Updated July 10, 2023
Introduction to Project Risk Management Plan
They say, “Precaution is better than cure,” which holds in every walk of life. Be it when you own a project, or you’re off studying for an exam, taking remedial measures at the very start of your work can help you gain a head-start and avoid the mishaps and catastrophic events later on when you’re knee-deep into the commitment. This is the same in the case of projects nowadays, where you need to take some measures ahead of the project to save on risks, which can completely throw your plans away.
Project risk management plans are these thought-of mappings that can identify, anticipate, and employ solutions in case the project runs into issues/problems. A good project risk management plan can face unexpected problems, as the planner has considered all possible scenarios that can go wrong while executing the project.
For example, firefighting isn’t always the best way and can cause detrimental damage to further phases of the project.
An excellent project risk management plan can decrease the problems affecting the project by around 80% – 90%, which is a good range to be in. However, the 20% – 10% can always be the marginal risk percentage unaccounted for. In this article, you will look through project risk management plans and how to develop a well-thought plan for your project.
What is Risk?
Wikipedia defines risk to be…
“…the potential of gaining or losing something of value.”
With this definition, it quickly strikes me that risk can pay off in two ways: you can either gain magnanimously from it or plunge into a loss. But, we normally perceive risk in the most negative connotation at all times and always plan to mitigate this negative risk we anticipate. So, what happens when the risk you take pays off? A complete understanding of your project’s risk will make your plan for sudden success that would need a lot of control and management.
Wikipedia defines risk as “an unintentional interaction with uncertainty.” In the case of projects and project management, the risk is that factor that is a potential threat to the successful completion of the project on schedule. Risk can occur during any stage in the project life cycle and can adversely affect the entire functioning of the project, leading it to deviate from the proposed plan.
These adverse effects can be a constant or momentary threat to the time, budget, resources, or even quality conferred upon the project. A project is always in a state of risk, and project risk management contributes to identifying and taking action against these risks at the right time and in the right manner. A project risk management plan will look out for controlling and managing the levels of risks and uncertainty, and we will cover these aspects in the following sections.
What is a Project Risk Management Plan?
After having a quick go into risk and its management, it is essential for any project on the line to include a plan to manage the risks anticipated for that project. All projects have a percentage of risk hovering over them,, and it always falls in need of a project risk management plan.
A project risk management plan is a step-by-step instructional document identifying and anticipating scenarios that can put the project at risk and finding ways and means of solutionizing the risk. The project risk management plan summarizes the project risk management approach adopted by the project manager and the team. This project risk management plan is usually part of the business plan created at the start of the project.
The project risk management plan at all times would contain the following attributes and elements:
- Process – This is the entire process that will be adopted to identify, analyze, evaluate, and mitigate risks throughout the project life cycle.
- Budget – There is always a risk on project costs, as when the project starts,, there are bound to be changed as the project proceeds. The project risk management plan must elaborate on how to deal with such a change.
- Work Breakdown Structure – The strategies involved in the project risk management are to be transferred to the WBS. How and when needs to be included in the project risk management plan.
- Risk Register – The frequency of reviewing the risk register features in the project risk management plan.
- Roles and Responsibilities – When the project runs into an issue with risk, the plan will let the project member know who is in charge of which scenario.
- Reporting Structure – This is the same as with the roles and responsibilities but briefly elaborates on the reporting structure when encountering risk and in whose hands the decisions need to lie.
- Risk Categories – Risk needs to be carefully categorized and slated for proper information organization.
Developing a Project Risk Management Plan
The Project Risk Management Plan effectively defines the “how” when it comes to risk processes and structuring throughout the project life cycle. It will also consist of the following:
- Analysis of anticipation report of likely risks
- Solutions or mitigation strategies that vary from high impact risks to low impact risks
All these with one goal in mind—avoiding the project from facing derailment.
Six basic steps must be followed to develop an all-encompassing and successful project risk management plan. They are as follows:
Identifying the Risk and Creating a Risk Register
Before you think about managing and mitigating risks, it’s important that you know them and identifies them correctly. If you miss risk while identifying possible threats, you are putting the project and its completion at risk.
To completely identify all risks, you can first define categories that these risks can fall into, for example, project, corporate, business, budget, system, people, business, and business objective risks. Then, these can be further subcategorized into more specific categories for easy identification. Another method of categorization can be in terms of external or internal risk. The PEST method is also widely used in the industry: based on political, economic, social, and technological factors.
Use a brainstorming session with the project team members, subject matter experts, and stakeholders to gain an insight into categories and proper identification of risks. The SMEs can be executives from an outside perspective looking at the project.
