If your project requires that you stand on the edge of a cliff, then there’s a risk that you could fall. Transfer: One effective way to deal with a risk is to pay someone else to accept it for you. It’s important to come up with guidelines to help you figure out how big a risk’s potential impact could be.
Managing risks on projects is a process that includes risk assessment and a mitigation strategy for those risks.
A more disciplined process involves using checklists of potential risks and evaluating the likelihood that those events might happen on the project.
Identifying the sources of risk by category is another method for exploring potential risk on a project. You can use the same framework as the work breakdown structure (WBS) for developing a risk breakdown structure (RBS).
After the potential risks have been identified, the project team then evaluates each risk based on the probability that a risk event will occur and the potential loss associated with it. Having criteria to determine high-impact risks can help narrow the focus on a few critical risks that require mitigation. There is a positive correlation—both increase or decrease together—between project risk and project complexity. A project team analyzed the risk of some important equipment not arriving at the project on time. On projects with a low-complexity profile, the project manager may informally track items that may be considered risk items. On complex projects, statistical models are sometimes used to evaluate risk because there are too many different possible combinations of risks to calculate them one at a time.
After the risk has been identified and evaluated, the project team develops a risk mitigation plan, which is a plan to reduce the impact of an unexpected event. Each of these mitigation techniques can be an effective tool in reducing individual risks and the risk profile of the project. Risk avoidance usually involves developing an alternative strategy that has a higher probability of success but usually at a higher cost associated with accomplishing a project task. Risk sharing involves partnering with others to share responsibility for the risky activities.
Risk transfer is a risk reduction method that shifts the risk from the project to another party. The project risk plan balances the investment of the mitigation against the benefit for the project. Some project managers allocate the contingency budget to the items in the budget that have high risk rather than developing one line item in the budget for contingencies.
In the initiation phase of his move, John considers the risk of events that could affect the whole project. John concludes that the medium-risks can be mitigated and the costs from the mitigation would be acceptable in order to get a new job. Once the project is approved and it moves into the planning stage, risks are identified with each major group of activities. John decides to ask Dion and Carlita for their help during their first planning meeting to identify risks, rate their impact and likelihood, and suggest mitigation plans. As the project progresses and more information becomes available to the project team, the total risk on the project typically reduces, as activities are performed without loss. Understanding where the risks occur on the project is important information for managing the contingency budget and managing cash reserves. To determine the amount of contingency that can be released, the project team will conduct another risk evaluation and determine the amount of risk remaining on the project. During the closeout phase, agreements for risk sharing and risk transfer need to be concluded and the risk breakdown structure examined to be sure all the risk events have been avoided or mitigated. To close out the risk mitigation plan for his move, John examines the risk breakdown structure and risk mitigation plan for items that need to be finalized. By including the assessment of People Risk in regular HR planning activities, relevant stakeholders can recognize its significance and potential impact and then determine the necessary steps to mitigate those risks. The amount of time and effort HR departments devote to assessing and managing People Risk varies widely.
Business process mapping (BPM) can be used as a first step in identifying People Risk.11 The resulting flow charts from a BPM exercise breaks down complex business workings into simple processes.
Internal risks are present within the business due to internal HR policies and initiatives. Operational risks: These risks are present in day-to-day operations and are almost always calculated on a per-location basis. Once the relevant People Risk has been identified and compiled into a risk portfolio, HR must communicate it to the relevant stakeholders within the business; in most cases, this is the risk management team.
Our People Risk Services (PRS) help businesses identify risks from external factors, such as government restrictions on terminations, quality and quantity of graduates, or ensuring talent pools can support strategic decisions the business makes.
Mitigation of these risks can be complicated and not always fully calculable; sometimes, expert judgment and analysis of extensive external data sources is required. Aon Hewitt was asked to assist the client in their expansion by highlighting particular People Risks they might face in several countries. With the risks identified and the mitigation choices analyzed, they were fully prepared to pick the most optimal location and undertake smaller mitigation initiatives for individual risks at that location.
