Introduction
Risk management appears to be one of the most essential parts of project management. Project managers are supposed to be able to work out a risk management plan and assess its effectiveness and efficiency. Therefore, this paper aims to consider the process of elaborating a risk management plan and evaluating it, as well as provide an example of such a plan.
Risk Management
To start with, it is necessary to point out that reasons for risks to appear might be uncertainties which tend to exist in each project. Risks could be known, which means that they are identified, evaluated, and possible to be prepared for. Contrary to known risks, unknown ones cannot be predicted. Despite the fact that some specific risks and the conditions for their occurrence are not specified, project managers are expected to be aware that the majority of risks can be predicted based on the previous experience.
While implementing projects which has a high level of uncertainty in such elements as purposes and technologies of their accomplishment, many companies prove to pay much attention to elaboration and application of corporative methods of risk management. These methods are supposed to take into account peculiarities of the project, as well as the characteristics of the corporate management methods (Team FME 2014).
Project Management Institution (PMI) is involved in elaboration and publication of standards in the sphere of risk management. PMI defines risk management as a set of processes which are connected with identification and analysis of risks, as well as, with decision making, which implies the maximization of positive outcomes and the minimization of negative consequences of risk events. In accordance with PMI, the process of risk management mainly includes the following six procedures.
First, risk management planning implies choosing approaches and organizing activities to manage the project risks. Second, risk identification means that it is necessary to single out risks which are capable of influencing the project in a negative way. Besides, it is important to note down their characteristics. Third, quantitative evaluation of risks stands for risks analysis and conditions for their occurrence so as to define their influence on the project success. Fourth, quantitative evaluation of risks signifies an analysis of the possibility that risks might occur and how influential they could be in relation to the project. Fifth, risks reaction planning is a set of actions and methods which are aimed to lessen any negative consequences and to strengthen all the possible advantages. Finally, risk monitoring and control implies monitoring risks, defining any other potential risks, implementing the risk management plan, and evaluating the actions which have been aimed to minimize risks. It is important to underline that all these procedures are connected with each other, as well as with other procedures.
Each of them is implemented in each project at least once. Despite the fact that the procedures under consideration are treated as discrete elements with their certain characteristics, in practice, they can interrelate and interconnect. After a brief outlook of the process, it is important to state that they are steps in the risk management plan. Therefore, they are going to be given more consideration coupled with assessment (Rodriges-da-Silva & Crispim 2014).
Risk Management Plan, its Stages, and Assessment
Risk management planning
Risk management planning is acknowledged to be a process of decision making on the application and organization of risk management for each project. This process might include organizational solutions, staffing provision, a choice of methods, data sources for risks identification, and a time period for the analysis of the situation. It is critical to plan risk management so that it corresponds to the level and type of risks, as well as the importance of the project for the enterprise (Kenzner 2013).
Risks identification
Risks identification singles out which risks are able to influence the project. Their characteristics are reported. It is necessary to point out that risks identification will not be effective unless it is carried out on a regular basis in the course of the project implementation. Risks identification should involve project managers, customers, users, and independent specialists. Risks identification is an iterative process. First, it can be undertaken by project managers and analytics. Next, it can be performed by the project team. In order to have an objective assessment, it might be reasonable to address to independent specialists. The possible reaction could be defined based on the process of risks identification (Pritchard 2014).
Qualitative evaluation of risks
Qualitative evaluation of risks is stated to be a process of implementing qualitative analysis of risk identification which aims to define risks which require a fast reaction. Such evaluation proves to assess the level of risk importance and determine the way of reaction. Availability of corresponding information allows setting priorities for different categories of risks. Qualitative evaluation of risks is the assessment of the conditions which are necessary for risks to occur, as well as the definition of the effect which they might have on the project by standard methods and means. In the course of the project implementation, a constant reconsideration of risks is crucial (Kendrik 2015).
Quantitative evaluation of risks
Quantitative evaluation of risks assesses the possibility of risks occurrence and the influence of their consequences on the project. This helps the project team to make right decisions and avoid uncertainties. Quantitative evaluation of risks allows defining
- the probability for the project to arrive at the end;
- the level of the influence which the risk has on a project and the amount of unforeseen expenses and materials which might be needed due to the risk;
- risks which require urgent reaction and much attention, as well as the impact which they might produce on the project;
- the actual expenses;
- the assumed termination period.
Quantitative evaluation of risks often comes together with their quantitative evaluation and also involves the process of risks identification. Both of the evaluations of risks can be used together or separately. It depends on the amount of time and budget, as well as the necessity for quantitative and qualitative evaluations of risks (McNeil, Frey & Embrechts 2015).
Risks reaction planning
Risks reaction planning stands for elaborating methods and technologies to lessen a negative impact which the risk might produce on the project. This stage is responsible for effectiveness and efficiency of the protection of the project against risks. Planning includes identification and categorization of each risk. The effectiveness of risks reaction planning determines whether the consequences of the risk impact are positive or negative. The strategy for risks reaction planning should comply with the risk type, resources profitability, and time periods. The issues under discussion in the course of project meetings should be adequate for the tasks of each stage of the project, as well as approved by each member of the project team. Normally, several variations of strategies are required to react to risks (Sadgrove 2016).
Monitoring and control
Monitoring and control are aimed to observe the risk identification, define residual risks, provide for the risk planning implementation, and assess its effectiveness and efficiency in relation to the risk reduction. Risks indexes which are connected to the fulfillment of the conditions are supposed to be noted down. Monitoring and control are expected to accompany the process of introducing the project. The qualitative control of the project implementation provides information which assists in making effective decisions so as to prevent risks from occurrence. In order to provide exhaustive data on the project implementation, the cooperation between the members of the project team is critical. The purpose of monitoring and control is to find out whether
- the risk reaction system is introduced in accordance with the plan;
- the reaction is effective and efficient enough and does not need amending;
- risks have changed compared to the previous indexes; 4) risks have occurred;
- necessary measures have been taken;
- the influence has appeared to be planned or unplanned.
Control might entrain the necessity for choosing alternative strategies, making corrections, or re-planning the project so as to achieve the initial goal. The members of the project team and the risk team should interact on a regular basis. Any alterations should be noted down. Reports on the project implementation should be formed regularly (Hopkin 2017). Therefore, the six stages of the risk management plan with their assessment have been considered. The next part of the paper provides an example of the plan.
Example of the Risk Management Plan
Overall project risk plan assessment
Conclusion
In conclusion, it is necessary to point out that a risk management plan plays a significant role when it comes to effectiveness and efficiency of the project. Hence, this paper has dwelled upon the process of elaborating a risk management plan and assessing it. Apart from that, it has provided an example of such a plan.
Reference List
Hopkin, P 2017, Fundamentals of risk management: understanding, evaluating and implementing effective risk management, Kogan Page Publishers, New York.
Kendrik, T 2015, Identifying and managing project risk: essential tools for failure-proofing your project, AMACOM, New York.
Kenzner, H 2013, Project management: a systems approach to planning, scheduling, and controlling, John Wiley & Sons, New York.
McNeil, A J, Frey, R, Embrechts, P 2015, Quantitative risk management: concepts, techniques and tools, Princeton University Press, Princeton.
Pritchard, K L 2014, Risk management: concepts and guidance, CRC Press, New York.
Sadgrove, K 2016, The complete guide to business risk management, Routledge, New York.
Rodriges-da-Silva, L H & Crispim, J A 2014, ‘The project risk management process, a preliminary study’, Procedia Technology, vol. 16, pp. 943-949.
Team FME 2014, Project risk management. Web.