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In an organization or in a project, it is very important to understand the roles of each individual. The sponsor and the project manager have different roles to play in a project. In general, the sponsor authorizes the project while the project manager plans and executes the project. An understanding of the roles of the sponsor would help you in answering few questions in the PMP Certification exam. You, as a project manager, should be clear on the areas where the Sponsor's help is required. The following list gives a guidance on the roles of the sponsor:

RISK BREAKDOWN STRUCTURE (RBS)

What do you mean by risk categories? Risk categories are a group of potential causes of risk in a project.

And what is the use of categorizing risks? Risk categories generally provide a structure to systematically identify risks in a consistent manner. It helps the project manager and project team and contributes to the effectiveness and quality of the “Identify Risks” process. It provides a logical way to organize the project risks to better manage them and to determine the root causes of risk. Categorizing the risks also would be much beneficial while planning response actions for the identified risks.

Risks can be categorized in various ways like External, Internal, Technical or Project Management related risks. Risks can also be categorized based on the origin of the risk like Schedule Risk, Cost Risk, Quality Risk, Scope Risk or Resource Risk.

Depending on the project and the organization, the risk categories can be as simple as a list of categories or it might be structured into a detailed Risk Breakdown Structure (RBS) .

The following are the Inputs, Tools & Techniques and Outputs (ITTO) of the process "Plan Risk Management", which is the first project management process in the Project Risk Management knowledge area.


INPUTS:

1. Project scope statement
2. Cost management plan
3. Schedule management plan
4. Communications management plan
5. Enterprise environmental factors: Risk attitudes and tolerances that describe the degree of risk that an organization will withstand.
6. Organizational process assets: Risk categories, common definitions of terms and concepts, standard templates, authority levels for decision-making, lessons learned, stakeholder registers.

TOOLS & TECHNIQUES

1. Planning Meetings and Analysis:
   Project team hold planning meetings to develop risk management plan. Attendees may include project manager, selected team members and stakeholders, anyone with the responsibility to manage risk planning and execution activities. High level plans for conducting the risk management activities are  defined in these meetings. Risk management responsibilities will be assigned. Probability and impact matrix will be tailored to the specific project. If templates do not exist, they may be generated in these meetings.

OUTPUTS

1. Risk Management Plan:
   The only output of this process is risk management plan, which becomes a subset of the project management plan.. The risk management plan describes how risk management will be structured and performed on the project. It tells you how you are going to handle risk in the project. It defines how risk will be assessed, who will be responsible for doing it and how often you will do risk planning. Risk Management Plan includes the Methodology, Roles and responsibilities, Budgeting, Timing, Risk categories, Definitions of risk probability and impact, Probability and impact matrix, Revised stakeholders’ tolerances and Reporting formats.

Project Risk Management includes the following six project management processes:

1. Plan Risk Management : This is the first step in project risk management. It includes defining how to conduct risk management activities for a project.


2. Identify Risks: I would consider this as the most important process in the entire risk management. This is where you identify and determine which risks may affect the project and document their characteristics. The risk identification process must be comprehensive, as risks that have not been identified cannot be assessed or responses planned.


3. Perform Qualitative Risk Analysis: In this process, we assess the likelihood/ probability of each risk occurring and the likely impact of the risk on project objectives. We follow this up with prioritizing the identified risks for further analysis or action by combining their probability of occurrence and impact/ severity.


4. Perform Quantitative Risk Analysis: This process may or may not be included in all projects. Here, we numerically analyze the effect of prioritized risks on overall project objectives.


5. Plan Risk Responses: Developing options and actions to enhance opportunities and to reduce threats to project objectives.


6. Monitor and Control Risks: Implementing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.

Project Risk Management includes the project management processes of conducting risk management planning, identification, analysis, response planning, and monitoring and control on a project. The main objectives of project risk management are as follows:

• To increase the probability and impact of positive events/ opportunities
• To decrease the probability and impact of negative events/ threats

In other words, project risk management is a part of the project management, which deals with uncertain events in a project in a proactive manner. It helps a project manager to ensure that the project is completed on time, within the budget and to the project requirements.

Risk Threshold means the amount of risk that is acceptable to an organization. Most organizations can accept minimal overruns in schedule or cost, or minor changes to the scope. For example, a company may have a policy that a risk that increases the project's cost by not more than 10% is acceptable, but anything more than 10% is not acceptable.

The customer, sponsor and other stakeholders all may have different perceptions and different risk thresholds. It is the project manager's responsibility to bring consensus on the acceptable threshold. Then, it forms the target against which the project team will analyze risks.

In general, negative risks or threats may be accepted by an organization if they are within tolerances and are in balance with the rewards that may be gained by taking the risks. For example, adopting a fast track schedule is a risk taken by a project manager to achieve the reward created by an earlier completion date.

Organizations and stakeholders are willing to accept varying degrees of risk. Risk Tolerance means whether the risk can be tolerated or not. It is the willingness of the organization or a project team to accept or avoid a risk. For example, a company might have a policy that any risk that impacts their customer relationship will not be tolerated.

A project manager should understand his risk tolerance level as well as that of the project team and the organization as a whole.