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You may also kindly refer to the PMP Handbook & PMP Exam Course Content provided by PMI on their website http://www.pmi.org/ before joining pur PMP training. This would help you to come out with any further questions in your mind, before PMP Training from Unnap.
- PMP Handbook direct download link by PMI is here
- PMP Course Content direct download link by PMI is here
These will also help you post our training when you are preparing for your examination. While you attend our training, we will explain what resources you need to follow and what will be your certification plan. If you follow our plan, we guarantee that you will clear your exam within 45 days of attending our training or we refund not just your training fee but will also pay for your exam. This shows the confidence that we have in our training program and our ability to help our participants clear exam. Our success rate has been 100%.
Most of us, who are working as a project manager, realize and appreciate the importance of PMI® certification in our career in the long run. This is all the more true for IT and services industry as compared to any other industry where project managers are made based on your previous performance to lead a team and not project.
How many of you must have decided to go for PMI® Certification, but the enthusiasm and the rigor to prepare for looses momentum after sometime. Have you were wondered what could be the reason for this lack of determination? Why is it that we want something and understand its need yet succumbs to work and personal life pressures?
The reason behind all this dilly dallying with your career’s most important decision is the lack of time boxed approach. This is also called as parkinson’s law. Since we have not blocked the data of exam, we tend to not prioritize it and end up forgetting the concepts that we have learned in PMP session and eventually loosing confidence and determination.
I, from my personal experience would unfold how to approach right way for most esteemed and valuable PMI® Certification. Here are some tips which will become a guiding light for all the Project Management aspirants.
- Why I Want to be Certified: There are numerous blogs and articles on why one should get certified, but only you can decide what your motivational factor is. While any certification is an asset and knowledge gained through will always be a help in your life, certification should also be in line with your medium to long term goal in life. Take your time to decide. Do not take a knee jerk decision for certification under some influence.
- Don’t Let the Tempo Fade: Once a decision is made, your focus should be on the end goal. A lot of time we lose the momentum half way if we have started half hearted or due to various reasons like – family commitment, work pressure, relocation, health etc. Take a realistic view on these factors which could impact your stability in next 6 months or so before you proceed. The best way to not loose tempo is to block your exam date in advance giving yourself around 45 days to prepare.
- Time Boxed Approach: Based on your experience level you should have a fair idea of how much time it should take you to prepare for certification. Get your initial doubts clarified through information sessions/online clarifications through professional coaching institute. Identify your High level knowledge GAP and set yourself an end date. As I said earlier, the best way for time boxing is to block your exam date in advance (45 days from the last date of your PMP training).
- Baseline Study Plan: Fortifies your time boxed approach, It’s alright to change your plan, but base line planning brings in serious attention.
- Take a realistic view on how many quality hours you will have at your disposal to study (in Agile terms IDEAL hours)
- Sequence a mix of difficult and easy, or boring and interesting topics, if you finish all interesting topics in the beginning, it will be an uphill task to finish rest of topics, similarly if you keep all difficult/boring topic at the start you may lose interest or get mentally drained too soon
- If you are planning a study group, ensure study group hours are separate from your individual hours in your plan. Every individual has their own style of learning and study group should be seen as complimentary to and not a substitute for individual study
- Reference Material: It’s a digital world, PMI® certification is a hot topic and you have endless study materials/blogs/videos/teasers available on the Internet. None of them are substitute to PMBOK® no matter how dry and boring PMBOK® sounds. My advice would be to pick 1 or max 2 books other than PMBOK® and stick to it. Also, go for professional coaching institute who would walk with you till your certification. Avoid commoditized training institute which has minimal or zero personal attention
- Mock Test: Again, numerous free and paid tests available on Internet. If you are enrolled in a professional training institution, take a test package from them. PMI® constantly keeps improvising their questions in terms of difficulty, flavor etc. There are some mocks which are extremely difficult and many find it impossible to get passing score – No need to get disheartened if such tests are only to raise your bar and not aligned with PMP® exams difficulty level.