Aon Hewitt offers a comprehensive and wide-reaching set of products and services to assist with the identification and mitigation steps of People Risk. Aon Hewitt's People Risk Solutions help clients mitigate their recruitment, employment and redeployment risks through a holistic approach. Maricopa County was chosen as a best practice because its plan describes the process used to create goals for its 2009 Hazard Mitigation Plan. As strategic decisions usually cover a long period of time and have large costs associated with them, the associated risks could also prove to be extremely costly. A typical consulting project can identify the risks related to a business process or decision, recommend the best mitigation method in terms of cost and time, and then draw from our extensive set of services (such as engagement surveys or compensation reports) to actually perform the mitigation. That’s why you need to plan for risks from the beginning and keep coming back to do more planning throughout the project. It documents how you’ll assess risk, who is responsible for doing it, and how often you’ll do risk planning (since you’ll have to meet about risk planning with your team throughout the project). Some companies and industries develop risk checklists based on experience from past projects. For example, suppose high-impact risks are those that could increase the project costs by 5% of the conceptual budget or 2% of the detailed budget.
On international projects, companies will often purchase the guarantee of a currency rate to reduce the risk associated with fluctuations in the currency exchange rate. A risk breakdown structure (RBS) can be used to identify increasing levels of detailed risk analysis. The second step is to identify People Risks based on the operational processes and strategic decisions in which the business partakes. These checklists can be helpful to the project manager and project team in identifying both specific risks on the checklist and expanding the thinking of the team.
Although the amount of contingency allocated in the project budget is a function of the risks identified in the risk analysis process, contingency is typically managed as one line item in the project budget. This approach also allocates the responsibility to manage the risk budget to the managers responsible for those line items.


John plans to spend one night on the road in a motel to reduce the risk of an accident caused by driving while too tired.
The past experience of the project team, project experience within the company, and experts in the industry can be valuable resources for identifying potential risk on a project. As with all business monitoring techniques, alignment and improvement of People Risk and wider risk management systems is an iterative process. This risk event (the identified equipment arriving late) was rated as high likelihood with a high impact. Some companies reduce risk by forbidding key executives or technology experts to ride on the same airplane.
Weather, political unrest, and labor strikes are examples of events that can significantly impact the project and that are outside the control of the project team. Yet others are risk averse, and prefer to be optimistic and not consider risks or avoid taking risks whenever possible.
The hazard mitigation strategy shall include a description of mitigation goals to reduce or avoid long-term vulnerabilities to the identified hazards. The plan must include hazard mitigation goals that represent what the community seeks to achieve through implementation of its mitigation plan. But eventually, some of the risks that you plan for do happen, and that’s when you have to deal with them. But even when you accept a risk, at least you’ve looked at the alternatives and you know what will happen if it occurs. Risk assessment includes both the identification of potential risk and the evaluation of the potential impact of the risk. A risk breakdown structure organizes the risks that have been identified into categories using a table with increasing levels of detail to the right. The people category can be subdivided into different types of risks associated with the people.
This approach helps the project team identify known risks, but can be restrictive and less creative in identifying unknown risks and risks not easily found inside the WBS.
A project with new and emerging technology will have a high-complexity rating and a correspondingly high risk. Building on the identification of the risks, each risk event is analyzed to determine the likelihood of occurrence and the potential cost if it did occur. One reason, as found by David Parker and Alison Mobey in their phenomenological study of project managers, was a low understanding of the tools and benefits of a structured analysis of project risks (2004). On more complex projects, the project management team may develop a list of items perceived to be higher risk and track them during project reviews.
One example of the statistical model used on projects is the Monte Carlo simulation, which simulates a possible range of outcomes by trying many different combinations of risks based on their likelihood. The risk mitigation plan captures the risk mitigation approach for each identified risk event and the actions the project management team will take to reduce or eliminate the risk. A common risk avoidance technique is to use proven and existing technologies rather than adopt new techniques, even though the new techniques may show promise of better performance or lower costs. Many organizations that work on international projects will reduce political, legal, labor, and others risk types associated with international projects by developing a joint venture with a company located in that country.
The project team often develops an alternative method for accomplishing a project goal when a risk event has been identified that may frustrate the accomplishment of that goal. This approach allows the project team to track the use of contingency against the risk plan. More things are unknown at the beginning of a project, but risk must be considered in the initiation phase and weighed against the potential benefit of the project’s success in order to decide if the project should be chosen. He decides that it would be too risky to attempt to make the drive by himself in one day, especially if he didn’t leave until after the truck was packed.
