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RiskManagementPrinciplesandDefinitions|ProgramSuccess

ProgramSuccess
Project&ProgramManagementSuccessFactors

RiskManagementPrinciplesandDefinitions
MAY29,2011 5COMMENTS
(HTTPS://PROGRAMSUCCESS.WORDPRESS.COM/2011/05/29/RISKMANAGEMENT
PRINCIPLESANDDEFINITIONS/#COMMENTS)

(https://programsuccess.files.wordpress.com/2011/05/riskmanagement.jpg)Weallhearabout
riskmanagement(andriskassessment).Thenotionoftryingtodetermineupfrontallthe
variousthingsthatcouldgowrongisdefinitelyadifficulttasktoundertake.Manyaproject
thathashitroughtimes(orfailedcompletely)canoftenfinditstroublesattributedtoan
unforseenproblemthatwasnotadequatelytakenintoaccountupfront.Nowwhilenoonehas
acrystalballandcanforeseeeverysingleissuethatmay(ormaynot)arise,itisimportantto
stillmakeadiscernedeffortintoassessingasmanyconceivablerisksandderiveactionplansto
contendwiththem.
Thereareawholeslewofpublicationsavailableregardingriskmanagementandrisk
assessment.Degreeandcertificateprogramsarealsoavailabletothosewishingtoexplorethis
areafurther.Truthbetold,wholecompaniesandcareersarebuiltaroundthenotionof
catalogingrisksandformulatingplansofactionshouldproblemsappearaswellasproviding
suggestionsonhowtoproceedinordertomitigatepotentialrisks.
Generallyspeaking,projectmanagersarenotformallyschooledintheconceptofrisk
management.Theirbackgroundencompassesaspectsofriskassessment,butdependingon
theirrole,itislikelytobeonepieceofthesetofoveralldutiesaprojectmanagermaybe
requiredtoperform.

Withthatbeingsaid,itisimportanttotakeamomentanddefinesomeofthekeyconceptsand1/5

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RiskManagementPrinciplesandDefinitions|ProgramSuccess

Withthatbeingsaid,itisimportanttotakeamomentanddefinesomeofthekeyconceptsand
definitionspertainingtoriskmanagement.Whataresomeofthekeytakeawaysandideasthat
aprojectmanagershouldbemindfulofifattemptingtoperformariskassessmentontheir
project?Whataresomeofthecoreprinciplesthattheyshouldbeawareofinordertobest
handletheirproject?
RiskManagementWhatisit?
Initspurestform,riskmanagementistheidentification,classificationandprioritizationof
risks.Thisisgenerallydoneintandemwitheffortstomonitor,controlandmitigatetherisks.
Risksthemselvescanbefromfactorsinternaltotheproject,suchastheadoptionofanew
technology,teammembersthatarenewtotheprojectmanager,orresourceconstraintsand
internaldependencies.Additionally,riskscanalsobeexternal,suchasthehealthofthe
financialmarkets,competitivepressures,legalliabilitiesorevenaccidents.Thesheernumber
andtypeofrisksthatmay(ormaynot)factorintoagivenprojectgivesagoodideaofhow
complexandproblematicriskassessmentcanbecome.
PrinciplesofRiskManagement
Therearespecificcoreprinciplesinregardstoriskmanagement.Whenlookingtoperforman
actualriskassessment,thefollowingtargetareasshouldbepartoftheoverallrisk
managementprocedure(asdefinedbytheInternationalStandardsOrganization;ISO):
Theprocessshouldcreatevalue
Itshouldbeanintegralpartoftheorganizationalprocess
Itshouldfactorintotheoveralldecisionmakingprocess
Itmustexplicitlyaddressuncertainty
Itshouldbesystematicandstructured
Itshouldbebasedonthebestavailableinformation
Itshouldbetailoredtotheproject
Itmusttakeintoaccounthumanfactors
Itshouldbetransparentandallinclusive
Itshouldbedynamicandadaptabletochange
Itshouldbecontinuouslymonitoredandimproveduponastheprojectmovesforward
Whenfirstaddressingariskmanagementprocedureforaproject,takenoteofthe
aforementionedprinciplestoensurethatyourspecificassessmentismatchingupwiththecore
idealsasdefinedbyISO.
RiskManagementProcess
Thereisaspecificprocedurethatoneshouldfollowwhenitcomestoperformingarisk
assessment.Theoverallprocesscanbeitemizedasfollows:
1. IdentificationPerformabrainstormingsessionwhereallconceivablerisksareitemized
2. PlanningOncedefined,planforcontingenciesaspartoftheoverallprojectplan;
implementcontrolsasneeded
3. DeriveSafeguardsPlacespecificfallbacksintotheoverallprojectplanascontingencies
forrisksiftheyarise
4. MonitorContinuouslymonitortheprojecttodetermineifanydefined(orunexpected)
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RiskManagementPrinciplesandDefinitions|ProgramSuccess

