Risk Management
The Risk Management discipline manages the uncertain events that positively or negatively affect the project. More specifically, it enables the team to identify, assess, and monitor individual risks. Additionally, it allows the team to determine and implement the response strategies that can favorably influence risks. On the one hand, the team can mitigate and avoid threats. On the other hand, the team can also explore or enhance opportunities.
At the same time, the risk management discipline manages the overall project risk. More specifically, it enables the team to assess and influence the overall risk exposure. Hence, the project can define more realistic objectives.
Let’s explore the concepts of individual risks and overall project risk.
An individual risk is an uncertain event that can have a positive or negative project impact. Moreover, risks with negative impacts are known as threats. At the same time, risks with positive impacts are known as opportunities.
Simultaneously, the overall project risk represents the overall project uncertainty. In other words, it reflects the confidence that the team will meet the project’s objectives.
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A Case for Risk Management
Projects are uncertain by nature. However, project teams can, at least partially, influence risk. The risk management discipline enables the team to minimize threat exposure and explore existing opportunities. Consequently, project teams can improve project performance. For example, they may save money, complete the project sooner, deliver better products, and add more value.
Exploring the Risk Management Plan
Projects have different sizes, complexity, uncertainty, importance, and formalism. Project teams should tailor the project management approach to the environment. Otherwise, the management approach could be too complex and costly. Or, sometimes, it could be too simplistic.
The Risk Management Plan is the project management artifact that defines how risks should be managed. It clarifies the risk management processes, techniques, tools, metrics, rules, records, roles, and responsibilities. It ensures the team can effectively identify, assess, respond, and monitor risks. At the same time, it ensures that the team adopts the right level of resources for risk management activities.
Since each project has its specific characteristics, the team should prepare a risk management plan for each project.
Risk Management Processes
Risk management standards establish processes. This section will explore a common approach to describe these processes.
Plan Risk Management
Firstly, the team may plan risk management. As has been noted, the risk management plan records the existing processes, tools, techniques, templates, metrics, roles, and responsibilities.
Identifies Individual Risks
Secondly, the team identifies the individual risks. In other words, team members identify the uncertain events that may influence the project objectives. They may also determine the risks’ causes, effects, and categories.
Qualitative Risk Analysis
Thirdly, the team assesses the risks qualitatively. In other words, it completes a subjective and imprecise assessment of individual risk factors. The team will typically base this assessment on probability and impact. However, it may also consider other risk factors, such as proximity and data quality. Consequently, the team may assign a risk score to each risk. The team can then use this individual risk score to rank risks. The team may also assign a score to the overall project risk.
Quantitative Risk Analysis
Fourthly, the team may assess the risks quantitatively. In other words, it completes an objective and precise assessment of individual risks. The team will typically consider probability and impact to determine the individual risks’ expected value. As a result, the team can make better risk response decisions. The team may also rely on a quantitative risk analysis to assess the overall project risk. For example, it can use a Monte Carlo Simulation to determine the likelihood of completing the project on time.
Plan Risk Responses
Fifthly, the team should plan risk responses. In other words, it may determine the strategies to address the existing threats and opportunities. The team may then implement these risk response strategies.
Monitor Risks
Finally, the team will monitor risks. In other words, it can periodically reassess individual risks. More specifically, it can determine if probability and impacts are changing. It may also assess whether risks can no longer occur, and new risks arise. The team may also assess if the adopted risk responses were effective and if new responses are needed. At the same time, risk monitoring enables the team to track the overall project risks. For example, the team may assess if the existing risk reserves are adequate.
Conclusion
In summary, the team should manage the individual risks and the overall project risk. More specifically, the team can identify, analyze, respond to, and monitor threats and opportunities. Additionally, the team can define realistic project targets that consider uncertainty.
The key message is that teams should manage risks proactively. In other words, they should not wait to take action. Proactive risk response can prevent unnecessary delays and cost overruns. It may also prevent the project’s cancellation for risk-related causes. Moreover, risk management enables the team to explore project opportunities.