The risk plan needs to be updated with new information and risks checked off that are related to activities that have been performed. If the risk profile is lower, the project team may release contingency funds back to the parent organization.
The final estimate of loss due to risk can be made and recorded as part of the project documentation. He makes a checklist to be sure all the risk mitigation plans are completed, as shown in Figure 16.5. Risk Management Planning by Adrienne Watt is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted. Figure 1 illustrates a four-step process that Aon Hewitt has developed to allow HR professionals and related stakeholders to begin implementing a review of People Risk within their daily operations. The results demonstrated that HR departments need to invest time and money into training for risk management, and to give ownership of People Risk to HR professionals who can understand and implement the four-step process highlighted in the aforementioned diagram.
External risks influence a company from outside its boundaries and the business usually has little to no control over them. Finally, the likely probability of a risk occurring is difficult to assess, as the risk may be tied to many different parameters and environmental conditions.
Aon Hewitt offers organizations a comprehensive set of products and services for businesses that need to manage People Risk. As a result of the bespoke work we performed, we showed that the program helped mitigate related risks successfully, with a productivity cost saving of $580,446 in the first year, an increase of $362,446 to the bottom line, all with no increase in headcount. Our reports were the perfect solution to their mitigation strategy, giving them contextual insights into the scores for every one of the 30 elements operating in each city of their choice. People Risk is a common but overlooked part of business that rarely makes an appearance in Enterprise Risk Management. The first step is for HR to prepare to handle People Risk by aligning its processes and language with the other types of risk that are already managed within the business.
If risk management leaders were included in the preparation step, the language and methodology between human resources and risk management already will be aligned. The client, however, was unsure of the effectiveness of the program and questioned whether it truly helped mitigate related internal risks. Internal risks might include poor organizational culture or occupational health and safety (OHS) issues. Examples of people risks include the risk of not finding people with the skills needed to execute the project or the sudden unavailability of key people on the project. To mitigate the risk of his new employer changing his mind, John makes sure that he keeps his relationships with his alternate employers cordial and writes to each of them thanking for their consideration in his recent interviews. If additional risks are uncovered, a new mitigation plan is developed including the possible addition of contingency funds.
Evaluating the risk for probability of occurrence and the severity or the potential loss to the project is the next step in the risk management process. Risk evaluation is about developing an understanding of which potential risks have the greatest possibility of occurring and can have the greatest negative impact on the project (Figure 16.3).
On projects with a large equipment budget, the largest amount of risk may be during the procurement of the equipment.
On global projects with a large amount of political risk, the highest portion of risk may be toward the end of the project. Clear goals that are agreed upon by the planning team, elected officials, and the public provide the basis for prioritizing mitigation actions. Review existing plans and other policy documents to ensure hazard mitigation goals are consistent with the goals of other community plans, such as the comprehensive plan, and other objectives established by the governing body. Because the State Hazard Mitigation Plan documents the State’s goals for reducing risk and allocating resources, it may be strategic to align your plan’s goals to the State’s plan. The County evaluated whether or not the goals of its 2004 Hazard Mitigation Plan reflected the community’s mitigation vision, led to effective and efficient mitigation actions and projects and reflected the updated risk assessment.


A well-defined plan should address specific identified risks, while being broad enough to provide coverage for any disruption. Anything that might occur to change the outcome of a project activity, we call that a risk. The easiest way to avoid this risk is to walk away from the cliff, but that may not be an option on this project.
If you can’t avoid the risk, and there’s nothing you can do to reduce its impact, then accepting it is your only choice. A risk mitigation plan is designed to eliminate or minimize the impact of the risk events—occurrences that have a negative impact on the project. Some risk events are more likely to happen than others, and the cost of a risk can vary greatly. The lack of formal risk management tools was also seen as a barrier to implementing a risk management program. On projects of even greater complexity, the process for evaluating risk is more formal with a risk assessment meeting or series of meetings during the life of the project to assess risks at different phases of the project. A project team may choose a vendor with a proven track record over a new vendor that is providing significant price incentives to avoid the risk of working with a new vendor. Partnering with another company to share the risk associated with a portion of the project is advantageous when the other company has expertise and experience the project team does not have.
