Basics of Risk Management

Basic Risk Management is about understanding and managing the risks which exist in the project or operations you are monitoring and is outlined well in the quotation below.

“Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events. Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary”

Wikipedia 21st September 2009

Risk Management is the focus on things that will change the outcome of the project (I will discuss this in the setting of Project Management). From a purist viewpoint these results can have a positive or negative outcome on the project, in most cases it is only the negative elements that people focus on.

Things go wrong on every project no matter how well planned and managed, so the ultimate aim of a good Risk Management process is to structure and control this element of the project. After a few years in the job, there are several risks that will repeatedly re occur in any project. It is important to look at these freshly each time a new project is started.

Initial Assessment of Risks

At the start of every project a period should be spent focusing on foreseeable risks and discussing them with the people involved. This should generate the Risk Log which at this stage will be an outline of all the risks that have been discussed and at this point just recorded.

The next stage is to asses the risks and decide on the probability and impact they will have on the project, this should allow you to prioritise these risks (there are several matrices for this and the will be the subject of another blog). When you have an understanding of the potential impact of the risk it is now time to begin planning to control the risks.

Defining Risks Strategy

Defining a response to the risk is perhaps the most difficult element as in some cases there will be more than one possible response. To help focus on what I see as the main risk the first thing I would advise you do is scan down the list and decide on what risks can be Accepted (Accepting the Risk).

Make the judgement on which ones to Accept based on the impact and the cost. Defining the allowed level of risk at the start of the project is important (Risk Threshold).

Avoid The Risk: This basically involves redesigning the project to remove or reduce the risk back to below the acceptable risk threshold of the project, this can be as simple as extending the time-line for high risk elements or clearly defining that a risk buffer should be placed in the project to give a more realistic time-line or changing the technology used to deliver elements of the project.

Transfer The Risk: Move the element containing the risk over to someone else for example get this element delivered by a supplier.

Mitigate the Risk: Take steps that are necessary to reduce the level of the risk such as insurance, changing time lines, redefining tasks and overtime arrangement. There is a similarity to “Avoid the Risk” but in most cases with a smaller impact, these are the result of project trade offs.

Controlling the Risk

The best practice is to have plans to cope with any risks that happens already in place as a result of the previous stages for example if the task is running late to hire more staff from the agency if that is a viable solution and a Plan with the impact shown.

The other fundamental is to use Risk Managers these are individuals who are tasked with monitoring the risk and reporting on it. The information that is received by them is used by the Project Manager to plan and understand the risks on a day to day basis.  If a risk is a major risk the Project Manager should be “all over it”.

In Summary

Risk Management can be viewed as lots of work in most small projects, but it is fundamental to the delivery of any project and should play a central role in any project reports.

I will write more about Risk Management later. 

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Related posts:

1. Basic Risk Management
2. A Intro to Risk Management
3. Outsourced Software – Risk Management
4. Why Critical Chain Project Management
5. Critical Chain Project Management