Risk Management

Risk management can mean various things to different people and different projects. However, it is important to align your priorities to plan for high-risk situations and avoiding those that are too risky for the business. According to Tom Kendrick (2003), risk consists of loss multiplied by likelihood. Risk management allows businesses to understand the consequences for their decisions and the probability that transverse actions will occur. Since all decisions maintain some essence of risk, management is simply a balancing act (Kendrick, pg. 2). Project Risk Management includes identifying, analyzing, and responding to project risks (CTU, 2008).

Companies have two choices for managing risk. The first choice is to deal with risks as they occur; this is called crisis management. The second option of avoiding risks altogether is a much more tedious project management event that requires the business to think proactively and anticipate adverse events. By becoming proactive towards risks, the business will be more prepared to react to these types of situations (CTU, 2008). According to a survey of 250 major British companies, the most common crises likely to occur include sabotage, extortion, product faults, health risks, fire, accidents and fraud. In the U.S., some of the fastest growing crisis categories are sexual harassment, class action lawsuits, labor disputes and discrimination (Regester, 2005, pg. 157-159). Certain businesses will need to be aware of specific risk probability and it is important for all businesses, no matter what their operational size, to plan for some kind of risk management.

The Project Management Institute (PMI) has formulated a six-step process for risk management. These steps are (1. planning, (2. identification, (3. qualitative analysis, (4. quantitative analysis, (5. response, (6. monitoring and control. PMI has drawn from the previous expertise of project management professions and designed a program to help increase positive impact and decrease negative results when risks occur. Risk management is a vital part of the project management process (PMBOK, 2004, pg. 237).

The first step towards success contains some element of planning and careful decision-making. The business will need to decide how to approach and execute activities needed for the project. Meetings can be held to delegate responsibility to team members and stakeholders of the organization. Cost elements and a schedule of activities should be included as the risk management team covers with level, probability, and potential impact risk may have on the project (PMBOK, 2004, pgs. 242-243).

A certain amount of identification is needed to determine which risks may affect the project. Brainstorming sessions can help the team to identify and categorize probable types of risks associated with the project. A SWOT analysis that shows the strengths, weaknesses, opportunities and threats will be helpful at this point. Looking at previous experience of the company and other similar companies will help the management team to create a checklist of all risks related to the project (PMBOK, 2004, pgs. 246-248).

It is important to analyze the potential risks qualitatively and quantitatively. Qualitative risk analysis requires prioritization of the identified risks. This step lays the foundation for qualitative risk analysis. Qualitative risk analysis measures the probability and impact of potential risks. Classifications can be labeled as red, yellow and green or with a number frequency. In this step a matrix should be put together showing the impact of the risk on time, cost, scope or quality performance. Keeping tabs on this matrix is essential towards project management and risk management success (PMBOK, 2004, pgs. 249-262).
The two most important parts of Risk Management include planning your response to the risk and monitoring and controlling the situation for further risk. Planning a response to potential risks gives the business options and actions that will determine how quickly the risk is resolved, a reduction in threat and enhanced opportunity experience. To help coordinate these types of planning, the business can put together a decision tree analysis where parts of the decision making is branched off to show different steps the business could take to control the risk (PMBOK, 2004, pgs. 260-263). The final step to the PMBOK risk management processes is to monitor and control the risk. As risks are managed, new risks arise and will need to be managed to continue with smooth business operations. This part of the process allows the management team to stay on top of cost and scheduling factors while monitoring existing and new risk presentations (PMBOK, 2004, pgs. 264-265).

In addition to the knowledge areas PMI has formulated to help streamline project management, the organization has also aligned three documents for forging successful project management: project charter, project scope statement, and project management plan. Risk management is involved with the final two documents. The project scope statement states what work is to be accomplished and what deliverables are to be produced. Finally, the project management plan states how the work will be accomplished. In order to achieve these goals, we must understand our obstacles and manage our risks appropriately (PMBOK, 2004, pg. 73).

No matter what choices the business makes towards aligning these concepts with project management, it will include various levels of micro and macro-risk management. Micro-risk management deals with case-by-case scenarios where the odds can be altered to remain within the business' favor. In this method, we seethe relation a risk to small factors of the project. In macro-risk management, the whole picture is examined. The typical risks are examined rather than specifics (Kendrick, 2003, pg. 4-6).

In conclusion, risk management is an imperative portion of the project management process. While it may seem overwhelming at first, the PMBOK risk management processes will help to ensure a successful project outcome that is within budget parameters and finished on schedule. Obstacles are present in any venture; the purpose of risk management is to lessen their direct effect on the project.

References:

CTU Online. (Ed.). (ca. 2008). Phase 1 Course Material [multimedia presentation]. Colorado Springs, CO: CTU Online. Retrieved May 19, 2008, from CTU Online, Virtual Campus, MPM420- Managing Project Risks and Opportunities: 0802B-01. Website: https://campus.ctuonline.edu/MainFrame.aspx?ContentFrame=/Classroom/course.aspx?Class=23719&tid=39

Kendrick, T. (2003) Identifying and Managing Project Risk. AMACOM: Washington, D.C.

Project Management Institute (PMI). (2004) A Guide to the Project Management Body of Knowledge. Project Management Institute: Newtown Square, PA.

Regester, M. (2005). Risk Issues and Crisis Management: A Casebook for Best Practice. (3rd ed.). Kogan Page, Limited.