Managing risk in project management is not an easy thing if you don’t plan for it. Failure to plan for risk in project management may lead to the collapse of a project or delay in the completion of a project. It is essential to have a risk management plan prepared during the start of any project. But what is risk in the context of project management?
What is Risk?
By definition, a risk is an uncertain occurrence or an event that can happen and can have a negative or positive impact on the running of a project. It can affect project scope, project schedule, utilization of project budget and customer satisfaction.
What is a Project Risk Management Plan?
Project Risk Management Plan is a document prepared by the project manager to determine potential risks and impacts on project and determine how to deal with such risks. It also includes the risk assessment matrix. The risk management plan is one of the essential aspects of project management and should be handled carefully. Risk management plan involves several processes like;
- Identifying potential risk,
- Analyzing the risk, and,
- Plan to respond to the risk.
The risk management plan should be started right from the start of the project and risk monitoring and controlling should run throughout the project lifecycle.
Key Elements of Risk Management Plan
- Risk Identification
Risk Identification is the process where risks which can affect a project from meeting its objective are identified.
- Usually, there are what we called ‘known risks’. These are risks that can easily be identified by the project team and are likely to happen. The other type of risk is unknown risks. These are risks that have not been identified and managed. They can also be considered as risks that are unknown to the project team. Unknown risks can have a negative impact on the project.
- The process of risk identification involves creating a risk register that is specific as per your project. This can be achieved by conducting risk identification process.
- It can be categorized as organizational, technical, and can also be divided into subcategories such as budget, interfaces, technology, logistics, and performance.
- Mapping Out Impact Against Likelihood
This is a process where you weigh the likelihood of a risk occurring against the impact the risk will bring to your project.
- Risk Response Plan
This is the process where you will start finding how you will respond to the risk that might occur on your project. The three main objectives in this process are;
- Eliminating the risk as much as possible
- Reducing the impact, the risk will bring to your project.
- Reducing the possibility of the risk happening.
- Assign the Risk To Team Members
The next phase of the risk plan is to assign the person who will be the owner of each risk. In most cases, it is the project manager who will be responsible for handling all the risk cases. The project manager can also set up a team and assign each member to a particular risk.
- Understanding Your Triggers
This is a process where you identify factors that will trigger the risk to happen. Triggers can be identified before any risk happening and after the risk has happened. Identify every factor that may cause a risk to happen and learn how to deal with each element.
- Create a Back Up Plan
While it is possible to identify risk and plan for the risk, there is a possibility that when a risk occurs, there can be a change in the way the risk will happen. This will trigger you to have a backup plan to handle the unexpected change in the occurrence of the risk. Risk can also change in classification at any time during the project lifecycle. Create a contingency plan to handle any change that will arise.
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- Determine The Risk Threshold
This is about determining the level of impact for every risk. Some risk may be too high, while others may be too low. Measure ever risk threshold and engage the stakeholders to determine whether it is worth in terms of cost implication on your project.
When to Prepare a Project Risk Management Plan?
The risk management plan should be prepared during the start of the project during project planning. The risk management plan will help deal with the risk as soon as the project start and even during the project execution.
Who should Prepare a Project Risk Management Plan?
The risk management plan should be prepared by the project manager in consultation with the project team members. The project manager has taken views of all the stakeholders in the project, should create a detailed risk management plan that will run throughout the project lifecycle.
Who Should Approve a Project Risk Management Plan?
The project manager is responsible for preparing the risk management plan and will then handover the document for review to the key project stakeholders. The key project stakeholders will then review the report and approve the plan. Once approved, the risk management plan will later be adopted by the project team, and the project manager is responsible for leading the team.
Why Is It Important To Prepare A Project Risk Management Plan?
- The risk management plan help is ensuring the project is completed successfully. By having a Risk management plan, it will help in identifying potential risks both internally and externally and deal with those risks before they hurt the project. As a result, the project will run without any interference and get completed on time.
- Risk management plan help to maximize results and ensure that deadlines are met as per the plan. By planning to tackle risks that will delay or affect the project, it ensures that set deadlines and results are met accordingly. This will maximize the results of the project.
- Risk management plan help in ensuring that resources allocated to the project are used accordingly and avoids a possible case of insufficient resources during the project execution.
- Risk management plan help in ensuring that clients are fully satisfied because their project will be completed on schedule and meeting their requirements.
- A risk management plan helps a project manager in identifying risk and dealing with that early before a project can suffer any loss as a result of risk that was not dealt with.
- Risk management plan help in improving the company brand. When a project is completed successfully, the image of the company, reputation, and brand of the company will grow. This will result in the company getting more businesses.
- Risk management plan will enable the project to be completed within the budget.
