In todays post we will be talking about project risk management. More specifically what the elements of planning risk management and the contents of a risk management plan. We will start by giving a brief overview of what project risk management is, and then move into the more specific details like the elements of risk management and the contents of a plan.
What is Project Risk Management
Project Risk Management can best be described as “the art and science of identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives” (Schwalbe). This allows the team and manager to understand some of the risks and effects of said risks on the project as a whole. It is a lot more complicated than one might think right off the bat but it is still a very important part of the project process so that way you and your team are more prepared for things that may come your way.
One of the interesting things about project risk management is that when it goes well, it is not really talked about much. But it definitely is talked about when things go wrong because it is a lot easier to identify. As a project manager you must try everything in your power to make sure that you execute good project risk management. Now let's get into some more specifics about this area of project management.
Elements of Planning Project Risk Management
A very important piece to planning project risk management is to develop a risk management plan. This plan helps the team understand “the procedures for managing risk throughout the project”. We will get into more details about that later. One thing that should definitely be happening is that the team should be having several planning meetings early on in the project so that they can develop the plan. There are also some other plans that can be made alongside the risk management plan such as:
Contingency Plans: These are plans that include actions that will be taken when an identified risk event occurs. Take for example the team knows that there is a certain risk that might happen when performing an action. A contingency plan will be in place should that risk event happen so that way the project will suffer the least amount of damage possible.
Fallback Plans: A fallback plan is something that is a little deeper that a contingency plan in a sense. These plans are more for a risk that could have a high impact on the project being worked on. Fallback plans are normally put into place when attempts to mediate the risk fall short and do not resolve it completely.
Contingency Reserves: These are financial reserves that can be calculated for the baseline cost of the project. These reserves are for when any known risks occur and the base cost for the project is affected. It helps to offset the project cost if a risk happens and the project now appears to be off-course. This is a very important thing to have thought about ahead of starting the project.
Management Reserves: These reserves are more so held for unforeseen risks that happen within management control. These reserves do not go into the baseline cost of the project but are calculated with the project budget and if used will be added to the cost baseline.
Here are some more topics and questions you should answer when planning project risk management:
Methodology: This will guide how you and your team will handle risk management throughout the project. What kinds of tools and resources will you use when a risk occurs.
Roles and Responsibilities: Understanding the roles and responsibilities of each member on the team is extremely important because it will help the team resolve a risk even faster.
Budget and Schedule: What will be the budget and schedule for activities that are related to project risk management.
Risk Categories: This question will help you know the different categories of risks that will be defined for the project. Knowing these categories will be extremely helpful to you and your team later on during the project.
Risk Probability and Impact: This is not necessarily understanding the probability of certain risks at the moment but it is used for understanding how risk probability and impact will be calculated during the project.
Revised Stakeholders Tolerances: As a project manager, you should know the tolerances of the stakeholders when it comes to risk. Are they okay with a lot of risks, some risks, or no risks? And each one of those different answers will have different effects on the project so you must be prepared for that.
Tracking: This process is helpful to understand how the team will track risk management activities.
Risk Documentation: What will reporting risks look like and how will the documents that are written be formatted. As a team, having documents that are well formatted is very important especially with risks so that others that read it can understand the material being discussed.
As a project manager, understanding project risk management is a huge deal and can make or break a project. There will be risks that can be avoided, should be avoided, or risks that would be beneficial to the project as a whole and that will be something as a project manager that you will have to decide upon. Risks are unavoidable inside of a project, especially in IT because of just how versatile the industry is as a whole. You never really know exactly what will happen even on one given project and you must be prepared for multiple different scenarios. This is why it is important to have things like contingency plans for when things go wrong, and even fallback plans for when things go even more wrong. It is also important to understand the effect that risks will have on the budget of the project so you must be able to create reserves for when things inevitably go wrong in the project.
I hope that while reading this, you have gained some valuable insight regarding project risk management. Feel free to check out all of our other blog posts on the website!
Sources:
Schwalbe, Kathy. Information Technology Project Management. Available from: Yuzu, (9th Edition). Cengage Learning US, 2023.
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