Risk Planning for Project Management

Risk Planning for Project Management
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  • 0:04 Definition of a Risk…
  • 1:47 The Types of Risk
  • 2:25 Risk Planning Steps
  • 5:33 Lesson Summary
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Lesson Transcript
Instructor: Shauna Cox

Shauna has over 15 years college teaching experience and has a master's degree in Business Administration and a master's degree in Urban Planning and Policy.

In this lesson, we will learn about risk planning as a critical component of project management. The lesson covers various types of risks, the steps in the risk planning process and the role risk management plays in projects.

Definition of a Risk Management Plan

Melba Motions is a personal trainer whose mission is to make exercise fun, fashionable and fabulous. Melba has created a new line of workout accessories and fitness wear. To launch her line, she decides to have a large, public, outdoor launch party that includes a fashion show.

To produce the event, Melba hires a party planner named Patty, who plans an extravagant affair in a great location. On the day of the event, a series of mishaps result in a disastrous launch party. The sound system fails. Models neglect to show up for the fashion show. Worst of all, a major thunderstorm causes the party to end an hour after it starts.

Once Melba recovers from the launch event, she decides to relaunch her line with another event. This time, Melba hires Eva of Excellent Events. After hearing the details of the first launch, Eva determines that a risk management plan was missing from the previous event.

A risk management plan details how uncertainty and potentially unfavorable incidents will be handled in projects. The components of a risk management plan are:

  • Methodology, which defines the approach used to identify, analyze and respond to risks
  • Roles and responsibilities of the people charged with planning and engaging in risk management activities
  • Budget established for responding to each risk
  • Timing throughout the course of the project for risk management activities

The Types of Risk

Projects can be impacted by many risks. There are various types of risks, including technical, financial and external risks. Technical risks are technology-related risks. For example, the failure of the sound system at Melba's first event was a technical risk. Financial risks are associated with a project's funding. A common financial risk is running out of money before project objectives are met. External risks are typically factors that are beyond the control of project participants. The severe weather that affected Melba's first event was an external risk.

Risk Planning Steps

A risk management plan is part of the overall project management plan, which details activities needed to meet project objectives. Developing a risk management plan involves the following steps:

  1. Identifying the risks
  2. Analyzing risks for likelihood and impact
  3. Prioritizing risks
  4. Developing a risk response strategy

Identifying risks is the process of determining the risks that can impact a project. Eva of Excellent Events, Inc. develops a list of risks by reviewing information from the first event and by having a brainstorming session with Melba.

Once risks have been identified, they must be analyzed to determine their likelihood of occurrence and the potential impact on the project. One tool often used to analyze risks is a probability-impact (P-I) matrix, which maps out risks based on the probability the risk will happen and the potential damage it can pose to the project.

Since projects have limited resources, project managers must determine which risks should get the most attention. Prioritizing risks includes ranking them to formulate a plan to address them. Using a P-I matrix, Eva concludes the critical and important risks will need the most attention. Eva will monitor mild risks, but she will not spend much energy addressing them.

The final step in the risk planning process is to develop a strategy to address the high priority risks. There are four categories of risk response strategies. They are avoiding, accepting, transferring or mitigating the risk.

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