Whichever mock tests you choose, make sure they are in line with the latest trend of questions appearing in PMP® examination.
- Reschedule: Avoid rescheduling examination unless absolutely necessary. If you reschedule ensure that you don’t lose momentum with prolonged pause, rescheduling should not impact your flow of preparation, else rescheduling may sometimes result in having to start from scratch
Hope, you must have found a direction to kick start your PMI® journey. Wishing you all the best!!
Do you want to boil the entire ocean or 1 gallon at a time? Project scope management is all about understanding, agreeing and baselining what needs to be built in given time and budget to fulfil stakeholder requirements. It is concerned primarily with controlling what is and what is not in the scope. For a project manager, scope knowledge area is very important and PMI (Project Management Institute) and Prince2 both emphasizes on it.
So what is scope? Scope refers to the detailed set of deliverables or features of a project that are agreed to be built within given budget and time. These deliverables are derived from a project’s requirements which is exclusive list of stakeholders expectations. It is the decision of what work will be completed during the lifecycle of a project. Included in this is also the identification of work that will not be counted in the ongoing round of the service/product development. The documentation of the scope of the project will explain the boundaries of the project, establish the responsibilities of each member of the team and set up procedures for how work that is completed will be verified and approved.
- Ambiguous: Ambiguity in scope often leads to unnecessary work and confusion. To avoid this, the scope needs to be clearly defined and to the point.
- Incomplete: Incomplete scopes lead to schedule slips which lead to cost overrun. To avoid this, the scope needs to be complete and accurate.
- Transient: Transient scopes lead to scope creep which is the primary cause of late deliveries and potentially “never ending” projects. To avoid this, the scope document needs to be finalized and remain unaltered for the duration of the project.
- Un-collaborative: A scope that is not collaborated leads to misinterpretations in requirements and design. To avoid this, the scope document should be shared with all stakeholders.
Why project managers needs it
Scope management helps avoid the challenges that a project might face with every growing scope and unruly requirement list. Project scope defines what is or is not included in the project, and controls what gets added or removed as the project is executed. Scope management establishes control processes to address factors that may result in project change during the project life-cycle.
Without defining the project scope, the cost or time that the project will take up cannot be estimated. At times, due to the lack of communication, scopes may need change. This directly effects the cost and disturbs the schedule of the project which in turn leads to losses. Scope management is a possible mission. It does, however, require some bit of effort, time and patience. With proper scope management it is easy to specify a clear scope and to deliver the project.
The success is based on strategic management actions and utilizing suitable tools that extend human thinking and describing the scope on a detailed level.
Prince 2 Vs PMP. Is it apples Vs Apples or Apples Vs Oranges? What are the differences and what are the similarities. Should you go for PMP or Prince2 certification? Aren’t these questions often bothering you? Honestly, it did bother me when I was planning to get myself certified. There are different views in the market. Some say that Prince2 is more prescriptive whereas PMP is not and gives lot more autonomy to project manager. Some say Prince2 is practical approach whereas PMP gives details of tools and techniques. So what is it? Lets find out.
PRINCE2® and PMP® (PMI- PMBok) are two of the popular project management frameworks adopted across the world for project management practice. PRINCE2® takes different approach than PMI-PMBoK but both aims is to improve the project performance and eventually success rate.
Both start with business case which is called as project brief in Prince2 and the management of knowledge areas and process groups in PMP is very much aligned to themes, Principles and processes of Prince2. Both should be learned to make you a better project manager and also to improve your horizon. And both should be looked at as complementary studies to improve your competency rather than battle between the 2 or look at the battle between them. I would like to say that its apple to apple comparison.
Now lets come at differences. Main difference apart from terminologies is eligibility criteria to get certified. Below is the certification criteria:
- PRINCE2® Foundation : No prerequisite for PRINCE2® Foundation Level
- PRINCE2® Practitioner: Foundation level is prerequisite for Practitioner. No Mandatory relevant work experience required.
PMP® has prerequisites
- Four-year degree and atleast 3 years of project experience with 4500 hours of leading a project along with 35 hours of contact hours training from an REP.
