budget? Explain in one paragraph limit so that a Risk Manager could understand this method.

Question 4   (8 points).   Using a Risk Register and Rating Scale: case analysis

 Read the attached “Ready-Energy” case and format a Risk Register (use the template in “Content” uploaded with this exam).  Identify the top 6 risks facing the Project Management team. Categorize these by scope, schedule , budget and technical risks.  Remember, weather or environmental/external risks would impact schedule and budget.  Rate and then “score” risks using the scale provided at the end of the case exam.

Risk ID	Risk: ( Phrase concisely)	Risk Category PM, Budget Schedule, Technical Intellectual Property	Probability	Impact	Trigger	Mitigation Management Strategy
001
002
003
004
005

Case Study: 

Risks in Producing Electricity via Steam-Powered Turbines:  A Hypothetical Case

Sam Martinez is seeking to invest a portion of his considerable assets in the “independent” electric power production industry in California, a sector projected to experience very rapid growth in the 21^st century. He has set up and funded a company “Ready-Energy Inc.”.  The intention is to use the company to build and operate an electric power plant and use innovative, state-of-the art turbine equipment to generate steam.  His plan is to sell both electricity produced by turbines and steam.

However, the large public-sector (hypothetical) CA Energy Resources Inc. produces most of the power for that remote region of northern California.  The main exceptions are co-generation plants which sell off extra steam, once generation of electricity takes place.  These small hydro-plants generate electricity for many northern Californian towns using river water heated into steam, which turns turbines in the plant – thus electricity is produced.  These “independents” are Mr. Martinez’ business models but also competition.   The giant electrical utility, California Energy, operates all long-distance distribution, selling electricity to municipal utilities for local distribution, brokering sales of electrical power to large industrial customers, and providing electricity wholesale to small rural customers.

Privatization of the giant California Energy is being argued by leading environmental groups, with a view that increases in electricity cost per unit which would decrease electricity consumption and that “big energy” owns too much power generation.  Other groups do not want rate increases so are interested in co-generation of electricity, and want to financially back Mr. Martinez.   Risk probabilities have been calculated as part of Ready-Energy’s early financial forecasts, but they lack any risk management plan.

Sam has identified what he believes to be his first big opportunity and is excited to share it with you as a “Risk Management consultant”. It would involve:

1. Producing base load electric power for sale using a CCGT (combined cycle gas turbine) set of natural gas powered turbines driving generators with waste heat producing high pressure steam to drive a steam turbine generator.

2. Providing (for sale) low pressure steam for manufacturing organizations in the immediate vicinity of the CCGT plant.

A range of established suppliers/vendors of turbine-run CCGT plant equipment would be willing to sell Ready-Energy its turbine-driven equipment to start operations: they offer, for differing prices (which could risk the project budget):

1.   New untested design. Very high fuel efficiency. Initial reliability is uncertain. Likely to be very reliable in the long run. Claimed very low maintenance costs. Low capital cost to encourage purchase.

       B) Tried and true design. Low fuel efficiency, moderate reliability and maintenance costs. Moderate capital cost.  Easy to maintain.

CCGT plant suppliers will install the major plant components on a fixed price basis.  Ready-Energy Inc. has revised the scope and Contract, with stiff penalty clauses for 1) delays or 2) performance failures, which the CCGT turbine manufacturer must be responsible for. However, such penalty clauses may not be operable, for example, if ground conditions are not as tested environmentally or electrical grid connections are not in place when required.  The Board wants a project risk analysis to be made, and you will be assigned this responsibility.

The giant California Energy will provide grid connections and will not allow anyone else to do installations from their main grids. The plant could be delayed for weather reasons and start-up delayed due to natural gas hook-ups or even electrical failures due to ‘rolling black-outs’.

Water to turn the CCGT turbines will be taken from a river which flows through the municipality. However, no legal environmental permits have been granted to remove water from these rivers during the several drought years in California.  Permit fees statewide are rumored to rise dramatically this year.

Extraction of water requires municipal planning permits, and also state gov’t. approval is required for the plant construction using low pressure steam lines to run steam to local companies, and hook-ups to any electrical grid power lines.  All construction must be scheduled, of course, dependent upon approvals from governmental agencies.  Your supervisor at Ready-Energy is pressuring you, as a Project Management consultant, to complete your work for Board review.

Instructions:  (8 points)  First, format the Risk Register with headings.

Use the rating scale on the next page to “rate” risks and calculate risk score when formatting your Risk Register (the “register” template is uploaded in Session 7 Content along with the exam,  there for you to download and use).   

Rating Scale

Probability ratings:   1% -39%:   Unlikely   40%-69%   May or may not occur   70%-89%: Likely to occur   90%-99%   Highly probable

Impact ratings: 1 Minimal 2 Moderate 3 Severe 4 Catastrophic

Insert a Final Column in Risk Register: Risk Score is calculated by multiplying ___ x ___