How to Create a Project Risk Plan
Risk management requires a systematic approach to identify, analyze and respond to potential risk of the project. A flaw that is commonly seen in project management, is project managers trying to manage and handle risk informally, and without prior planning. Using this approach is opening themselves and the project up to failure and avoidable obstacles.
A formal, detailed project risk plan will enable the project manager to be fully prepared for multiple obstacles that may occur during the project duration. Without a project risk plan, all involved with the project are forced to be reactive to obstacles, which can be expensive and stressful for the affected parties.
By having a detailed and formal plan, the team adds discipline and efficiency when managing these risks, as well as allowing the project manager to make a more detailed and confident project plan and timeline.
Defining Project Risks
Project risks are relevant to the project manager early into the project life cycle. The project manager must have a strong understanding of the potential risks the project faces. Each project will face its own unique challenges based on the industry, geography (location, environment, etc) and many other contributing factors. This forces the project manager to be creative in their understanding and consider many “what if” type scenarios.
Many project managers will make the mistake of waiting too long to assess the risk factors, believing that they do not yet have enough information. However, this should not restrict project managers and should be avoided.
An effective strategy for identifying potential risks is for the project team to analyze “what could go wrong” and begin to create action plans for these scenarios. Teams who fail to plan for risk will ultimately face these risks unprepared and be forced to react to the obstacles.
Potential opportunities may be labeled as “positive risks” where the project manager attempts to optimize the project through opportunities in steps within the plan. These risks are much easier to manage from a manager perspective, as failure to incorporate a positive risk results in the initial project plan proceeding as designed.
Risk management can also be defined as the process of conducting risk management planning, analysis, preparation and monitorization of a project. By formally managing risk, the project manager and team can eliminate any room for miscommunication or confusion on a response action.
However, project managers must also develop response actions with flexibility to allow for the response task to be applicable in many scenarios. More experienced project managers will often incorporate much flexibility in their project plan, depending on the project details.
Five Step Process
1. Make a list
A simple but formal brainstorm should occur to determine the majority (if not all) or the potential risks the project will face. By identifying all of the potential risks, the team is able fully understand their project. Step 2 will deal with the finer details of the risks involved, however creating a list is a step often skipped by project teams and is often regretted by project managers.
2. Probabilities of risks and potential impacts
This step requires a lot of critical thinking and analysis from the entire project team, as well as subject matter experts (SME) if available. An effective approach to labeling these risks is to determine their probability and potential impact on a high to low scale. For example, if risk ‘A’ has a high likelihood of occurring, it would receive an ‘H’ for high probability. The project team then must decide the most likely impact of this risk. Once this is done for all of the risks, the project manager can reorganize the list by priority, which are high likelihood and high impact risks.
3. Manage or prevent the risk
Once the risk list is reorganized by project priority, the team can start to develop solution plans for the risks. Starting at the top, the team will be able to allocate resources most efficiently to the most high risk factors. The project manager must also be reserved in using their resources, as some risks may not need a full blown effort to prevent the risk. Some tasks will just need attention from a team member. Therefore, the project manager and team should collaborate on solutions for all risks and formalize their decision so all involved parties are on the same page.
4. Consider response actions
Some risks present the team with opportunities to take action to prevent the risk before it may even occur. If the team can identify this early enough, they may be able to take action right away and cross that risk off of the list. Being proactive in this matter makes the project easier on the stakeholders and makes the remaining risk fo the team much more manageable, as well as saving resources and time down the road.
5. Establish a trigger point
For every risk presented, there is a specific time or point where the project manager must deploy their response actions. This is mainly the case for risks that cannot be manager before that occur as mentioned in step 4. Each response should have a designated trigger point, or a “initiate plan when…” so all team members are aware of the plan. This also allows the team to monitor the risk from a distance until it becomes time to take action. The trigger point should also include all of the time and resources needed within the plan.