Risk Management

Risk Management consists of planning, organizing, leading, controlling, and ensuring quality in such a way to minimize the risks associated with a project. The project plan should identify potential risks and outline activities to be undertaken to avoid the risks. It should also specify what actions to be taken if a risk happens.

The following four step approach can be used:

1) Identify potential risks

Revise task list and schedule
Keep an eye on task where the team has limited expertise
Check for aggressive estimates
Keep an eye on tasks along the critical path
Keep an eye on overloaded resources
Keep an eye on activities with several preceding activities
Keep an eye on activities of lengthy duration
Other projects can give you indications


2) Quantify the risks
For each of the listed risks:
Determine acceptable variations
Associate a probability value to each risk
Associate a cost value to each risk
Assign a priority for each risk


3) Plan
For each of the listed risks:
Identify risk indicators, warning signs
Action Plans to avoid or mitigate risks
Contingencies if the risk happens

4) Monitor and manage risks

Status Reports (section on risks)
Meetings to discuss potential risks
Monitor closely the progress of the project

It is a good idea to start with a brainstorming session to create the initial list. All risks should be kept on the list.

Example.
Risk: Project Manager resigns in the middle of the project
Odds: 20% (Project Manager's change organizations often)
Loss if he quits: $50,000
Probable loss: $10,000

You should insure yourself against a $10,000 lost.

How will we avoid or reduce the risk:
Have contract specifying that the project manager cannot leave.
Have a performance incentive to make the salary more attractive.
Give the project manager sufficient authority and support. Don't make his job more difficult than what it has to be.

Contingency:
If the project manager resigns we have a backup. Jim will be part of the project. He has enough experience to take over if the project manager resigns. This will give us time to get organized.


A student asked a very good question today. As we quantify the risks we will end up with a list of probable losses. Should the anticipated losses be added to the other
costs of the project.

A percentage of the anticipated loss should be added to the other project costs.
The probable cost is actually reduced if you put in place mechanisms to detect the risk, to avoid, to reduce and also contingency plans. This reduces the probability of the risk happening. The new probability value would be used to calculate the probable cost after managing risks.

gb