Project Risk Management: Creating a Risk Plan
- June Tucay
- Mar 30, 2017
- 7 min read
Project Managers needs to focus on project risks, if not managed properly, risk reduces your ability to achieve your project's goals, if not derailing it altogether. As a result, successfully managing project risk is of vital activity for success in project management.
Understanding Risk
Projects deal with change and dealing with change is a risky business. Research has shown that numerous project managers are ill-prepared, nor appropriately manage risk. As a Project Manager we should be prepared to manage the risk to complete the project.
The Project Management Institute defines risk as:
"an uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives"
Risks are things or events that hadn't happened yet. There is a probability of some sort of event occurring that will have an impact on the project. This impact could be positive when things go right, or it could be negative when they go wrong.
These 2 risk categories could impact your project:
Positive risks are often called opportunities, and they still need to be managed.
Negative risks are events that could cause your project to be thrown off course, so it’s vital to pay attention to these risk.
The logic and the process of dealing with positive risk is the same as for negative risks. It’s just that there are typically more instances of negative things happening in projects that have to be managed, and to focus on.
There are standards of steps to follow when managing risk, whether you are dealing with positive or negative risk.
1. Identify the risks on your project. When you see something that will probably happen you should take action ahead of time before the impact are felt in your project. Be proactive rather than being reactive.
2. Assess the likelihood of a risk happening and determine which risks to address in order to appropriately determine when to take action,
3. Determine the course of action in addressing risks. Investigating alternatives to steer the projects to the least bumpy section of the road, or you might try to smooth out part of the road for more comfortable ride. Using either alternative the idea fora project manager is to control how much of the projects are exposed by risk.
4. Control risks on an ongoing basis. Risks change over time. Constantly assess the project for the likelihood of a risk happening and its potential impact.
To properly manage risk, understanding the consequences of any risk will help. The last thing you want is for a risk to affect your deliverable, your budget or your quality standards when you could have addressed it proactively.
Keep in mind that managing risk doesn't mean playing it safe at all cost. Any sort of change comes with a level of risk; it’s how you manage it that makes all the difference. Risk creates havoc on the project as they crop up.
Ultimately, project management is risk management. Managing risk shows that you are aware of your challenges and you've considered your options. By clearly understanding your risks in the scheme of what you're trying to achieve, your project has a greater chance of being delivered successfully.
Incorporating risk management into your project
Risk can always present itself on the project. Deal with risk thoroughly without it consuming every moment of your day and driving you crazy in the process.
Here are 4 survival tips to consider to help in risk management:
1. Use risk to prioritize what you do on a day-to-day basis. At the start of every working day, prioritize your task. If necessary re-prioritize your to-do list so you can handle the riskiest things first.
2. As part of your general approach to managing your project, include a discussion on risk as part of your regular status meetings. Put it on as topic to talk on with your sponsor. Ask what risks they think are important and determine what they think of your strategies to do with risks. Ask for suggestions, and garner their
support.
3. Set a regular team meeting, and assess the overall risk status. Include the customers and your sponsor in these discussions. Consider having these risk assessment discussions as major milestones in your project such as stage gates. Having regular open and Frank discussions about risk will help you manage risk
as a regular course of doing business.
4. Create or update the overall risk plan after each of these risk assessment discussions. Risk Plan details the risk you’re managing, and provide an ongoing means of reporting what action your taking and the status of each risk. The risk plan help you ensure you’re on top of what's going on with risk in your project.
Working these plans proactively can help you be cool, calm and collected in your risk management approach. It treats risk management as an everyday event, and an essential part of keeping your project on track.
Ignoring the whole idea of risk, you’ll end up fighting fires. Jumping from crisis to crisis, can have a negative impact on your schedule, your costs, and the quality the products you deliver, not to mention the emotional drain that puts on you and your team. And you'll be so busy putting out the fires that any process improvement opportunities that could come out of risk would be largely overworked.