- A secondary degree and atleast 5 years of project experience with 7,500 hours of leading a project along with 35 hours of contact hours training in project management from an REP.
PMP® (Project Management Professional) is based on PMI – PMBOK, is popular worldwide, and is the leading project management approach in North America. PMP® is also popular in countries such as Australia, Switzerland, Canada, New Zealand, Germany, UAE, Singapore, India, China etc., 
PRINCE2® (Project IN Controlled Environment) is process based project management methodology is popular worldwide, and is the de facto standard for project management in UK and most part of Europe. PRINCE2® is also popular in countries such Australia, Netherlands, Denmark, UAE, South Africa, India, China etc.,
PRINCE2’s approach to project management has three components:
Prince 2 (Projects in controlled environment) is a process driven project management methodology. Below are the processes, themes and principles:
1. Starting up a project
The project team is assembled, the project approach is decided and business justification is documented.
activities: assemble project management team, create project brief, agree upon project approach, plan for project initiation phase
check points: the project board approves the next phase of the project (project initiation)
2. Initiating a project
Project planning work is continued.
activities: document the project plan, business case, risks, project controls and the plan for the next stage of the project.
3. Directing a project
The project board (project sponsors) controls the project. This involves a series of authorizations, giving ad-hoc direction and confirming project closure.
check points: project board authorizes project initiation, stage plans and exception plans
4. Controlling a stage
The project is broken down into stages and each stage is controlled separately.
activities: progress assessments, managing issues, status reviews and reporting, taking corrective actions, issue escalation, receiving completed work packages.
check points: work packages are authorized
5. Managing stage boundaries
Includes end of stage activities and planning for the next stage. Also decides what should be done for stages that have exceeded tolerance levels.
activities: stage planning, updating the project plan, updating the business case, updating the risk log, reporting the end of the stage end, creating a exception plan.
6. Managing product delivery
Managing the acceptance, execution and delivery of project work. Ensures that the work products are delivered to expectations and within tolerance.
activities: accept a work package, execute a work package, deliver a work package.
7. Closing a Project
Project wrap up.
activities: formally decommission the project, project evaluation, identify follow up actions
The 7 Themes of PRINCE2
These 7 themes need to be addressed continually throughout the PRINCE2 project life cycle.
- Business Case.
The 7 Principles of PRINCE2 Project Management
- Continued business justification.
- Learn from Experience.
- Defined Roles and Responsibilities.
- Manage by stages.
- Management by exception.
- Focus on Products.
- Tailor to suit project environment.
- COBIT—Released as an IT process and control framework linking IT to business requirements, COBIT initially was used mainly by the assurance community in conjunction with business and IT process owners. With the addition of management guidelines in 2000, COBIT was used more frequently as a management framework, providing management tools, such as metrics and maturity models, to complement the control framework. With the release of COBIT 4.0 in 2005, it became a more complete IT governance framework. Incremental updates to COBIT 4.0 were made in 2007; they can be seen as a fine-tuning of the framework, not fundamental changes. The current version is COBIT 4.1.
- ITIL v3—Released by the UK Office of Government Commerce (OGC), ITIL it is the most widely accepted approach to IT service management in the world. Version 3 consists of 27 detailed processes organized into five high-level processes described in five core books—Service Strategy, Service Design, Service Transition, Service Operation and Continual Service Improvement—that comprise one function: effective IT service management. In addition, ITIL v3 introduced the concept of the service life cycle and this is described in the book Official Introduction to the IT Service Lifecycle.
I have been to a number of IT service management conferences recently, and heard people explaining why they think organizations should use ITIL, or COBIT, or ISO/IEC 20000.
I think this is the wrong way of looking at things, and that every IT organization should use all of these, and more, to build their management system.
Each of these frameworks and management system standards has value to offer, and they have different strengths and weaknesses. If you just pick one of them, you will miss out on some great guidance and your management system will be missing some important characteristics.
