Section Summary - Understanding Risk Management

In this section we have learnt about the basics of Risk Management that will be useful on our journey towards the PMI’s Risk Management Professional Certification.
Let us summarize what have learnt so far:

• A Risk is an uncertain event or condition that if it occurs, has a positive or negative effect on a projects objectives
• Risk Management is the act of increasing the probability and impact of positive events & decreasing the probability and impact of adverse events within a project
• The goal of risk management is to identify the risks within the project and develop a response to either reduce the impact or the probability of a negative risk. If the risk is a positive risk (opportunity) then the goal is to increase the probability and impact of the same.
• The PMBOK Guide covers the Risk Management knowledge area extensively and it is the basis on which our preparation for the RMP Certification is going to proceed
• The Risk Management Plan and the Risk Register are two important documents that are vital to efficient Risk Management
• The Environment in which the Project is executed can have a direct influence on the Project and can be a source of risks for the project. These environmental factors can be grouped into two “Internal” and “External” factors.
• The Project Organizational Structure is one of the vital Internal Factors that affects a Project. An organization can be of 3 types – Functional, Projectized or Matrix. A Matrix Organization in turn can be either a weak matrix, a balanced matrix or a strong matrix
• An Issue is something that is occurring now in the present and is currently being dealt with
• Risk Triggers are signs or indications that is risk event is about to occur or has already occurred. They are also known as Risk Symptoms or Warning Signs
• Pure risk is a type of risk that can result only in losses
• The purpose of Risk Categorization is to systematically identify risks in a consistent manner and organize them so that they can be managed better
• Uncertainty refers to the lack of knowledge of future events whether these events are positive or negative to the project.
• In almost all cases, a risk is taken in pursuit of some kind of benefit
• Part of managing risk is, knowing when to accept a risk.
• The Standard 5 Step approach to managing project risk is widely used to manage project risks and we will use it too. The 5 steps in it are:

o Risk Management Planning
o Information Gathering & Risk Identification
o Risk Assessment & analysis
o Risk Response Planning
o Plan Execution

Prev: Five Step Approach to Risk Management

Next: Risk Management Plan - An Intro

Five Step Approach to Managing Project Risk

If you have read all the previous chapters, by now you have a good foundation level understanding of what Project Risk Management is. We have already covered the Risk Management Framework as well as PMBOK Guides Perspective of Risk Management. Now we are going to take a look at the “5 Step Approach to Managing Project Risk” which will enhance your high-level understanding of the whole area of project risk management.

Good Project Risk Management begins early on in the life of the project when the data & information availability is minimal. This is because, this is the stage where uncertainty is at its highest and applying effective Risk Management will be most beneficial.

In order for Risk Management to be effective, we need to ensure that:

a. We have a thorough and realistic understanding of the Project, the Project Goals and Project Scope. If we do not have this basic understanding, then we may end up fighting a losing battle. Think this way, can you effectively prepare for a boxing match when you do not who your opponent is, where it is going to take place and how he fights? Even if you manage to be prepared, what are your chances of success? What is your opponent is 7 feet tall and weighs 450 pounds?
b. Follow good Project Management Practices. This again is extremely vital to ensure project success. A good project manager is one that plans meticulously and ensures that all stakeholders are identified and the scope is clearly defined. The good project manager never leaves anything to be assumed and ensures that all stakeholders are kept at the ideal level of understanding for a smooth project progression. If we can ensure this, we are not only reducing project risk but also increasing the chances of our project’s success.

The Standard Five Step Approach to Managing Project Risk

The Standard 5 step approach to project risk management consists of the following steps:

1. Risk Management Planning – This is the first step. This is where we plan and strategize on how to manage all the risks in our project. This is where the Risk Management Plan is created. We define what a risk is and ensure that everyone is in the same page.
2. Information Gathering & Risk Identification – This is where we gather all the relevant information that will enable us to identify all possible risks that might affect our project or its outcomes.
3. Risk Assessment & Analysis – This is the step where we analyze all those risks identified in the previous step. We will shortlist only those important (high impact/probability) risks and move the lower priority/possibility risks to a watch list.
4. Risk Response Planning – This is the step where all those risks that were identified & analyzed are actually addressed. We work on minimizing the probability of the negative risks as well as on enhancing the opportunities. We create workaround plans, risk mitigation strategies, contingency plans etc. in this step.
5. Plan Execution – This is the step where we implement the Risk Response Plan, monitor all the identified risks, look out for new risks, check the watch-list to ensure that their priority/probability/impact haven’t changed etc.

The picture below explains the same



As you can see, the steps are iterative and occur multiple times during the projects lifecycle. If you thought risk management was a onetime activity, just erase that thought from your mind and re-write the fact that risk management is iterative and happens multiple times during the lifecycle of the project.

Documenting Risks:

Risk Documentation is a part of every single step in this standard 5 step approach to Risk Management.

After reading the above statement, are you wondering why I haven’t included it in the picture or in the explanation? The reason is because, Risk Documentation has to happen at every stage of this process. If I put it as a step then you might be misled into thinking that it happens only at that particular time.

A good Project/Risk Manager is one who documents all vital information at every step of the way. Right from the planning stage to the closing stage, a lot of valuable lessons and risk related data are uncovered. All these must be documented properly and archived towards the end of the project to ensure that all future projects can benefit from our experience or should I say Mistakes…

Prev: Managing Uncertainty

Next: Section Summary