A project manager may hire an expert to review the technical plans or the cost estimate on a project to increase the confidence in that plan and reduce the project risk. This would certainly incur more risks for the project.  He identifies the following risks during the initiation phase that might have a high impact and rates the likelihood of their happening from low to high. Specific examples can help highlight the importance of the four steps shown in Figure 1 and the potential repercussions when People Risk is not made a priority by HR. Categorizing in terms of impact can be trickier, but in general, the larger the scope and complexity of a process, the greater the risk impact it can exert on the business.
People Risk can be overcome in the same manner as other types of risk: acceptance, mitigation, avoidance, or transfer. There are numerous benefits for HR to reach out to ERM leadership and ensure people risk is included as part of their work. Thorough attention to People Risk may not have prevented the suicides, but it may well have alerted the company to place more attention on wellness, engagement, and counseling programs to reduce the consequences of retooling an aging workforce. Our Workforce Risk Services (WRS) help companies identify internal risks and the true cost of factors such as occupational health, engagement and absence. This allowed them to weigh the pros and cons of every location from a People Risk standpoint. It can prove to be more expensive and time-consuming than the risk event occurring in the first place.
Mitigation goals, such as the examples from local plans shown below, are required to be in the plan and must be consistent with the hazards identified in the risk assessment.
These are the critical few potential risk events that the project management team should focus on when developing a project risk mitigation or management plan.
Mitigation goals that complement other plans and policies may garner more support for hazard mitigation. A risk can be an event (like a snowstorm) or it can be a condition (like an important part being unavailable).
Your risk management plan should give you a scale to help figure out the probability of the risk. A risk mitigation plan addresses the items that have high ratings on both factors—likelihood and impact.
Additionally, the project manager’s personality and management style play into risk preparation levels.
On highly complex projects, an outside expert may be included in the risk assessment process, and the risk assessment plan may take a more prominent place in the project implementation plan.
For example, the typical output from a Monte Carlo simulation may indicate a 10% chance that one of the three important pieces of equipment will be late and that the weather will also be unusually bad after the equipment arrives. The project team that requires drug testing for team members is practicing risk avoidance by avoiding damage done by someone under the influence of drugs. Assigning highly skilled project personnel to manage the high-risk activities is another risk-reduction method. The risk of a truck drivers’ strike may be mitigated with a contingency plan that uses a train to transport the needed equipment for the project.
As the risks decrease over the length of the project, if the contingency is not used, then the funds set aside by the organization can be used for other purposes. On projects with a high degree of new technology, the majority of the risks may be in the early phases of the project. In recent years a shocking piece of news4,5 made a large impression on the global community and strongly underscored the potential consequences of people risk.
Strategic risks: These risks are present as a result of strategic decisions that are regional or global in scope.
The company made a significant investment, reportedly costing in the region of US$400 million.9 Due diligence was performed without any input from HR and without an analysis of the people risks involved.
Aon Hewitt helps businesses decide the best course of action for their risk, and by using identification of the risks as a basis, shows how they can be protected against.
It is not always part of HR operations, even though such risks can account for at least half of operating costs.12 There are many examples of businesses suffering time, cost, and quality problems due to this very lack of focus on People Risk issues, which have become even more significant in an age of financial austerity. As a result, most of the high priority risks came with low levels of control and high impacts. Some project managers are more proactive and  develop elaborate risk management programs for their projects. The Conference Board found that 48% of surveyed companies did not have any formal process for assessing human capital risk. By preparing, identifying, mitigating and communicating those risks, this can be made a reality. We also provided cost-risk graphs to clearly display how much more they would have to pay to lower the risk. The third step is to devise a strategy to minimize the impact of each risk on the business. You can use risk planning to identify potential problems that could cause trouble for your project, analyze how likely they are to occur, take action to prevent the risks you can avoid, and minimize the ones that you can’t.
External risks include talent availability and employment practices expected of businesses by governments and unions.
We offer solid, proven action steps for every risk we identify utilizing our extensive products and services in the HR consulting field, and allow the client to compare the estimated cost of the risk vs. Thus, mitigation options were limited to avoidance and therefore picking a suitable location was highly important.
Lastly, the fourth step is to communicate your findings to the risk management stakeholders within the organization and to ensure that HR is covered for the consequences of risk.



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