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There are many approaches to project risk management planning, but essentially the risk management plan identifies the risks that can be defined at any stage of the project life cycle. The RM Plan evaluates identified risks and outlines mitigation actions. A risk management plan should be periodically updated and expanded throughout the life cycle of the project, as the project increases in complexity and risks become more defined.
Risk management ideally takes a project thought the phases of risk identification, risk assessment and risk resolution. With the advancement in project management studies and techniques, risk management has taken a main place in the project life cycle; in most cases at the outset of the project itself.
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How do you Plan your Risk Management?
The Risk Management Plan ideally supports the following sections:
- Scope Statement
In this section, present a clear, concise statement of the purpose of the Risk Management (RM) plan. Include the name, and if applicable, code name of the project, the name(s) of the associated system(s), and the identity of the organization that is responsible for writing and maintaining the RM plan.
This section briefly describes the history of the project and the environment in which the project will operate. (This information may be included through reference to other project documents.) Include the following information:
- Identification of other systems with which the subject system interfaces
- Contractor support for development and maintenance
- System architecture, operating system and application languages
- Development methodology and tools used for the project
The scope statement is a very important part of the RM plan. It is an agreement among the project team, the project sponsor and key stakeholders. It represents a common understanding of the project for the purpose of facilitating communication among the stakeholders and for setting authorities and limits for the project manager and team. Purposes of the scope statement includes relating the project to business objectives, and defining the boundaries of the project in several dimensions including approach, deliverables, milestones, and budget.
You should include in this section policy decisions that affect how RM is conducted. This section also references documents to support the RM process. Include any project or standards documents that are referenced in the body of the plan or that have been used in the development of the document.
In this section, describe the project’s approach to risk management. Include the sections on identification, analysis, planning, tracking, control, and communications. Discuss the project’s risk mitigation strategies in general and also detail specific strategies that will have a significant impact across the project.
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An ideal risk management plan example would be that of a picnic your office is to conduct. There is a pre-requirement stipulated for holding the picnic, that is, there should be a probability rating of, say 0.65. This is as per the method of Decision Tree Analysis. By taking into account various other factors, one can arrive at a sound judgement as to the decision of the picnic.
In this risk management plan example, lets say that the supporting factors are:
- Good weather = 30%
- Bad weather = 70%
- In good weather, chance of picnic = 60% , while chance of picnic cancellation =40%
- In bad weather, chance of picnic = 20%, while chance of picnic cancellation = 80%
- Qualifying value should read a probability rating of 0.65 or 65%
Good weather probability + bad weather probability.
(0.30 x 0.60) + (0.70 x 0.20)
= 0.18 + 0.14
= 32% chance of having a picnic.
As per the pre-requirement for holding a picnic, 0.32 probability value (or 32% probabilty) falls short of qualifying, and hence the picnic will have to be cancelled. Here the risk management plan is to cancel the picnic so as not to face the dangers associated with bad weather.
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Risk Management in Action
Every project manager should know how to initiate a risk management plan. The guidelines for the risk management plan may be similar from project to project, but the results of the steps involved will be unique for each. Hence care should be taken to avoid being generic in approach, but rather have an all round idea of the project risks involved.
Project Risk Management, with the help of the above mentioned factors and documents, depends primarily on the three major steps of Risk Identification, Risk Assessment and Risk Resolution. It is a sequential process which involves assessing and classifying risks using the PI-Matrix and the Decision Making Tree system.
Risk Management is an integral part of a project and is an ongoing process. When initiated at the beginning of a project, most risks may be identified and controlled or measures to counter act them may be developed such as involved with Change Management or Project Disaster Recovery.
Image Credit: Author, Amanda Dcosta
Risk Management Plan: Example
This series discusses how to create a risk management plan and provides a working example.