Risk Response Plan

Revision as of 16:16, 7 May 2023

Abstract

Risks and opportunities in project management refer to potential events or uncertainties that could impact the successful completion of a project. Risks can come from a variety of sources, including internal factors (such as project team performance), external factors (such as changes in the market or regulatory environment), and technical factors (such as changes in technology or equipment). Effective risk management is an important part of project management and involves identifying potential risks, assessing their likelihood and impact, developing response plans, and monitoring and adjusting the response plans as needed. By proactively addressing risks and opportunities, project managers can improve the chances of project success and minimize the impact of risks on the project.

Introduction

Risks and Opportunities

“Risk is exposure to the consequences of uncertainty.“

In order to go through and define project risk management, firstly it is necessary to understand what risks and opportunities stand for within the scope of project management. These two concepts are described by at least three basic characteristics: an uncertain event, a probability of occurrence and potential impacts on the project’s objectives (time, cost, quality, scope or performance). What differentiates risks and opportunities is the type of impact they have on the project, in case one of these occurs. In a general point of view, risks may cause a negative impact on one project (recognized possible loss), as opportunities may positively impact it (recognized possible gain). As so, there is a level of uncertainty associated with the occurrence of a risk or opportunity event (probability < 1), it is possible to identify what event is it (known events) and its impact on the organization can be quantified.

Importance of Risk Planning in Project Management

“50% of all projects fail due to a lack of proper risk management, and a whopping 85% are delayed because risks were not identified in time.” (1)

Risks can have significant negative impacts on project timelines, budgets, and outcomes, and therefore, it is essential to have a plan in place to manage them effectively. Project risk management processes should be conducted in order to increase the likelihood and impact of positive events and mitigate negative events in a project. Murphy’s Law plays an important role when talking about the importance of managing risks in a project. It is a basic observation that states that “anything that can go wrong, will go wrong”, so it is better to acknowledge what can possibly go wrong and define actions to minimize the impacts it could cause, before they become major problems. In addition, by well-managing risks and by effectively assessing the likelihood and impact of potential risks before they happen, it is possible to make informed decisions about how best to proceed, significantly increasing the likelihood of project success.

Project risk management includes the processes of: • Plan Risk Management – The process of defining how to conduct risk management activities for a project. • Identify Risks – The process of determining which risks may affect the project and documenting their characteristics. • Perform Qualitative Risk Analysis – The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact. • Perform Quantitative Risk Analysis - Perform numerically analyzing the effect of identified risks on overall project objectives. • Plan Risk Responses – The process of developing options and actions to enhance opportunities and to reduce threats to project objectives. • Control Risks – The process of implementing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.

Steps to develop a Risk Response Plan

Generically describe the process of building a risk response plan

Identify Risks

Ref test^[1]

- Brainstorming - Previous experiences - Explore potential situations

Assess Risks

Risks Categorization

- Analyze the causes (Ishikawa diagram) • External factors • Resources • Dependence on third parties - Risk Probability - Risk Impact

(Explain how to build a risk matrix and describe the different types of risks - negligible, minor, moderate, significant, severe, catastrophic)

Prioritize the Risks

Select Risk Responses

Avoid, Transfer, Mitigate, Accept

Monitor and Control Risks

- Define indicators - Nominate a responsible - Define a time-window for monitoring each risk

Limitations

Final Remarks

References

1. ↑ Project Management Institute, Inc.. (2021). Guide to the Project Management Body of Knowledge (PMBOK® Guide) (7th Edition). Project Management Institute, Inc. (PMI). Retrieved from https://app-knovel-com.proxy.findit.cvt.dk/kn/resources/kpSPMAGPMP/toc