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). In John’s move, John makes a list of things that might go wrong with his project and uses his work breakdown structure as a guide. 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.
Contingency funds are funds set aside by the project team to address unforeseen events that cause the project costs to increase. 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. His new employer might change his mind and take back the job offer after he’s given notice at his old job: Low.
He might get in an accident driving from Chicago to Atlanta and miss starting his job: Low. During his job hunt, John had more than one offer, and he is confident that he could get another job, but he might lose deposit money on the apartment and the mover. John checks the market in Atlanta to determine the weekly cost and availability of extended-stay motels.
John checks the mover’s contract to confirm that they carry insurance against lost items, but they require the owner to provide a detailed list with value estimates and they limit the maximum total value. John checks the estimated driving time from Chicago to Atlanta using an Internet mapping service and gets an estimate of 11 hours of driving time. 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.
As shown in the figure, assign a value (1-10) for likelihood, and separate values (1-10) for cost, schedule and impact. Mitigations are activities that will be conducted to minimize the probability of a risk event occurring.
If it’s very windy out or if the ground is slippery and uneven, then falling is more likely (Figure 16.1).
But eventually, some of the risks that you plan for do happen, and that’s when you have to deal with them. That’s why you need to plan for risks from the beginning and keep coming back to do more planning throughout the project. Risk assessment includes both the identification of potential risk and the evaluation of the potential impact of the risk. Some companies and industries develop risk checklists based on experience from past projects.


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.
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. This approach allows the project team to track the use of contingency against the risk plan.
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. Risk Management Planning by Adrienne Watt is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted. 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. 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. 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.
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.
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. The more complex the technology, the more resources the technology manager typically needs to meet project goals, and each of those resources could face unexpected problems. Assigning highly skilled project personnel to manage the high-risk activities is another risk-reduction method.
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. 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). Some companies reduce risk by forbidding key executives or technology experts to ride on the same airplane. Yet others are risk averse, and prefer to be optimistic and not consider risks or avoid taking risks whenever possible.
But even when you accept a risk, at least you’ve looked at the alternatives and you know what will happen if it occurs. 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). 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.
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. The team identified three pieces of equipment that were critical to the project and would significantly increase costs if they were late in arriving.
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.
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. 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.
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.
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 checks the moving company’s contract to see if they compensate the owner for late delivery, and he finds that they do not.
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. A risk breakdown structure (RBS) can be used to identify increasing levels of detailed risk analysis. The risk plan needs to be updated with new information and risks checked off that are related to activities that have been performed. Most organizations develop a plan for financing the project from existing organizational resources, including financing the project through a variety of financial instruments.
He makes a checklist to be sure all the risk mitigation plans are completed, as shown in Figure 16.5. Multiply the likelihood by the highest of the cost, schedule and impact numbers to get the Risk Severity Index.
Use the Risk Severity Index, determined as explained above, to prioritize the resources that will be applied to mitigating the various risk events.
The easiest way to avoid this risk is to walk away from the cliff, but that may not be an option on this project. Some risk events are more likely to happen than others, and the cost of a risk can vary greatly.


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. 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. A risk mitigation plan addresses the items that have high ratings on both factors—likelihood and impact. 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. Either way, it’s something that may or may not happen …but if it does, then it will force you to change the way you and your team work on the project. This risk event (the identified equipment arriving late) was rated as high likelihood with a high impact. 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.
I was introduced to him through LinkedIn and then met him through his Meetup of Delhi IT professionals. Anything that might occur to change the outcome of a project activity, we call that a risk. 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.
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. The output from a Monte Carlo simulation provides the project team with the probability of an event occurring within a range and for combinations of events. 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.
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. 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.
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. In most cases, there is a cost to the organization to keep these funds available to the project, including the contingency budget.
If additional risks are uncovered, a new mitigation plan is developed including the possible addition of contingency funds.
Additionally, the project manager’s personality and management style play into risk preparation levels.
The availability of contingency funds in the line item budget may also increase the use of contingency funds to solve problems rather than finding alternative, less costly solutions.
Experts managing a high-risk activity can often predict problems and find solutions that prevent the activities from having a negative impact on the project. On global projects with a large amount of political risk, the highest portion of risk may be toward the end of the project. Atin GuptaAtt Logics Pvt LTD I was planning to do PMP study from the last 2 years but was unable as I prefer to do study in a group.
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.
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. Time and energy invested now to implement a risk management program can eliminate inefficiencies and prevent project failure. Most project managers, especially on more complex projects, manage contingency funds at the project level, with approval of the project manager required before contingency funds can be used. Some project managers are more proactive and  develop elaborate risk management programs for their projects. On projects with a large equipment budget, the largest amount of risk may be during the procurement of the equipment. Monitor and mitigate yellow risks closely, and regularly evaluate whether they should be elevated to red.
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. Other managers are reactive and are more confident in their ability to handle unexpected events when they occur. Acknowledge green risks, and continue to monitor them, but dedicate fewer resources to mitigating them than the yellow risks.About risk management at DVCDVC has applied a risk management framework successfully to multi-million dollar vaccine development programs for more than 10 years. We manage risks proactively on every project as part of our program management services.Special thanks to Kevin Raum, Coridium Advisors LLC, and Gretchen Stup of DynPort Vaccine Company LLC for their contributions to these FAQs.



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