All the identified risks are detailed in the Risk Register,, and a level is attached to each risk put down. These levels are based on the likely occurrence of the risk in due course of the project life cycle and its seriousness. The risk register contains the following information about each risk associated with the project and goes through all the phases of project risk management:
- Unique identification
- Brief description
- Level of impact on the project
- Possible frequency of occurrence
- Individuals responsible for managing the risk
- Mitigation plan
- Budget allocated
Analyzing and Evaluating Risks
Once you’ve identified the risks associated with the project, your next step is to analyze and evaluate each risk to determine its effect on the successful completion of the project. Risks should be analyzed and evaluated considering the following two criteria:
- Level of Impact
Project managers are urged to rate each risk listed in the risk register on the low, moderate, and high likely occurrence rate and low, moderate, and high seriousness of impact rate. Then, they can create a matrix to chart these evaluations to gain a wholesome idea about the risks and their influence on the project.
This grading and rating on matrices can be later used to prioritize the different types of risks and enable the project manager to put measures in place within the project risk management plan. The grades assigned to the project risks can be either in grades or numerical ratings deemed comfortable by the project team and organization.
Identifying Risk Triggers
Broadly divide your team into subgroups that will take care of each risk, should they occur as you have predicted. These subgroups will have to study their risks deeper and recognize the triggers for these risks and signs of warning, which can tell the project team that their project is in danger.
At this stage, the project manager can determine the roles and responsibilities that each team and the team members take up when faced with a risk scenario. First, authoritative power is given to individuals to manage and settle the budgets for each risk. Then, they are responsible for coming up with ideas and a plan for those ideas, with the project manager in tow.
Roles and responsibilities can be distributed based on the individual or team’s department, working title, or expertise. Try and include all project stakeholders to gain their insight and expertise on the project risk management plan. These individuals can even highly contribute to identifying these risk triggers that can be enlisted later in the project risk management plan.
Brainstorming for Solution Ideas
Each team now takes risks and brainstorms ideas that subdue the threats. These should be preventive measures or contingency plans taken by the team at the start of the project to decrease or eliminate the effects these risks have on the completion of the project. The team should think about tapping the opportunities that come their way, as mentioned in the project plan in the project life cycle planning phase.
Opportunities are often the positive risks in the project,, and, more so often, these opportunities can neutralize the negative risks that we focus on. Therefore, project managers should urge the project risk management team to pay close attention to even the opportunities to mitigate risks through ways of the project risk management plan.
Based on the collective ideas from the various departments and minds that have worked on it, the project manager then needs to decide to frame a plan of action (POA) for the solutions. We will discuss this in the next step: Creating a Plan!
Creating a Plan
The risks are identified, the possible solutions or measures are taken into account, and what is left to create is an action plan for these. This action plan is the fundamental unit of the project risk management plan. For a project manager owning this plan, they will need to document all the possible solutions to all the different risks identified across the project. These plans are risk mitigation strategies to keep the risks at bay.
These risk mitigation strategies will either reduce the chances of the risk being accomplished or the impact of the risk at hand. These risk mitigation strategies are born out of the ideas belted out the brainstorming session held. There are two types of mitigation strategies. They are as follows:
- Preventative – This strategy answers the question: “what should you do now?” This strategy is designed to reduce the likelihood or seriousness of the risk before the risk is even realized.
- Contingency – These are planned actions when the risk is realized. In short, it answers the question: “what should be done if…?”
The risks at the highest priority will need to be attended to first by the project manager, and their mitigation plans need to be realized before the project starts or as per the action plan. The risks with a lower priority can be taken care of later but cannot be ignored or neglected.
The risk register should record and document all the risks, the assignees to the risks, the action plan to be implemented, and the cost associated with these risks.
Monitoring and Reviewing Risks
While the project proceeds as per the project plan, the project risk management plan runs, taking care of all the risks that the project might encounter on its way to completion. Since all the proceeds of the project risk management plan are documented in the risk register, it’s important to review this document regularly. Consider the review period to be fortnightly.
But why monitor and review? As the project progresses, there is a fair chance that the project might encounter or realize many more risks, or the risks slated in the register may need a change.
Conclusion – Project Risk Management Plan
Project risk management is an iterative process and should be seamlessly woven into the management of your entire project. In addition, it should be closely integrated into the issue management framework because unresolved issues slowly succeed in becoming potential risks.
This is a guide to Project Risk Management Plan. Here we discuss the introduction and learning what is risk Identifying the Risk, and Creating a Risk Register. You may also look at the following articles to learn more –