Risk Response Plan

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 ==
• The inputs, tools and techniques, and outputs of this process are depicted in figure bellow:
• *The '''methodology''', which outlines the approaches, tools, and data sources that will be employed to manage project risks.
• *The '''roles and responsibilities''' section, that identifies the team members who will be responsible for leading, supporting, and managing risk management, and clarifies their respective responsibilities.
• *The '''budgeting''', used to estimate the funds required based on the resources allocated, and establishes the protocols for the application of contingency and management reserves.
• *The '''timing''', which specifies when and how often risk management activities will be conducted throughout the project life cycle.
• *The '''risk categories''', referring to the grouping of risks based on their common characteristics and providing a structured approach for risk identification.
• *'''Definitions of risk probability and impact'''.
• *'''Revised stakeholders’ tolerances'''. This component outlines the tolerance levels of stakeholders to different risks and provides guidelines for assessing their comfort levels with different risk levels.
• *'''Tracking''', that specifies the procedures and tools to be used to monitor risks and how the information will be communicated to the relevant stakeholders.
• === Identify Risks ===
• *Documentation Reviews
• *Information gathering techniques: Brainstorming, Delphi technique, Interviewing, Root cause analysis
• *Checklist analysis
• *Assumptions Analysis
• *Diagramming techniques: Cause and effect diagrams, System or process flow charts, Influence diagrams
• *SWOT analysis
• *Expert judgment
• === Assess the Risks ===
• === Select Risk Responses ===
• *Feasibility of implementing the strategy while still meeting user needs.
• *Expected effectiveness of the response strategy in reducing program risk to an acceptable level.
• *Affordability of the strategy in terms of dollars and other resources.
• *Availability of time to develop and implement the strategy, and its impact on the overall program schedule
• *Impact of the strategy on the system's technical performance.
• ==== Strategies for negative risks or threats ====
• ==== Strategies for Positive risks or opportunities ====
• === Outputs ===
• *Project Management Plan updates: Schedule management plan; Cost management plan; Quality management plan; Procurement management plan; Human resource management plan; Scope baseline; Schedule baseline; Cost baseline.
• *Project Documents updates: for example, updates to the risk register, including any changes to the probability and impact of identified risks, as well as the status of risk response actions.
• === Monitor and Control Risks ===
• == Limitations ==
• Moreover, the selection and development of actions for the risk response plan can be influenced by the subjective opinions and biases of the project team. There are many factors that can influence the plan to be developed:
• *Inequitable risks or opportunities: Cost-effective alternatives may exist for some risks or opportunities, making them equitable, while other risks or opportunities may be inequitable due to the presence of only high-cost alternatives or limited options.
• *Length of exposure to the risk or time available for the opportunity.
• == Final Remarks ==
• == References ==