People Innovation Excellence
 

Project Risk Management Processes

Effective risk management requires a systematic process and a commitment to follow that process by the project’s stakeholder. Figure 1 provides a framework that outlines six steps for managing project risk.

The six steps include:

  1. Create a Risk Plan
  • Requires firm commitment by all stakeholders to the entire Risk Management approach
  • Risk Management should align throughout the organization
  • Risk Planning focuses on preparation
  • Systematic preparation and planning can help minimize adverse effects on the project while taking advantage of opportunities as they arise
  1. Identify Risks

Risk identification deals with identifying and creating a list of threats and opportunities that may impact the project’s measurable organizational value (MOV) and/or project activities. Each risk and its characteristics should be documented to provide a basis for the overall risk management plan.

  • Through Project Risk Identification Framework

Figure 2 Project Risk Management Processes
(Source: Information Technology Project Management – Fifth Edition)

  • Through Risk Identification Tools & Techniques
  • Learning Cycles
  • Brainstorming
  • Nominal Group Technique
  • Delphi Technique
  • Interviews
  • Checklists
  • SWOT Analysis
  • Cause & Effect (a.k.a. Fishbone/Ishikawa)
  • Past Projects
  1. Analyze Risks

Risk assessment focuses on prioritizing risks so that an effective strategy can be formulated for those risks that require a response.

  • Qualitative Approaches
  • Quantitative Approaches
  1. Develop Risk Strategies
  • Risk strategies depend on:
  • The nature of the risk itself – Really an opportunity or threat?
  • Impact of the risk on the project’s MOV and objectives – Likelihood? Impact?
  • The project’s constraints in terms of scope, schedule, budget, and quality requirements – Successful response possible with available resources?
  • Risk tolerances or preferences of the project stakeholders
  • Strategies to respond to opportunities with potential positive impacts on the project goal and objectives
  • Exploitation – attempt to take advantage of the situation
  • Sharing of Ownership – e.g. joint partnerships or joint ventures with customers or vendors
  • Acceptance – PM and project team members’ minds are open in order to take advantage of opportunities as they arise
  • Strategies to respond to a particular risk in terms of a threat may follow one of the following strategies:
  • Accept or Ignore
    • Management Reserves
      • Released by senior management
    • Contingency Reserves
      • Part of project’s budget
    • Contingency Plans
    • Avoidance
    • Mitigate
      • Reduce the likelihood or impact (or both)
    • Transfer
      • g. insurance
  1. Monitor and Control Risks

Various tools exist for monitoring and controlling project risk. These include:

  • Risk audits – focus on ensuring that the project manager and team have done processes are in place. Should be conducted by people outside the project team.
  • Risk review – throughout the project life cycle, the project stakeholders should hold scheduled, periodic risk review. Can be conducted internally.
  • Risk status meetings and reports – should provide a formal communication system for monitoring and controlling project risks.
  1. Respond and Evaluate Risk

Risk response plan that includes:

  • A trigger which flags that the risk has occurred
  • An owner of the risk (i.e., the person or group responsible for monitoring the risk and ensuring that the appropriate risk response is carried out)
  • A response based on one of the four basic risk strategies
  • Adequate resources

Source:

Marchewka, J. T., 5th edition. Information Technology Project Management : Providing Measurable Organizational Value. Singapore: John Wiley & Sons, Inc..


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