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Risk Management in Projects
Risk is an element that is inherent in most projects because no project goes exactly according to plan--i.e., the inherent uncertainty in the project creates a risk associated with it.
Project Managers can deal with risk in the following fashions:
1) Avoid or Eliminate Risk – This can be done by identifying an alternate solution which eliminates the risk.
2) Transfer Risk – This can be done by transferring the impact of risk–e.g., insurance.
3) Assume Risk – The manager can assume the risk and decide to deal with it, when the need arises.
4) Prevent or Mitigate Risk – The manager can plan on some preventive action in order to mitigate the impact of risk by utilizing suitable Risk Management Tools.
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Risk Management Tools – FMEA
A manager can make use of various Risk Management Tools. One such tool is FMEA.
FMEA stands for Failure Modes & Effects Analysis and has two variants:
- Product FMEA – More applicable to Manufacturing.
- Process FMEA – More applicable to Services.
You can read more about writing a risk management plan in Steps Involved in Risk Management. A specific approach using FMEA is described below.
Steps Involved in FMEA
The steps involved in utilizing FMEA as Risk Management Tools can be summarized in the figure display below:
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Constructing the FMEA Table
1) Function – This field describes the function of the Product/Process.
2) Failure Mode – This describes the various potential failure modes.
3) Effects – This describes the effects of each potential failure mode.
4) Severity Rating – This is a numerical ranking describing the severity of the failure effect.
5) Cause – This is used to identify and document the potential causes for each failure.
6) Occurrence Rating – A numerical ranking describing the probability of occurence.
7) Current Controls – These are the controls which are used to prevent the cause of the failure.
8) Detection Rating – An assessment of the likelihood of detection of the failure.
9).Critical Characteristic – Measurements or indicators that reflect safety or compliance with government regulations and need special controls.
10) Risk Priority Number – This is a multiple of the various numbers and is an indicator of the overall risk. It's used to prioritize items for action.
11) Recommended Actions and Target Completion Date – This ensures a fixed target date for incorporating the recommendations.
12) Action Taken: This is a follow up to the recommended action.