Scenario Background Company: Pepsi Pepsi’s Product Portfolio Fun for you Better

Question

Scenario Background

Company:

Pepsi

Pepsi’s Product Portfolio

Fun for you

Better for you

Good for you

Pepsi’s Target Markets

Millennial

Generation X

Baby Boomer

Internal Environment

Board of Directors

Risk management director at board level

Multiple levels of corporate management

Chief risk officer at corporate management level

Multiple divisions

Multiple management levels within divisions

Executive risk manager at divisional level

Wholly owned subsidiaries

Multiple divisions within subsidiaries

Multiple management levels within divisions

External Environment

Bottling companies

Distributors

Point of sale locations

Community relations

Strategic alliances

Competitors

Risk Environment

Appetite

High degree of risk acceptance for marketing programs

High degree of risk acceptance related to return on investment timeline

Moderate degree of risk acceptance for distinction between lines on product portfolio

Low degree of risk acceptance regarding company reputation

Tolerance

High tolerance for risks related to relations with bottlers and distributors

Moderate tolerance for community relations

Low tolerance for risks related to brand image

Threshold

Defined by risk policies and procedures at the corporate and division levels

Scenario

Pepsi has concluded that continuing the Pepsi Refresh Program will, in fact, be profitable in the medium-term and is worth the investment outlined in the board’s subcommittee report. The board has directed the company executives to execute a pilot that will roll out the redesigned program for a period of 1 year. After 1 year, the board will analyze the results and make a determination on continuing, tweaking, or halting altogether the program.

The initial plan was to reduce focus on social media and focus more on traditional and sports marketing vehicles; however, the board received an industry report that shows companies are realizing increased revenue through increases in earned media value, and companies increase earned media value by combining traditional marketing vehicles with social media. Pepsi will increase focus on this one area during this 1-year pilot. The chief executive officer (CEO) assigned a program manager to implement the redesigned Pepsi Refresh Program and a project manager to focus on the combination of traditional marketing vehicles and social media.

The project manager assembled a project team with a project risk management professional (RMP) to manage project risks. The RMP will develop a project risk management plan that will integrate with theprogram risk management plan of the pilot program. The risk management plan will define procedures to identify risks throughout the phases of the project. The plan will lay out the major categories of risks associated with the project, how each category will affect the project's stakeholders, and how stakeholders will be engaged in the risk management process.

The risk management framework, detailed in the strategic plan, will serve as the foundation for the risk management plan employing corporate and division policies and procedures to manage risks to the project schedule, budget, and scope. The RMP will detail the risks to organizational assets and outline the environmental factors that the program and project managers should consider as they plan, execute, and monitor the project. Risk impacts and probability scales must show alignment with the organization’s risk appetite and tolerance and must set thresholds used to manage monitoring and response strategies. These strategies must allow for responses leveraging both external factors and relationships and internal corporate and divisional resources.

QUESTION:

Based on the above scenario,

Describe the steps in the project risk management process.

Describe the method(s) that will be used to identify project risks.

Describe the method(s) that will be used to analyze project risks.

Describe the method(s) that will be used to control project risks.

Explanation / Answer

Describe the steps in the project risk management process.

A common definition of risk is an uncertain event that if it occurs, can have a positive or negative effect on a project’s goals. The potential for a risk to have a positive or negative effect is an important concept. Why? Because it is natural to fall into the trap of thinking that risks have inherently negative effects. If you are also open to those risks that create positive opportunities, you can make your project smarter, streamlined and more profitable. Think of the adage –“Accept the inevitable and turn it to your advantage.” That is what you do when you mine project risks to create opportunities.

Uncertainty is at the heart of risk. You may be unsure if an event is likely to occur or not. Also, you may be uncertain what its consequences would be if it did occur. Likelihood – the probability of an event occurring, and consequence – the impact or outcome of an event, are the two components that characterize the magnitude of the risk.

All risk management processes follow the same basic steps, although sometimes different jargon is used to describe these steps. Together these 5 risk management process steps combine to deliver a simple and effective risk management process.

