Hi guys!! Welcome back to the last article in Project Management article series. In this article also let’s discuss some more important factors in project management process. In last article we discussed about scope management and time management. Through this article we’ll talk about project cost management and risk management.

Project Cost management
IT projects have a poor track record for meeting cost goals. Cost is a resource sacrificed or foregone to achieve a specific objective or something given up in exchange. Costs are usually measured in monetary units like dollars. Project cost management includes the processes required to ensure that the project is completed within an approved budget. Project cost management process includes followings.

Resource planning: determining what resources and quantities of them should be used
Cost estimating: developing an estimate of the costs and resources needed to complete a project
Cost budgeting: allocating the overall cost estimate to individual work items to establish a baseline for measuring performance
Cost control: controlling changes to the project budget
Resource planning
The nature of the project and the organization will affect resource planning. Some questions to consider:

How difficult will it be to do specific tasks on the project?
Is there anything unique in this project’s scope statement that will affect resources?
What is the organization’s history in doing similar tasks?
Does the organization have or can they acquire the people, equipment, and materials that are capable and available for performing the work?
Cost estimating
An important output of project cost management is a cost estimate. There are several types of cost estimates and tools and techniques to help create them. It is also important to develop a cost management plan that describes how cost variances will be managed on the project.

Cost budgeting
Cost budgeting involves allocating the project cost estimate to individual work items and providing a cost baseline. The main output is a cost baseline.

Cost control
Project cost control includes, monitoring cost performance, ensuring that only appropriate project changes are included in a revised cost baseline and informing project stakeholders of authorized changes to the project that will affect costs. Earned value management is an important tool for cost control.

Project Risk Management

Project risk management is the art and science of identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives. Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates. Risks can be negative or positive. Negative risk involves understanding potential problems that might occur in the project and how they might impede project success. Delays in the delivery of the project or passing to the planned costs or anything else could affect the objectives of the project is considered a negative risk or “threat.”Positive risks are risks that result in good things happening; sometimes called opportunities. Example about the positive risk: ending project before delivering date, or increasing the return on investment ROI.

A general definition of project risk is an uncertainty that can have a negative or positive effect on meeting project objectives. The goal of project risk management is to minimize potential negative risks while maximizing potential positive risks. Risk management process contains following steps.

Risk management planning: deciding how to approach and plan the risk management activities for the project.
Risk identification: determining which risks are likely to affect a project and documenting the characteristics of each.
Qualitative risk analysis: prioritizing risks based on their probability and impact of occurrence.
Quantitative risk analysis: numerically estimating the effects of risks on project objectives.
Risk response planning: taking steps to enhance opportunities and reduce threats to meeting project objectives.
Risk monitoring and control: monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project.
Risk management planning
The main output of risk management planning is a risk management plan—a plan that documents the procedures for managing risk throughout a project. The project team should review project documents, corporate risk management policies, lessons-learned
reports from past projects and understand the organization’s and the sponsor’s approaches to risk. Important to clarify roles and responsibilities, prepare budget and schedule estimates for risk-related work and identify risk categories for consideration. The level of detail will vary with the needs of the project.

Risk Identification
Risk identification is the process of understanding what potential events might hurt or enhance a particular project. This is an ongoing process throughout the project life cycle as things change. You can not manage risks that you don’t identify. Risk identification tools and techniques include:

The Delphi Technique.
SWOT analysis.
Qualitative Risk Analysis
After identifying risks, the next step is to understand which risks are most important. Assess the likelihood and impact of identified risks to
determine their magnitude and priority. Risk quantification tools and techniques include:

Probability/impact matrices.
The Top Ten Risk Item Tracking.
Expert judgment.
Quantitative Risk Analysis
Companies often follows qualitative risk analysis, but both can be done together. Large, complex projects involving leading edge technologies often require extensive quantitative risk analysis. Main techniques include:

Decision tree analysis.
Sensitivity analysis.
Risk response planning
After identifying and quantifying risks, you must decide how to respond to them. Four main response strategies for negative risks:

Risk avoidance – don’t use hardware or software if unfamiliar with them.
Risk acceptance – prepare for risk with backup plan or contingency reserves.
Risk transference – to deal with financial risk exposure, a company may purchase special insurance for specific h/w needed for a project. If hardware fails, insurer has to replace it.
Risk mitigation – reduce probability of occurrence e.g., use proven technology, buy maintenance or service contract.
Risk monitoring and control
Involves executing the risk management process to respond to risk events. This is an ongoing activity – new risks identified, old risks disappear, weaken or get stronger. Workarounds are unplanned responses to risk events that must be done when there are no contingency plans. Main outputs of risk monitoring and control are:

Requested changes.
Recommended corrective and preventive actions.
Updates to the risk register, project management plan, and organizational process assets.
with all these explanations you might understand that how important this cost management and risk management is, in a software project management process. When you are developing a software project, do remember these facts and act accordingly, in order to get a successful software product at the end.

Hope you have a good understanding about the project management filed now. Follow the processes and become a good project manager with the projects that you are involved with.