ITIL, for example, provides lots of detailed guidance on implementation of processes, but is fairly weak on governance and goal setting. On the other hand, COBIT 5 while very strong on governance and goal setting does not provide much detail on process implementation; and ISO/IEC 20000, which provides concise information about what the IT organisation should do, offers little guidance on how to set about actually doing it.
What Are the Connections & Differences between COBIT and ITIL?
COBIT (Control Objectives for Information and Related Technology) and ITIL (Information Technology Infrastructure Library) have been used by information technology professionals in the IT service management (ITSM) space for many years. Used together, COBIT and ITIL provide guidance for the governance and management of IT-related services by enterprises, whether those services are provided in-house or obtained from third parties such as service providers or business partners.
ITIL could be seen as the way to manage the IT services across their lifecycle, while COBIT is about how to Govern the Enterpise IT in order to generate the maximum creation of value by the business, enabled by IT investments, while optimizing the risks and the resources. COBIT 5 describes the principles and enablers that support an enterprise in meeting stakeholder needs, specifically those related to the use of IT assets and resources across the whole enterprise. ITIL describes in more detail those parts of enterprise IT that are the service management enablers (process activities, organizational structures, etc.).
OBIT is based on five principles:
1. Meeting Stakeholder Needs
2. Covering the Enterprise End-to-End
3. Applying a Single, Integrated Framework
4. Enabling a Holistic Approach
5. Separating Governance from Management
And seven enablers:
1. Principles, Policies and Frameworks
3. Organizational Structures
4. Culture, Ethics and Behavior
6. Services, Infrastructure and Applications
7. People, Skills and Competencies
ITIL focuses on ITSM and provides much more in-depth guidance in this area.
There are five stages in the ITIL Service Lifecycle:
1. Service Strategy
2. Service Design
3. Service Transition
4. Service Operation
5. Continual Service Improvement
The distinction between the two is sometimes described as “COBIT provides the ‘why’; ITIL provides the ‘how.’” While catchy, that view is simplistic and seems to force a false “one or the other” choice.
It is more accurate to state that enterprises and IT professionals who need to address business needs in the ITSM area would be well served to consider using both COBIT and ITIL guidance. Leveraging the strengths of both frameworks, and adapting them for their use as appropriate, will aid in solving business problems and supporting business goals achievement.
How wrong focus creates problems instead of solving them
Making sure that your organisation is familiar with several sources of guidance instead of just one may seem counter intuitive. Isn’t it much simpler, less time consuming, and more effective to choose just one and develop expertise in that? Actually, in my experience, it’s not.
IT organisations that run an “ITIL project” or a “COBIT project” tend to focus on the suggestions in that guidance, rather than on the needs of their own organisation. This misplaced focus tends to result in the development of bureaucratic management systems. The changes proposed by such projects are too often imposed on, rather than embraced by IT staff; and too often they create little value for the organization that implements them. When the outcomes of an improvement project are disappointing, any guidance used to create it tends to get a bad name. What’s more disappointing – the outcomes also tend to make people cynical about future projects to improve practice.
What you should do is begin with your organisation’s needs. Use suggestions from best practices and standards, but only when you are confident that they will help you implement a service improvement project which has clear business goals that you can measure and report to your stakeholders. Depending on the goals you are trying to achieve you will probably find that you end up wanting to include suggestions from one or more of the sources of guidance I have been writing about.
How can you combine different sources of guidance in your management system?
Obviously, this depends on what you are trying to do.
For example if your customers and users are not satisfied with how you manage and resolve incidents then you could decide to improve your processes for incident and problem management. Your goals could be to improve customer satisfaction, to reduce the length of time it takes to resolve incidents, or even to reduce the number of incidents that have an impact on users. In this case I would strongly recommend that you read and understand the guidance in ITIL, which is very strong in these areas, and think about how you could use some of the ITIL ideas to improve how you work. But you should also read the relevant parts of COBIT, to get some ideas for possible process goals, metrics, activities, inputs and outputs. After you have read and thought about the guidance you will be well placed to make improvements that are tailored to meet your own specific needs. What you should end up with is an improved process that is right for you, that fits your culture and supports your organization’s goals. The process may be based on ideas from ITIL and COBIT, but your staff should see it as your process, and should understand how it helps them to deliver value to your customers.
