Risk management and its steps

Definition

Project risk management is the systematic process of planning, identifying, analysing, responding to, and monitoring and controlling risks in a project, so that the chance and effect of negative events are reduced and the chance of positive events is increased.

Steps of risk management

1. Risk management planning: decide the approach, team, roles, budget, tools, risk categories, probability-impact scales and reporting. The output is the risk management plan.
2. Risk identification: find the risks which may affect the project and document them in a risk register (brainstorming, checklist, Delphi, SWOT, interviews, experience).
3. Qualitative risk analysis: rank the risks by probability and impact using a probability-impact matrix to find priority risks.
4. Quantitative risk analysis: estimate the numerical effect of the main risks on cost and time (expected monetary value, decision tree, sensitivity analysis, Monte Carlo simulation).
5. Risk response planning: select the strategy for each risk (avoid, transfer, mitigate/reduce, accept) and prepare contingency plans and reserves.
6. Risk monitoring and control: track identified risks, watch for new risks, check the response is working, update the risk register and report.

Managing risk in my project as project manager

1. Prepare a risk management plan at the start and assign a risk owner to each risk.
2. Identify risks with the team and stakeholders; keep a risk register.
3. Prioritise by a probability-impact matrix; calculate EMV of the top risks.
4. Choose responses: avoid (change design or site), transfer (insurance, performance bond, fixed-price contract), mitigate (testing, early procurement, training), accept with contingency reserve (usually 5 to 10% of cost and time).
5. Include the response actions in the schedule and budget.
6. Hold regular risk review meetings, track triggers, update the register and report to the client.
7. Keep records of lessons learned for future projects.