Chapter 5 Review

Risk Management: Minimize the Threats to Your Project

All activities of the project manager can be reasonably viewed as risk management. Risk management is the means by which uncertainty is systematically managed to increase the likelihood of meeting project schedule, cost and quality objectives. Two types of risk impact a project: known unknowns (which can be prepared for) and unknown unknowns (which cannot reasonably be predicted). Project risk is the responsibility of the PM, while business risk responsibility lies with the project owner.
To successfully manage risk throughout a project, risk planning must be an ongoing process. As follows:

1. Identify risks through a systematic search for all factors that threaten project objectives
• Engage stakeholders in risk planning through brainstorming sessions and more structured interviews
• Use a risk profile to apply lessons learned from previous, similar projects and document the lessons learned on this project for future similar projects
• Continue to identify risks during detailed planning, scheduling and budgeting
2. Analyze and prioritize these identified risks based on the possible damage and probability of occurrence
• Define the risk with condition and consequence statements
• Prioritize using "expected value = probability x impact" formula
3. Develop response strategies to reduce the possible damage and/or the likelihood of each risk
• For any risk there are several possible response strategies:
• Accept the risk and choose to do nothing about it (low impact or low probability)
• Avoid the risk by chosing not to do that part of the project or doing a lower-risk alternative to meet project objectives
• Develop contingency plans 
• Transfer the risk (subcontract that portion)
• Mitigate the risk
• Record risk management strategies in a risk log
• Make sure someone is responsible for each risk
• Rank by risk severity and probability
• Remove risks that do not materialize
4. Establish reserve funding for these response strategies based on the probability and magnitude of the risk
5. Implement continuous risk management by reanalyzing and reprioritizing (and reevaluating responses) given new and revised information as the project progresses
• Monitor known risks on the risk log
• Check for new risks at regular status meetings (raises risk awareness of the team)
• Repeat major risk identification activities at preplanned milestones within the project
• When new risks are identified, prepare response plans and ensure sufficient reserves exist

Risk management is one of the most important skills in project management draws its power (like many other PM tools) from a systematic and methodical approach to identifying, measuring, prioritizing and responding to potential risks to achieving project goals.