ISO/IEC 20000 is somewhat different, since the requirement to achieve certification may come from outside the IT department, as a marketing or customer relationship initiative, in which case achievement of the certification may be a goal in itself. Even in this case, if you want real value from a project to achieve ISO/IEC 20000 certification then it is not just the certificate you need to focus on; you also need to think about how the improved processes will help you to deliver better value to your customers. Your improved processes must ensure you meet the requirements of the standard, but you may find that by using ideas from ITIL and COBIT to help you design the details, you maximise the value of achieving the certification.
Are there any other frameworks or standards I should be using?
There are lots of different frameworks and best practices that you can use to help you manage IT services. In addition to ITIL, COBIT and ISO/IEC 20000 you could think about using ideas from:
ISO/IEC 27001 – the international standard for information security management
If you are running IT services then you must make sure you understand the requirements for information security, and take these into account in designing your management system.
Agile – a development methodology that divides projects into short phases, each of which delivers valuable outcomes.
Agile can provide a great framework for an ITSM improvement project, helping you to rapidly deliver measureable value in small increments.
Kanban – a methodology for managing work in progress, to optimise the use of resources
Kanban can provide a great way to manage the workload of technical people in an IT department, ensuring that you get maximum value from your limited resources.
PRINCE2 and PMI – project management methodologies
Every IT department manages lots of projects, and you need formal project management methodologies to ensure you get value from these.
You can probably think of many more best practices, frameworks and standards that could help you create value for your customers. Don’t be scared to include ideas from any approach that can help you do a great job. Remember that what you are creating is not an ITIL management system or a COBIT management system, it is your management system which you are designing to help you create value for your customers.
Kaizen is made up of 2 japanese word, Kai and Zen. Kai means “Change” and Zen means “Good”. Change for good is the literal meaning of kaizen. Kaizen is method of continuous improvement. Notice that I have said continual and not continuous which lot of other consultants and practitioners term Kaizen as. I prefer making it clear and precise so that everyone understands the approach. Continuous improvement would mean make loads of changes to improve process. Some of these changes might be implemented together. Imagine after implementing 4 changes together there is business disruption and instead of improvement you get undesired results. How would you find which change failed? In order to revert to status quo and eliminate undesired results on business, you would have to roll back all 4 changes. This is sheer wastage of energy. Better approach is make same number of changes however 1 change at a time. This 1 change at a time is continual improvement.
Kaizen is based on certain guiding principles as listed below:
- Good processes bring good results
- Go see for yourself to grasp the current situation
- Speak with data, manage by facts
- Take action to contain and correct root causes of problems
- Work as a team
- Kaizen is everybody’s business
- And much more!
One of the most notable features of kaizen is that big results come from many small changes accumulated over time. However this has been misunderstood to mean that kaizen equals small changes. In fact, kaizen means everyone involved in making improvements. While the majority of changes may be small, the greatest impact may be kaizens that are led by senior management as transformational projects, or by cross-functional teams as kaizen events.
Kaizen Institute utilizes a set of proven methods and tools to reduce waste and increase Value for the client. This methodology has been applied across the globe in every economic sector. Taken as a whole, we call them the Kaizen Management System (KMS).
Improve Lead Times, Productivity, Inventory & Space with Total Flow Management (TFM):
Total Flow Management (TFM) focuses on streamlining material and information flows. Diagnosis is performed through management led Value Stream Mapping.
Application of Just-in-Time, kanban, pull systems, and other lean production and lean logistics methods will create a more flexible supply chain, with lower inventory levels and increased productivity.
Improve Equipment Effectiveness, Increased Safety and Quality with Total Productive Management (TPM):
Total Productive Maintenance (TPM) is a well proven methodology for improving asset performance. The Overall Equipment Effectiveness (OEE) of your assets is improved by systematically reducing losses in quality, availability and speed. TPM does this by engaging people at all levels in problem solving, equipment planning and daily monitoring of performance.
