Rule 2: Prioritize and Re-Prioritize
If you follow Rule 1, managing project risk should be a part of your project’s DNA. If all goes well, you will have a litany of project risks coming from various stakeholders. Not all project risks are equally dangerous or good (remember there are ‘good’ risks, also known as opportunities); therefore, risk prioritization is necessary to successfully reduce project management risk. This is where managing project risk by risk quantification comes in handy.
To quantify project risks, assign each risk a value out of 4 based on the probability of the risk occurring and the impact of the project risk on the project. For example, suppose you have identified the following project risks:
- Project Management Risk 1: The vendor will not be able to deliver on time given labor problems.
- Project Management Risk 2: The client’s requirements will keep developing as the project progresses.
For managing project risk, look at the first project risk, the probability of occurrence may be low if the vendor is located in a country that has few labor problems. However, the impact on the project will be high when the risk is materialized. Therefore, the project risk would be classified as high with a value of (3). You can manage project risk choosing a vendor in a location that does not have labor problems.
Now, looking at the second project risk, the probability of occurrence is high and so is the impact. Therefore, managing project risk would involve assigning this risk the highest value (4). One way to mitigate this risk would be to use Agile Project Management practices. This will help you reduce project management risk and you'll be more effective in managing project risk. Hopefully the Cost Performance Index and Schedule Performance Index will both show healthy project performance.
Note: There are several other techniques used for managing project risk by risk quantification, which have not been discussed in this article.