What Is Risk Management?

Risk Management is the process of identifying, analyzing and responding to risk factors throughout the life of a project and in the best interests of its objectives. Proper risk management implies control of possible future events and is proactive rather than reactive. Risk management will reduce not only the likelihood of an event occurring, but also the magnitude of its impact.

 

Early in the project there is more at risk than as the project moves towards its term life. Risk management should therefore be done early on in the life cycle of any project as well as on an on-going basis.

 

The significance of risk management is that opportunity and risk generally remain relatively high during project planning but because of the relatively low level of investment to this point, the amount at stake remains low. In contrast, during project execution, risk progressively falls to lower levels as remaining unknowns are translated into known risks. At the same time, the amount at stake steadily rises as the necessary resources are progressively invested to complete the project.

 

Risk Management Systems

 

Risk Management Systems are designed to do more than just identify the risk. The system must also be able to quantify the risk and predict the impact of the risk on the project. The outcome is therefore a risk that is either acceptable or unacceptable. The acceptance or non-acceptance of a risk is usually dependent on the project manager’s tolerance level for risk.

 

Risk Response

 

Risk Response generally includes:

 

  • 1. Avoidance – eliminating a specific threat, usually by eliminating the cause.
  • 2. Mitigation – reducing the expected monetary value of a risk event by reducing the probability of occurrence.
  • 3. Acceptance – accepting the consequences of the risk. This is often accomplished by developing a contingency plan to execute should the risk event occur.
  • Why do Risk Management?

The purpose of risk management is to:

 

  • 1.Identify possible risks.
  • 2.Reduce or allocate risks.
  • 3.Provide a rational basis for better decision making in regards to all risks.

 

How to Do Risk Management

 

First we need to look at the various sources of risks. There are many sources and this list is not meant to be inclusive, but rather, a guide for the initial brainstorming of all risks. By referencing this list, it helps the team determine all possible sources of risk.

 

Various sources of risk include:

 

  1. 1. Project Management

 

    1. Top management not recognizing this activity as a project
    2. Too many projects going on at one time
    3. Impossible schedule commitments
    4. No functional input into the planning phase
    5. No one person responsible for the total project
    6. Poor control of design changes
    7. Problems with team members.
    8. Poor control of customer changes
    9. Poor understanding of the project manager’s job
    10. Wrong person assigned as project manager
    11. No integrated planning and control
    12. Organization’s resources are overcommitted
    13. Unrealistic planning and scheduling
    14. No project cost accounting ability
    15. Conflicting project priorities
    16. Poorly organized project office
  1. 2.External

 

  • Unpredictable
      1. Unforeseen regulatory requirements
      2. Natural disasters
      3. Vandalism, sabotage or unpredicted side effects
  • Predictable
      1. Market or operational risk
      2. Social
      3. Environmental
      4. Inflation
      5. Currency rate fluctuations
      6. Media
  • Technical
      1. Technology changes
      2. Risks stemming from design process
    • Legal

Violating trademarks and licenses

Sued for breach of contract

Labour or workplace problem

Litigation due to tort law

Legislation

 

For more information on risk management, talk to our experts at Augment Management Consultancy today!