What is Risk?
According to Pressbooks (2021), “Risk is the possibility of loss or injury. Project risk is an uncertain event or condition that, if it occurs, has an effect on at least one project objective. Risk management focuses on identifying and assessing the risks to the project and managing those risks to minimize the impact on the project. There are no risk-free projects because there are an infinite number of events that can have a negative effect on the project. Risk management is not about eliminating risk but about identifying, assessing, and managing risk”.
There are three steps that can be used to manage risk. These are:
Risk Identification - these are the triggers and consequences of adverse events that can hinder or stop the project completely.
Risk Assessment - this considers how big the risk is. Distinction is made of the probability of the trigger and its subsequent consequence. The impact can have impact to various project areas such as budget and human resources.
Risk planning - assign a risk level to each identified risk in terms of severity, this will help to plan for the risk event. Seek ways to either mitigate or eliminate the risk providing clear guidelines on each step (Wikstrand, 2015).
Risk Management
Risk Management is a process that assesses all possible risks that may happen and aims to either prevent the event occurring or to reduce the impact of the event. According to Garcia (2020), “risk management is a system for dealing with risks and potential risks before they materialise and become threats, incidents, or events”. The risk management process uses a series of actions that follow on from each other.
Risk assessment → Risk analysis → Risk evaluation/prioritisation → Risk treatment/mitigation → Risk monitoring/review
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Risk identification seeks to identify any existing or potential risks. However, not all risks can be identified at the project planning stage as there will be changes/events that happen in the future that cannot be foreseen. Therefore, it is essential that all risk management plans are flexible, reviewed regularly and contingency plans put in place (Garcia, 2020).
There are many forms of risks that can impede the project therefore identifying them is key. The types of risk that should be considered are:
Operational
Financial
Physical/environmental
Quality
Economic
Legal
Competitive
Audit
Compliance
Reputational
Cybersecurity
Scenario analysis
Scenario analysis (What If scenario analysis) is a good way of identifying and assessing a variety of risks on a project. It is a process of analysing possible future events and theorising the range of outcomes. This can be done by changing the duration of one or more tasks.
The main aspect and benefit of scenario analysis is detailed below in the following steps.
Predicting how a project is going is improved as the analysis speculates and solutions and variety of problems and their impacts.
Project managers can make more informed decisions and action accordingly.
Scenario analysis assists better planning on how various aspects of the project can be impacted in certain events.
Provides better understanding of risks, challenges, and impacts (Usmani, 2021).
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Quantitative Risk Analysis
According to Steyn (2021), “quantities analysis is based on a simultaneous evaluation of the impact of all identified and quantified risks, both prior and after taking mitigating actions”. Quantitative risk analysis discusses the three main risk elements that are involved in project management (cost, schedule and performance) and mathematically estimates the entirety of the risk on the overall outcome of the project. Where possible these risks would be quantified to enable a suitable mitigation strategy or contingency strategy at the project planning stage. For instance, predicting the worst-case scenario and selecting the action that will have the least adverse reaction or impact.
Risk management is responding to risk through planning. By using the various risk analysis tools, project managers can predict an event and implement an action which can reduce or eliminate the risk and the impact it may have. A risk response plan can be compiled using the below subjects.
Procure - which is moving the risk
Different strategies - which is looking at various ways to reach a decision/outcome
Insurance - lessen the risk
Contingency - back up plan on how to respond to a risk when it arises
The fundamental aspect of any effective risk management plan is to have robust monitoring and controlling processes. This is achieved through:
Identifying risks early
Communication
Develop appropriate risk framework and contingency plans
Track and record risks/events when they arise
Perform root cause analysis on events to understand and plan against in the future
Risk control mechanism is used to mitigate and control exposure to loss by way of reducing loss which is achieved by predicting and planning for loss whether that be financial, time or performance.
The following diagram depicts how the mechanism works.
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References
Garcia, T, (2020). What Does Risk Management Involve. URL: What Does Risk Management Involve? — Reciprocity. [Accessed on 17.11.2021]
IFMA, (2021). Risk Control Mechanism. URL: risk control mechanism - FMPedia Wiki - FM Glossary - Knowledge Library (ifma.org). [Accessed on 17.11.2021]
Pressbooks, (2021). Defining Risk. URL: 11.1 Defining Risk – Project Management for Instructional Designers (pm4id.org). [Accessed on 17.11.2021]
Steyn, J, (2018). Quantitative Risk Analysis for Projects. URL: Quantitative Risk Analysis for Projects | OwnerTeamConsultation. [Accessed on 17.11.2021]
Wirkstrand, G, (2015). Risk Management in Three Simple Steps. Professionalism, Project Management. URL: Risk Management in Three Simple Steps - Greger Wikstrand. [Accessed on 17.11.2021]
Usmani, F, (2021). How " What-if-Scenario-Analysis" is Helpful in Project Management?. URL: How "What-if Scenario Analysis" is Helpful in Project Management? | PM Study Circle. [Accessed on 17.11.2021]
Hi Kerry, you´ve done a lot of research for this blog. It´s great structured and the visuals tie very well in with the text, too. Well done, Michaela