Look and act like you're in control of risk, then you'll have a better chance of getting others engaged in a sensible risk management approach. In addition you will help your management perceive you as a person with a balanced business approach to implementing your project, and dealing with the challenges the change brings to the business environment.
Understanding your stakeholders' risk tolerance
Projects involve people, and people are different when dealing with the threat of risk. You can be more methodical in understanding your stakeholders.
Understanding the stakeholders risk tolerance is a critical element to methodically understand how the stakeholders will react to risk. The level of effort, focus and attention that is required in the risk management approach, can be determine with that information.
(For more information on Stakeholders Management click here)
The two components to understand risk tolerance:
1. The People Element
Be prepared for the fact that the stakeholders, sponsors and the people on the project team will each tolerate risk differently. Some people are more adventurous, some people are cautious, and there is everyone in between. Take this into consideration when talking about risk in the project. The key is to always listen
carefully when discussing elements of the project.
2. The Appraisal Element
People have a natural tendency to want to protect scope, time, or money when these triple constraints are discussed. Which way they lean will depend upon their prior experience, the organizational culture they are used to, and the particulars of the project.
While considering people risk tendency, performance appraisal can also be taken into consideration as a risk tolerance component. How was the stakeholder is being appraised by their manager? Where they are being told they are doing well? And what do they need to improve? Pose critical question to obtain this information and listen to the answer. Without directly asking about the personal performance appraisal, ask them “what outcomes are you most excited about?” And “what potential negative outcomes most concern you?” These candid discussions about their expectations and concerns early on in the project, you'll get a feel for which project constraints they want to focus on.
In any organization, there is a risk reward balance and an underlying culture in the willingness to accept or manage risk. Some entrepreneurial organizations will take significant risk, whereas more conservative industries will want to mitigate their risk. The Project Manager is expected to conform to their style.
These techniques can position you well to understand how you need to proceed relative to project risk, and the more you understand your organization's position on risk, the better you'll be able to successfully focus your risk management effort and prioritize risk activities.
The components of a risk plan
The problem with risk on projects is that it can happen at any time with wide degrees of negative impact. Murphy's Law which states that if anything can go wrong it will, is well and truly enforced with projects. To control this potential chaos, build a risk plan.
A Risk Plan is a document that helps analyse risk on a project, its impact and the likelihood of such events from happening. It describes how project risk management will be structured and perform on a project. The risk plan can be one of the most valuable project tools.
The objective of a risk plan is for the Project Manager know how to identify risk on the project and determine what those risks can mean for the project
The following are the element of a Risk Plan.
1. Describe risk identification approach. The most common ways to do this is to outline a risk identification workshop. Get a group work together including sponsors and project team members, and brainstorm risks for past projects.
2. Capture how you will describe the risks. Capture the characteristics of the risk you want to identify. Include a high-level estimate of the impact to the project or the business if these risks occur. Other critical risk data items include a best guess about the likelihood of a risk event happening as well as who will own the management of each risk.
3. Document how you will perform qualitative and quantitative risk analysis. Qualitative analysis is when you prioritize risks based on the probability and impact of occurring. Quantitative analysis is when you estimate the effect of risks on project objectives.
4. The approach to take to address each significant risk. Each approach will have different costs, and should pose different alternatives for reducing the probability the risk occurring, and/or reducing the impact on your project if occurs.
5. How to monitor and update risks as the project progresses. This section details the proposed approached to keep on top of changing risks. It also describes the procedures on how to update and communicate changes to the status of risks on your project.
The risk plan provides a standard and communicative approach in Risk Management. Use the plan with the sponsor, project team and client, to ensure awareness and are proactive on the way risk is managed on the project.
For other articles in Project Risk Management, see also:
If you are looking for even more information on managing risk, I encourage you to check out some very insightful books:
Risk Management: Concepts and Guidance by Carl Pritchard is a great book that addresses risk concepts that can be applied to any project.
Here are good references for handling IT-based projects.
Waltzing with Bears: Managing Risk on Software Projects by Tom DeMarco and Timothy Lister
Managing Risk: Methods for Software Systems Development by Elaine M. Hal
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