What Activities Need To Be Conducted To Prepare A Project Risk Management Plan?
A risk management plan involves several activities and processes. These activities will form a good risk management plan that will work for any organization. The following activities are undertaken when preparing for the risk management plan;
- Risk Management Workshop
Risk management workshop are events that are organized to provide awareness to participants about risk management. It provides a platform for people with less knowledge about risk management, to come and learn more about risk management.
Risk identification, risk categorization and risk mitigation strategy is done during risk management workshop.
The main purpose of conducting interviews is to identify potential risks that can affect the project. This will help in collecting ideas and information from them and using that information to come up with an elaborative plan of creating a working risk management plan.
- Cost And Time Estimating
This is about bringing on board persons with the necessary skills and experience to help in estimating risk-based cost. The person in charge of risk management will analyze the value of the project and analyze any potential risk associated with them.
- Historical Records
Historical records refer to past information on resources that were previously used by the project team for the previous project. When developing a risk management plan, these records are vital as they will help in seeing past trends and estimations about the issues of a project. It will also help in checking on new risks that occurred during a past project. It will also show measures that were taken to handle those risks and will help develop a risk management plan for the current project.
- Expert Judgement
Expert judgement is used thoroughly to assess the project inputs and processes which are used to create the project charter. The role of the expert in a project is very much required during the project planning and during risk identification processes. Project Planning and risk identification are very important to the success of any project.
In most cases, typically, expert Judgment needs expertise that is not based on the current project team. It is mutual for anybody from an external source/firm or any person with a complete applicable skillset or even knowledge base individual to be brought in the project team for further consultation.
- Decision Tree Analysis
Decision Tree Analysis is a technique used in risk management to analyze risk. This analysis is applied to determine risk levels and can be used on a number of projects in a project management environment. Decision tree analysis uses the Expected monetary value analysis in determining risk levels and in making the right choice when tackling risk management. Decision Tree Analysis’s main principle is to focus on future uncertain events/risks. There are always decision points in the DTA.
What Is Included In A Project Risk Management Plan?
The risk management plan involves a lot of processes, and the following must be included in the risk management plan for any project.
1. Risk Management Approach
The risk management approach must be included in the risk management plan. This is a document which states and determines everything that will be carried on in the risk management plan. It will include determining the tool, resources, techniques and processes to be carried in any specific project. The risk management approach is important in the risk management plan because it will define the scope of work for the whole plan.
2. Roles and Responsibilities
The risk management plan must include the roles and responsibilities of each member of the risk management team within the entire project team. This will help in assigning risks and dealing with each risk accordingly. If the roles and responsibilities are not defined, it is possible that certain risks will not be dealt with and, as a result, can hurt the project. It is important to have a list of all the roles and responsibilities for each role. This can include; a risk owner, project manager, stakeholders, project sponsor, among others, should have their responsibilities defined.
3. Risk Identification
The risk management plan should include risk identification as per the plan. By definition, risk identification is the process where risks that can hinder the progress, and the performance of a project are determined.
4. Risk Prioritization & Categorization
The risk management plan should include information on risk prioritization and categorization. This process involves identifying risk and classifying them based on their priority index. For example, risk can be identified and considered as not have a big impact on the progress of a project, and it can be classified as less impactful to the project. The process also involves identifying risk and categorizing them as known risk and unknown risk. Risk categorization is where a risk is identified from their sources and determining the project areas in which the risk can affect most. Risk categorization is also about knowing the kind of impact a risk will bring to that specific area of the project. The risk identified will be categorized accordingly. Risk categorization is done based on several factors such as location, scale and percentage impact it can bring to a project.
Risk prioritization is putting the risks by ranking them on a certain scale in terms of severity and frequency of occurrence.
5. Risk Register
The risk register is a document used to record all the risks identified in a project. It is also used to store any additional information on every risk that has been identified in any project, for example who is responsible for the risk and what is the probability and the impact scale of the risks listed. It is essential because it acts as a reference book for the project manager for all the risks associated with the project.
6. Risk Response Planning
Risk Response Planning is the process of determining actions to be taken to address identified risks. It follows after the Qualitative Risk Analysis together with the Quantitative Risk Analysis processes.
7. Risk Monitoring, Controlling, And Reporting
This is a process that deals with monitoring the risk and taking actions against them. This process includes;
- Tracking identified risks by the risk owner,
- Implementing risk response plan,
- Identifying new risks and how they can be managed.
- Provide performance reports. This will give a clear picture of how the project is performing in terms of scope, resources, risk, quality, cost among others.
- Checking on approved change requests. This will be about determining if approved change request will have an impact on identified risk.
- Monitoring risk register and checking if every risk is dealt with.
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