risksmanifestthemselves
Notethatthediagramthatispartofthispostdictatestheaforementionedprocessina
graphicalformat.
DealingwithRisk
Oncetherisksareidentifiedandthespecificriskprocesshasbeeninstantiated,whatshould
theprojectmanagerdowiththedefinedrisks?Thereareactuallycertaintechniquestobe
awareofpertainingtorisk.Beingawareofwhattherisksarewilldictatehoweffectiveeachof
theindividualriskmanagementoptionsmightbe.
AvoidtheRiskThismayseemobvious,butitisanactualtechnique.Thereareinstances
whereaperceivedriskcanbeavoidedentirelyifcertainstepsaretaken.Anexampleofthis
mightbeaconcernoveravendorsupplyingagivendeliverableataspecifictimeframe.It
maybedecidedtoperformtheactualworkforthedeliverableinhousetherebyeliminating
theriskoftheexternalvendor.
ReducetheRiskWhilesomeriskscannotbeavoided,theycanbereduced.Thismaybe
accomplishedbyfinetuningaspectsoftheoverallprojectplanormakingadjustmentsto
specificareasofscope.Whateverthecase,reducingariskreducestheimpactitwillhaveon
yourproject.
SharetheRiskIfacertainriskcannotbeavoidedorreduced,stepscanbetakentoshare
theriskinsomeway.Perhapsajointventurewithathirdpartywillreducethedownside
riskfortheorganizationasawhole.Thiscouldreducethesunkcostandpotentiallossesof
theprojectifsharingofriskresultsinitbeingspreadoutoverseveraldifferentindividuals
orgroups.
RetaintheRiskThisisactuallyajudgementcall.Oncealloptionsareexhausted,theteam
members,sponsorandprojectmanagermayjustdecidetoretaintheriskandacceptthe
downsidepotentialasis.Thisdecisionisusuallymadebyfirstdeterminingtheupside
potentialoftheproject.Ifitisdeemedthattheprojectsexpectedupsidefaroutweighsthe
sunkcostanddownside,thantheriskitselfmaybeworthit.Notethatincertaincases,
insurancecanbeusedtomitigatethedownside,althoughtheactualriskretentionitselfis
whatisbeingacceptedbytheteam.
Conclusions
Riskmanagementisaverybroadfieldandoftenrequiresaveryspecializedknowledgesetand
backgroundtoperformadequately.However,fromthestandpointoftheprojectmanager,
he/sheisthedefactoriskassessmentofficerifnoneotherhavebeenmadeavailable.Beingthat
theprojectmanagerisultimatelyresponsibleforthesuccessorfailureoftheproject,being
awareofthevariousconceptsandmethodologiesbehindriskassessmentandrisk
management,willgivethemalegupinbeingabletodraftaprojectplanthattakesinto
accountanydownsidepotentialfortheproject.
Note:Forfurtherinformationonriskassessment,pleasereadthepost:ProjectRisk
ManagementTools&Techniques(https://programsuccess.wordpress.com/2011/04/21/project
riskmanagementtoolsandtechniques/).

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