Improved Quality with Total Quality Management (TQM):
TQM applies proven quality tools to systematically expose problems, identify root causes, take corrective action and implement mistake-proofing (pokayoke). Statistical methods and Six Sigma techniques are used to for more complex problems. TQM will reduce quality costs and improve customer satisfaction.
Lean Office, Lean Finance, Lean Engineering and Lean Administration (TSM- Total Service Management):
The kaizen methodology applied to knowledge work, information flow, and administrative processes improves service, quality and productivity while engaging people’s creativity. Kaizen principles are increasingly being adopted in offices of production facilities as well as service organizations such as banks, insurance companies and local governments. A lean office transformation begins by visualizing the processes and their targets, organizing teams around daily and project-based kaizen activity, and building simple performance management systems.
Lean Innovation, Lean Startup & Lean Product Development (IDM – Information Document Management):
The lean approach improves the effectiveness of the process of innovation, startups, new product development, new product launches, new facility design and construction. Lean methods bring results to innovation, startup, ramp up, running and ramp up of businesses in areas of:
- Ability to deliver projects and products on-time, on budget
- Flexibility and adaptability to change
- Quality of the new product or service
- Cost to launch and deliver product or service
These results are achieved by enabling people to fully engage their creativity by visualizing and improving the processes and ways of working. Contact us to learn how Kaizen Institute can help your early stage business, product or idea gain lean startup insight.
Kaizen helps you Gain or reap the full benefits or fruits of Continuous Improvement. Let me ask you how does “change” happen in your organization? Is it through major initiatives, or is it part of the ongoing way you work? Some types of change inevitably need a major project; meaning months of hard work, big budgets and upheaval.
But, often undervalued, an alternative or complementary approach to improving systems, processes and so on, is through more subtle, ongoing changes and continuous improvements.
Once a new major change has happened, perhaps a new system or structure put in place, is everything perfect? Will the new processes stay set in stone until the next major change in a few years’ time? Almost certainly not. In fact, if this attitude were taken, you would probably see a gradual decline in benefits after the initial step improvement, as inefficiencies and bad practice crept in.
There is always room to make small improvements, challenge the status quo, and tune processes and practice on an everyday basis. In fact, you and your colleagues probably do this week in, week out without calling it “change” or even “continuous improvement”. You’re already getting real benefits from the intuitive approach to continuous improvement. And over time, all of these incremental changes add up, and make a significant positive impact on your team and organization.
This approach to continuous, incremental improvement is called kaizen. Kaizen is based on the philosophical belief that everything can be improved: Some organizations look at a process and see that it’s running fine; Organizations that follow the principle of Kaizen see a process that can be improved. This means that nothing is ever seen as a status quo – there are continuous efforts to improve which result in small, often imperceptible, changes over time. These incremental changes add up to substantial changes over the longer term, without having to go through any radical innovation. It can be a much gentler and employee-friendly way to institute the changes that must occur as a business grows and adapts to its changing environment.
Understanding the Approach
Because Kaizen is more a philosophy than a specific tool, its approach is found in many different process improvement methods ranging from Total Quality Management (TQM), to the use of employee suggestion boxes. Under kaizen, all employees are responsible for identifying the gaps and inefficiencies and everyone, at every level in the organization, suggests where improvement can take place.
Kaizen aims for improvements in productivity, effectiveness, safety, and waste reduction, and those who follow the approach often find a whole lot more in return:
- Less waste – inventory is used more efficiently as are employee skills.
- People are more satisfied – they have a direct impact on the way things are done.
- Improved commitment – team members have more of a stake in their job and are more inclined to commit to doing a good job.
- Improved retention – satisfied and engaged people are more likely to stay.
- Improved competitiveness – increases in efficiency tend to contribute to lower costs and higher quality products.
- Improved consumer satisfaction – coming from higher quality products with fewer faults.