Step 1: Identify the Risk. You and your team uncover, recognize and describe risks that might affect your project or its outcomes. There are a number of techniques you can use to find project risks. During this step you start to prepare your Project Risk Register.

Step 2: Analyze the risk. Once risks are identified you determine the likelihood and consequence of each risk. You develop an understanding of the nature of the risk and its potential to affect project goals and objectives. This information is also input to your Project Risk Register.

Step 3: Evaluate or Rank the Risk. You evaluate or rank the risk by determining the risk magnitude, which is the combination of likelihood and consequence. You make decisions about whether the risk is acceptable or whether it is serious enough to warrant treatment. These risk rankings are also added to your Project Risk Register.

Step 4: Treat the Risk. This is also referred to as Risk Response Planning. During this step you assess your highest ranked risks and set out a plan to treat or modify these risks to achieve acceptable risk levels. How can you minimize the probability of the negative risks as well as enhancing the opportunities? You create risk mitigation strategies, preventive plans and contingency plans in this step. And you add the risk treatment measures for the highest ranking or most serious risks to your Project Risk Register.

Step 5: Monitor and Review the risk. This is the step where you take your Project Risk Register and use it to monitor, track and review risks.

Risk is about uncertainty. If you put a framework around that uncertainty, then you effectively de-risk your project. And that means you can move much more confidently to achieve your project goals. By identifying and managing a comprehensive list of project risks, unpleasant surprises and barriers can be reduced and golden opportunities discovered.

Describe the method(s) that will be used to identify project risks.

7 Ways to Identify Risks

There are numerous ways to identify risks. Project managers may want to use a combination of these techniques. For example, the project team may review a checklist in one of their weekly meetings and review assumptions in a subsequent meeting. Here are seven of my favorite risk identification techniques:

Describe the method(s) that will be used to analyze project risks.

Risk Analysis is a process that helps you identify and manage potential problems that could undermine key business initiatives or projects.

To carry out a Risk Analysis, you must first identify the possible threats that you face, and then estimate the likelihood that these threats will materialize.

Risk Analysis can be complex, as you'll need to draw on detailed information such as project plans, financial data, security protocols, marketing forecasts, and other relevant information. However, it's an essential planning tool, and one that could save time, money, and reputations.

Risk analysis is useful in many situations:

Identify Threats

The first step in Risk Analysis is to identify the existing and possible threats that you might face. These can come from many different sources. For instance, they could be:

Estimate Risk

Once you've identified the threats you're facing, you need to calculate out both the likelihood of these threats being realized, and their possible impact.

One way of doing this is to make your best estimate of the probability of the event occurring, and then to multiply this by the amount it will cost you to set things right if it happens. This gives you a value for the risk:

Risk Value = Probability of Event x Cost of Event

Describe the method(s) that will be used to control project risks.

Once you've identified the value of the risks you face, you can start to look at ways of managing them.

If you choose to accept the risk, there are a number of ways in which you can reduce its impact.

Business Experiments  are an effective way to reduce risk. They involve rolling out the high-risk activity but on a small scale, and in a controlled way. You can use experiments to observe where problems occur, and to find ways to introduce preventative and detectiveactions before you introduce the activity on a larger scale.

Plan-Do-Check-Act   is a similar method of controlling the impact of a risky situation. Like a Business Experiment, it involves testing possible ways to reduce a risk. The tool's four phases guide you though an analysis of the situation, creating and testing a solution, checking how well this worked, and implementing the solution.

Avoid the Risk

In some cases, you may want to avoid the risk altogether. This could mean not getting involved in a business venture, passing on a project, or skipping a high-risk activity. This is a good option when taking the risk involves no advantage to your organization, or when the cost of addressing the effects is not worthwhile.

Remember that when you avoid a potential risk entirely, you might miss out on an opportunity. Conduct a "What If?" Analysis   to explore your options when making your decision.

Share the Risk

You could also opt to share the risk – and the potential gain – with other people, teams, organizations, or third parties.

For instance, you share risk when you insure your office building and your inventory with a third-party insurance company, or when you partner with another organization in a joint product development initiative.

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