Managing Risk

Projects, by their nature, are risky, so it could therefore be argued that your key role as a project manager is to identify, plan for, and manage risk. Risk analysis is undertaken in the definition phase, but should be followed by a continuous cycle of management and analysis throughout the control and implementation phases of your project.

Planning for risk

Initial identification of risk often takes the form of a Risk Workshop—a group of people getting together with the express purpose of identifying and evaluating all the risks in a particular project or phase. From that point on every review meeting should contain an agenda item on “open” or “live” risks. As a project manager, the risks you should be most concerned with are those that will have an impact on one of the three project parameters (time, cost, or quality).

Risks need to be evaluated with respect to two criteria: probability (how likely they are to happen) and impact (how serious it would be if they do). Most tasks in your project will contain some element of risk, so you will need to set a threshold at which you are going to begin to plan. For tasks that carry a risk that is above your threshold for probability and impact, identify a response in advance and monitor progress toward completion more carefully than usual.

In all but the smallest projects, record risks in a risk logbook. This document should describe each risk, its impact and probability, and countermeasures to deal with it. It can also include the proximity of the risk (when it will need active management) and any early indicators that the probability of the risk has changed. The contents of the risk logbook should be reviewed throughout the life cycle of the project.

Dealing with risk

These are the five ways of dealing with risk, as outlined in the internationally recognized project management standard PRINCE2.

Plan contingency

Have a Plan B that will achieve the same result by a different route and leave future plans intact.

Reduce

Take action to reduce either the likelihood or impact of the risk.

Transfer

See if you can spread the risk so that the consequences become less serious (this is the principle on which insurance works).

Accept

There are some risks that are considered acceptable because the cost of dealing with them is greater than the increased benefit one would get from developing countermeasures.

Prevent

Terminate the risk by doing things differently. This is not always a realistic possibility.