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1. Use the attached "Exercise 1 Decision Tree" document and complete the decision tree exercise.

2. Using the risks identified in the attached "Risk Register" document and the "Risk Management Criteria" document, enter every risk in the matrix by its probability and impact. The position in the matrix correlates to the relative importance or, respectively, the risk level of the risk. Therefore, rank the risks from higher priority to lower priority based on the correlation between probability and impact.

Decision Tree Analysis Risk Management Thorough Development Rapid Development- New Product Consolidate Strengthen Products Reap Products Decision Point . Expected Monetary Decision Tree Analysis Risk Management Your company is planning on increasing profits by either developing a new product or consolidating the existing product line. You need to do a decision tree analysis to decide the best option for the company. If you build a new product using a thorough development method, the likelihood of good sales is 40% and poor sales is 20%. If the new product is built through rapid development, the likelihood of good and moderate sales drops to only 10% and 20% respectively. The thorough development method costs the company $75,000 while rapid product development will only cost $40,000. In either case, if your sales are good, you expect $500,000 revenue and if you receive only moderate sales, you expect revenues of $25,000. Poor sales would bring in revenues of only $1,000. On the other hand, if you consolidate your product line you can choose to strengthen them at a cost of $15,000 or just reap the products with no additional costs. If you strengthen your products you expect to have an equal 30% chance of either good or poor sales. Good sales will produce $200,000 in revenue, moderate sales will bring in $10,000, and poor sales will show you only $3,000 in revenues. If you consolidate and reap your products, you expect a 60% chance of good sales that could bring in $10,000 in revenues. Poor sales would earn you only $1,000 in revenues. What is the expected profit/loss of each choice? Which option should you choose? Risk Management Criteria Project Name: Project Manager: Date: Phonele-mail: Probability Probability Rating Zero Low (L) Medium (M) High (H) Critical (C) Certainty (Assumption) Occurrence Will not occur Unlikely to occur, but could May occur Likely to occur Most likely will occur Not a risk Meaning There is no chance that this risk will occur 1 -24% chance of occurrence 25 - 49% chance of occurrence 50 - 74% chance of occurrence 74 - 99% chance of occurrence 100% chance of occurrence, not a risk, but an assumption. Impact Level of Impact Zero Low - Little impact Meaning There is no impact if this risk should occur. Therefore, it is not truly a risk. The impact on the project is minor but would be noticed by the customer or sponsor, and would create minor customer dissatisfaction. The impact to the project is moderate and would create customer and/or sponsor dissatisfaction with the project. The impact is major and would create significant customer or corporate dissatisfaction. It could jeopardize the project. The impact is catastrophic and would kill the project. Medium - Some impact to the project schedule High - Major impact to the project schedule Critical (Very High) - Impact to project schedule cost Priority Probability Impact Priority Low Low Low Low Medium Medium Medium Medium High High High High Critical Critical Critical Critical Low Medium High Critical Low Medium High Critical Low Medium High Critical Low Medium High Critical Low Low Medium Medium Low Medium Medium High Low Medium High Critical Low Medium High Critical Probability/Impact Risk Matrix Risk Management Criteria NUMERIC SCALE Critical 4 8 12 16 Legend High 3 6 9 12 Critical High Probability Medium Medium 2 6 8 Low 3 Critical Low 1 Medium 2 High 3 Impact Risks for Project Number Originator Consultant RFQ Process Open Date 11/23 Probability 2 Impact 4 1. 12/1 1 4 2. Contractor (IBD) process 3. Surveying Work 12/1 2 4 4. Civil Design 12/1 1 4 Architectural Design 12/1 2 2 5. 6. Mechanical Design 12/1 2 2 7. Landscape Design 12/1 Risk Description There are two of us set up to do the work for this project with no slack time. What happens if one of us gets sick? Bids can come higher than estimated cost. The Purchasing Department may reject all bids. 3 to 4 months delay. The surveying sub-consultant is a small firm with little government project experience. Survey work may be delayed or completed with inaccuracies. Civil Design may get delayed or affected due to poor surveying work. Architectural design work may be delayed due to changes to the Building Code. Operational Staff may take too long reviewing and selecting mechanical equipment. Therefore, mechanical design may get delayed. Landscape design inside a water treatment plant is very challenging due to the numerous conflicts that can occur with underground utilities. A bad landscape design may create issues during construction phase. Government Agencies may take longer than expected to issue permits Contractor may encounter unforeseen conditions on the site. For example, unsuitable soils, unmarked utilities, etc. Unforeseen conditions may require a change order (budget increase). Typically, the training on how to operate the new facility is provided by the contractor and representatives from the different equipment manufacturers. Sometimes equipment manufacturer's representatives cannot attend the training session on schedule. They may show up 2 to 3 weeks behind schedule. 1 4 8. Permitting 12/1 4 2 9. Construction Phase 12/1 3 2 10. Training 12/1 2 2