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Risk Management for Projects |
| J. Center | 06.14.2006 | Any/All Industries | Project Management |
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 Risk Management is one of PMI’s (Project Management Institute) nine standard management areas for project managers, and may be the most misunderstood and poorly used process in the realm of project management. It’s no accident that PMI’s Guide to the PMBOK (Project Management Body of Knowledge) devotes more pages to Risk Management than any other topic.
Even more important, effective Risk Management can, almost single-handedly, transform a good project manager from one who’s reactive to one who’s proactive.
But the bottom line on Risk Management is that, fundamentally, it’s incredibly simple. Forget the complex and often expensive tools available commercially. Forget the hundred page documents often requested by management. On the other hand, avoid accepting the occasional management advice that “risk management isn’t a can-do activity – be positive!”.
Let’s start with some terminology. A risk in terms of a project is defined in two ways – it’s an event that may occur in the future, and if it does occur it will have an impact on the project. Notice that this definition does not put a value judgment on the risk – it’s neither positive nor negative. Current thinking says that risks are neutral; bad risks are called threats while good risks are known as opportunities. Risks have two attributes: impact and probability. It is these two attributes that are examined and scored in the second step of Risk Management.
Fundamentally, Risk Management is a process that is an integral part of effective project management. The process is a simple one with only four steps:
1. Identify the risks. Include every possible risk you can think of.
2. Quantify the risks. Separately score the risks according to impact and probability. The highest-scoring (impact and probability combined) 10-20% of all your risks are the ones that should be addressed in steps three and four.
3. Mitigate/encourage the most significant risks. Take the highest-scoring risks, whether threat or opportunity, and document what actions you can take to mitigate the threat or encourage the opportunity; record as many possible options as you can think of – you don’t have to perform them all.
4. Create a response for the most significant risks. Determine what your response will be if the risk does occur. Doing this eliminates the possibility of deciding how you’ll respond once the risk actually does occur and you’ve gone into “panic mode”.
This is a good start on learning how to manage risks effectively. A simple spreadsheet tool is all the software you need. Mentoring with a project management specialist at Ingage can provide you with some even more powerful techniques for managing risk more effectively and efficiently.
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