Risk Management In Projects

Risk Management In Projects

Effective risk management is one of the best ways to ensure a project is delivered on time and on budget. Projects by their nature contain much more risk than business as usual (BAU). A project risk is identified as any event, known or unknown that could threaten the project’s success. Each of these project risks are identified as project risk events, scored and combine to produce an overall project risk rating. Risk management, is the monitoring and controlling of these risks, so they do not negatively impact on the performance of the project

When conducting project risk management, it is also important to be aware of not only negative risk, but also positive risk events or “opportunities”, while these are not “project risks” per say, they can produce favourable results if identified and planned for early enough.

Why Risk Management Is Critical

Because of the high levels of risk surrounding a project, risk management plays a critical role in every project and must be in the forefront of every project managers mind. Not forgetting Murphy’s Law, Anything that Can go wrong, Will go wrong! Risk management should be conducting during all the project processes and begin when a project is in the initiation phase.

A robust risk management framework can provide sufficient risk mitigation strategies, which can reduce the impact of the risk, or can avoid it all together. For those risks that cannot be avoided or mitigated, a contingency plan also referred to as “Plan B” can be but in place and initiated the second the risk event occurs.

With out risk management, the entire project is in jeopardy and balancing on a knifes edge. The schedule will not be realistic, the budget will blow out, the project could fail or be terminated and written off as a sunk cost.

Risk Management Control

Risk management is quite mature with an international standard ISO 31000:2009 which outlines the methodology and provides a framework in which to plan and manage risk.

Risk Appetite

When undertaking risk management planning, it is important to first start with the organisation’s risk profile. This provides the project manager a context or risk appetite in which to approach risk management and control to ensure the project risk management is aligned to the organisations risk profile.

Risk Identification

Once this context has been identified and agreed, the next step is to identify the risks that could occur. Do not get bogged down during the risk identification process, the important thing here is to capture as many risks as possible, this is usually conducted in a workshop with key stakeholders and subject matter experts (SME’s). It can be helpful when identifying risks, to work through each of the process groups and knowledge areas. Do not forget, also look for opportunities to capitalise on.

Risk Analysis

Now that the risks have been identified and documented, they need to be analysed for their impact to the project. The two main risk analysis techniques are Qualitative risk analysis and Quantitative risk analysis, or a mixture of both, for example it may be prudent to conduct a qualitative risk assessment on the project risks then a quantitative risk analysis on the high risk events. The size and complexity of the project will determine which method is chosen to mitigate risks.

Qualitative Risk Analysis

When analysis risks using the qualitative analysis technique, you are essentially scoring each risk in terms of Probability vs Impact and most will be familiar with the risk matrixes that are common in every organisation health and safety standards. This Qualitative assessment, is usually a “gut feel”, or a group consensus and generally gives a reasonable analysis which can be used to identify HIGH risk from LOW risks.

Quantitative Risk Analysis

This technique uses a mathematical model that provides a distribution of the likely hood and impact of the project risk. The most common tool for this is a Monte Carlo simulation, which provides a score range which can then be used to further develop mitigation strategies to further manage the project risk. It is important to note, this technique requires a lot more data in order to produce accurate results, but when used correctly can be a very powerful tool.

Click Below For A free Risk Management Template and Guide

Risk management is generally not conducted very well, and too many project fail from poor risk planning. Risk management is an ongoing exercise , it needs to be review at least weekly and in some cases daily. It is one of the most important tools in the Project managers arsenal, and remember to plan of the opportunities!

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Who Wrote This Article? ...(It was: Chris O'Halloran)

I'm "Chris O". I've managed hundreds of millions of dollars worth of projects since the inception of my career. I love helping others figure out the intricacies of project management on any scale. Come find me on twitter or google+

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