It is a good reminder that risks are inevitable and need to be dealt with throughout the project life cycle. It is important to monitor and review risk throughout your project. The risk management process supports the ongoing nature of the monitor and review activity. It is worthwhile to touch on three of the key risk management activities.
The first is the risk identification activity, which requires a good deal of 'what if' scenario building. The objective here is to identify a possible situation or event that may occur that will create uncertainties and challenges affecting the deliverables of a project and ultimately causing its failure. Risk identification should review a range of categories, which can emanate from both the internal or external environment the business operates in. Economic, organisational, political, technological, environmental, and legal are all potential categories to consider when identifying risks that may impact on your project. In addition, you should also think how the emergence of one risk might lead to risks in other categories or areas of your project. The next risk related activity is undertaking a risk assessment. Risk assessment involves assessing the likelihood of the risks that we have identified, as well as the possible consequence if that risk should eventuate. By following a risk assessment process, a project manager should be able to identify factors that may contribute to the risk and the actions necessary to reduce, control, or eliminate the risk.
The risk response activity considers an appropriate risk response to the risk you have identified and assessed. Ideally, the best response would be to (a) avoid the risk entirely. However, uncertainty and risk are part and parcel of most projects and remain variables that need to be managed. If the project risk cannot be avoided, we need to consider other appropriate risk responses, such as (b) reducing, which means limiting the likelihood or severity of the impact of the risk, (c) accepting the risk, where the cost of managing the risk is acceptable, or (d) transferring the risk, which is shifting the risk from one party to another.
Risk management is a key activity in both the planning and execution phase of the project life cycle. Dealing with risk is an inevitable part of managing projects. We highlighted the importance of planning in phase two of the life cycle. Risk management, a process for identifying, assessing, and responding to risk. Identifying and assessing risks, and by considering both the likelihood and impact on your project, enables you to develop response strategies and plans to respond to them. The benefit of having a risk management process is to regularly review your project progress and to proactively identify possible risks and responses before they occur. Through the review of a couple of scenarios, we also observed that depending on the context, the type of risks will vary for different projects. Risks are always present, but once identified need to be continuously monitored and reviewed. It is now time to turn our attention to the frequently asked questions for this week.
The output from our risk identification session, or workshop, is captured in a document or template called a risk register. The risk register records the risks that have been identified and assessed together with our proposed risk responses. At the risk identification phase, the risk register will include the risk categories, identified risks, potential causes, and anticipated responses. It is important to know that the risk register is a living document that is constantly reviewed and allows for new risks to be added as they are identified.
Risk contingency is about having a plan B to deal with the risks when they eventuate. Risk contingency is about preparing for events, such as the loss or change of data, team members, stakeholders, suppliers, and other disruptive, unknown conditions. The need for drawing up contingency plans emerges from a thorough analysis of the risks in your project. The final question for this week is, what is residual risk? Risk response actions do not only occur when a risk eventuates. In most cases, your responses are preventative measures that are taken as soon as you identify the risk. At this point, you may revisit your risk register to assess the status of a risk once a preventative or mitigating actions are complete. Any risk that still remains thereafter is known as residual risk.
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