- Improved problem solving – looking at processes from a solutions perspective allows employees to solve problems continuously.
- Improved teams – working together to solve problems helps build and strengthen existing teams.
Aspiring professionals are tested on the following components of the ITIL® framework. We have marked the important topics in bold. (brackets indicate the depth of the of the knowledge required for that component wherein comprehension means a high level understanding of what it is and how it works while awareness means knowing its existence and functions.)
- Service management as a practice (comprehension)
- The ITIL® service lifecycle (comprehension)
- Generic concepts and definitions (awareness)
- Key principles and models (comprehension)
- Selected processes (awareness)
- Selected functions (awareness)
- Selected roles (awareness)
- Technology and architecture (awareness)
- Competence and training (awareness)
For the ITIL® service lifecycle, there are 5 stages and a total of 26 process and 4 functions.
|Service Lifecycle Stage||Processes & Functions|
|Continual Service Improvement||
Taking the ITIL® Foundation Examination
The owner of the ITIL® has delegated the examination administration to Accredited Training Organizations (ATO) or one of the Examination Institutes. Professionals aspiring for the ITIL® v3 Foundation Certification would need to contact the ATO or Examination Institutes by themselves and arrange for the examination. You can also get in touch with us for training and certification need.
Cost of ITIL® Foundation Examination
Unlike most other popular certification examination, there is no official cost for the ITIL® Foundation examination as ITIL® has left the examination administration to the ATO or Examination Institutes. It varies from region to region. Generally the average cost including training is between $250-$450.
Risk Appetite, Tolerance and Threshold are very important concepts in risk management and are often misunderstood. If you failed to understand the stakeholders’ risk appetite, tolerance and threshold, your risk management plan may be jeopardized. Not just this, how can we have a productive conversation about risk management unless we use the same language?
Before we proceed further and discuss about these very important concepts, lets revisit the definition of Risk. As per the PMBOK Guide 5th edition, “Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, and quality.”
From the above definition, you can conclude that a risk can either be an opportunity or a threat: An opportunity has some positive effect on project objectives, while a threat brings some negative impact. The objective of risk management is to increase the probability of positive risks (or increase the impact), and reduce the probability of negative risks (or reduce the impact). Every individual has specific behavior towards risks; some people may want to accept the risk and others may want to avoid it. This behavior depends on the risk attitude of the individual, and for a proper risk management plan, you must find the risk attitude of your stakeholders. There are many factors that determine the risk attitude. These factors can be broadly divided into three categories: Risk Appetite, Risk Tolerance and Risk Threshold.
Risk appetite can be described as the amount and type of risk an organization is willing to accept in pursuit of its business objectives, Risk tolerance is the specific maximum risk that an organization is willing to take regarding each relevant risk & Risk threshold is the threshold to monitor that actual risk exposure does not deviate too much from the risk target and stays within an organization’s risk tolerance/risk appetite. Exceeding risk threshold will typically act as a trigger for management action.
To explain what I mentioned here, let me take help diagram listed towards left side. PMBOK lists below definitions for these 3 terms.
PMBOK® Guide, Fifth Edition defines it as “ The degree of uncertainty an entity is willing to take on in anticipation of a reward.”
PMBOK® Guide, Fifth Edition defines it as ”The degree, amount, or volume of risk that an organization or individual will withstand.”
PMBOK® Guide, Fifth Edition defines it as “ measures along the level of uncertainty or the level of impact at which a stakeholder may have a specific interest. Below that risk threshold, the organization will accept the risk. Above that risk threshold, the organization will not tolerate the risk.”
Appetite is often referred in terms of Low, medium or high. If you speak to your stakeholders and they mention that they have been able to grow because of risks they have taken in life and believe in order to grow further they need to take more risks, you are getting message that they have high risk appetite.
As the definition indicates, Risk tolerance is amount of risk that individual or organization will withstand. E.g. if you invest in stock market, even if the stock goes down by 2.5% or 5%, you might be ok with it. However, you have put a stop loss at 10% making that as Threshold limit.