Join Bob McGannon for an in-depth discussion in this video Assessing and prioritizing analyzed risks, part of Project Management Foundations: Risk.
The science of risk management is fairly straightforward. Prioritize your risks by potential impact and manage your most significant project risks. Many project managers do this and believe they're on the right track. And they usually are, most of the time. The problem is stakeholders don't always think scientifically. To effectively manage risks on your projects, you need to consider stakeholder risk sensitivities before you can say your risk analysis is complete.
It's important to remember in any risk analysis that your stakeholders, sponsors, and project team may all tolerate risk differently. In cases where your stakeholders are very sensitive to some types of risk, complete your risk analysis by incorporating that into your risk management. Here are the steps you can take to make sure you and your risk sensitive stakeholders will be aligned when it comes to managing your project risks. First, split your risks into impact type.
Time impacts, scope impacts, and cost impacts. Once you've done this, consider your stakeholders' or sponsors' tolerance for these three types of risk. Second, consider re-prioritizing your risks to ensure the impact type with the lowest stakeholder tolerance gets a high priority. By understanding the sensitivities of your stakeholder and sponsor, and adjusting the way you prioritize things, you'll have an easier time managing risk on your project.
It shouldn't be difficult or time consuming. The addition of stakeholder priorities to your risk analysis simply gives you a final prioritized risk list. The third step in refining your risk analysis is to consider your potential risk treatment actions and their costs against the actual costs the risk would add to your project, and most importantly, the impact to the perception of your stakeholders. A project manager and sponsor rarely have a large fund to mitigate risks.
As a result, you need to decide how to allocate this prudently. If you only have $200,000 of risk treatment funding available to manage risk on your project, you want to have the risks sorted appropriately and allocate the $200,000 to the risks that should be addressed. This should consider the overall financial impact of the risk, the cost of addressing the risk, and the risk tolerance of your sponsor and senior stakeholders. Once you've done this, you are ready to take the fourth and final step to completing your risk analysis.
Share your final prioritized risks with your sponsor. Here are some final tips as you use these steps to finalize your risk analysis. First, risk prioritization involves a lot of judgment calls and estimations. Don't be afraid of going forward without a lot of facts. You rarely have solid facts when it comes to risks. Next, it is important that you communicate your estimates and assumptions and consider those of your sponsor and stakeholders.
Although there is science involved, most good risk analysis exercises involve a healthy dose of art in the form of intuition and frequent communication. Lastly, fault on the side of being inclusive. Involve as many stakeholders as you can. Not only will you produce a better risk analysis product in the event an unexpected risk does become an issue, you won't be alone when answering the "why didn't you think of that" type questions that may be raised by senior leaders.
There are a number of steps to take when identifying and analyzing risks. But engaging in methodical effort is worth it. As risks coming to fruition as issues are likely to seriously impact your project, leading the project team and stakeholders through a practice of diligent risk analysis, you will be well positioned to manage the good and bad ebbs and flows of your project.
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- Incorporating risk management into your project
- Identifying risk
- Categorizing risks
- Performing qualitative and quantitative risk analysis
- Building a risk-response plan
- Deciding when to execute a risk-response plan<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.