Risk Management- Introduction
We will break down of our coverage of risk management into the following components: the risk management process, risk identification, assessment, response development, contingency planning, opportunity management, and risk monitoring and control.
Risk is an uncertain even or condition that if it occurs can positively or negatively impact your project outcomes and objectives. Thus, risks have causes and consequences. For example, a cause might be a tsunami in Asia and the consequence might the inability to obtain the necessary supplies needed for your project. This will have an effect on your project cost, schedule and quality. Risks can have positive consequences. For example, the cost of borrowing for your project might go down or raw material prices might decrease thus reducing the cost of your project. However, our focus will be mainly on addressing the negative consequences of project risks.
Risk Management Process
Risk management is a deliberate process to recognize and manage potential and unforeseen circumstances that may occur over the project life cycle. Risk management identifies the many events that can go wrong, attempts to minimize their impact, manages responses to those events and provides funds to cover the events that actually occur. Risk management is a preventive process designed to ensure that surprises are reduced and that negative consequences associated with undesirable events are minimized. Successful risk management can increase the chances of accomplishing project objectives in a significant way. There are basically unlimited sources of project risks. Some are external to the project such as currency exchange rates, inflation, natural disasters, and market acceptance of a product. Others are internal such employees leaving, using unproven technology, or contractual risks.
The chances of risks occurring and their consequences vary over the project life cycle. As shown in the diagram attached here the chances of risk are high in the initiation and planning stages but are expected to decrease during the latter stages of the project. On the other consequences are low during the earlier stages of the project than during the later stages. Risk-Vs-Amount-at-Stake
The diagram below shows the typical steps involved in the risk management process. We will cover each of these in subsequent sections of the learning unit. Risk-management-processes