Hello everyone, apologies for the lack of blogs I’ve spent the last two weeks on holiday. Back now to the real world of work and a bit of light blogging. This week’s topic is the world of Risk.
As a Project Manager I’ve spent a lot of time identifying and mitigating risk, prior to ascending to the rank of Project Manager I was a full time Risk Practioner on a large, complex programme, supporting the definition and mitigation of risk.
What is a Risk?
Risk is an event, or scenario that if it materialises could impact the project. Impact could be increased costs, duration, scope, decreased quality, a combination of all four or another factor that could negatively impact the project.
For example a risk to a construction project is the delivery of construction materials, there is a risk that they would not be delivered in line with the construction timetable, missing the project delivery dates.
Risks are mitigation through a series of agreed actions within the project, with the aim to reduce either the impact or probability of the risk occuring.
Defining risk – Risk Statement
Before defining the mitigation strategy the risk must be defined in as much detail as possible, otherwise how do you know what to mitigate.
First the Risk must be articulated as a “Risk Statement”. The method to construct the risk statement must be the same across the project or programme to ensure consistency. My personal preference is to use IF, THEN, RESULTING IN.
Taking our previous construction risk as an example;
IF Construction Materials are not delivered in line with project timescales
THEN Construction team will not be able to complete their tasks in line with project timescales
RESULTING IN Project will miss it’s agreed deadlines
Defining risk – Impact
Once the risk statement is firm and agreed within the project team the impact (Risk Score) can be articulated. Using three point estimating (worst case, most likely, best case) to define probability and impact (cost, time or quality) you can determine the impact. I would simply ask the team for their estimates and go with the average for the three point estimates.
If you have agree milestones (Payments, liabilities etc) you can use these for the impact.
The probability multiplied by the impact will give you the risk score. It can take it further and RAG (Red, Amber and Green) the score accordingly in line with your business risk appetite. Again I would suggest coming up with an agreed scale to ensure consistency across the business.
Risk Mitigation
Risk mitigation is either to reduce the probability or impact of the risk or eliminate completely, through a set of actions. Which could incur a cost, monetary or time.
Our friend the construction risk could be mitigiated by ensuring the suppliers are aware of the timetable, but also the implications of late delivery. They would also need to be updated with any changes to the schedule.
It could be further mitigated by receiving early deliver of supplies, but storing locally. Which would incur a storage cost, but this cost could be less than the impact of the risk materialising.
Alternatively you could pass the risk to the suppliers, by ensuring there are penalties for late delivery or they are liable for any losses incurred for late delivery.
Passing ownership of the risk is always the preference as there is no exposure to the business or project.
Risks becoming issues
If a risk materializes, then it’s known as an issue – something that immediately impacts the project. As part of the risk mitigation a fallback plan should have been identified that seeks to reduce the impact.
In our example of late delivered materials, one fallback could be to work on another area of the project, or to seek the supplies from another supplier.
Summary
Risks are a part of every project whether you like or not.
Risks are mitigated as part of project activities anyway, regardless of whether there is any formal risk management occurring. For small projects you can get away without active risk management, for medium to large or complex projects risk management is a must.
It’s easy to plan for the things that you need to do, but actually you need to watch out for the things that you haven’t planned for.
iamitpm 