What is Project Risk Management? - Definition, Process & Examples

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  • 0:02 What Is Risk Management?
  • 2:15 Why Is Risk Management…
  • 2:47 Steps to Risk Management
  • 5:43 Lesson Summary
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Lesson Transcript
Instructor: Laury Hales

Laury has taught in professional adult education settings for over 10 years and is currently working on a PhD in Organizational Psychology.

In this lesson, we'll explore the definition and elements of risk management within project management, learning ways to ensure your project is successful. We'll study how to identify, assess and reduce risk and how to react to risk as it shows up.

What Is Risk Management?

The annual family reunion is six months away and you've been asked to organize and coordinate the event. This should be easy since you've attended it every year since you were a baby. Find a park, throw some burgers on the grill, and borrow a volleyball net - easy enough, right? However, a week before the event, Grandma Ethel informs you that four of your cousins are vegetarians; you find out the volleyball net ripped at a beach outing; and the park you selected has a 'no dogs' policy. To make matters worse, the day before the big event, the forecast calls for 90% chance of heavy thunderstorms. How did you get here? How could you have avoided this?

Risk management is defined as identifying, assessing, prioritizing, and mitigating risks associated with any undertaking. Whether that undertaking is a family reunion or a multi-billion dollar new construction effort, risk can derail any project if it's not addressed up front. Failure to conduct good risk management can result in delayed completion schedules, budget overages, frustrated team members, and ultimately, project failure.

First, let's define a few key terms. A project is any temporary effort that has a defined goal and definitive start and stop points. A family reunion meets the definition of a project, since its goal is to bring together extended family for a day of fun. Its defined start date is when someone starts planning the event, and its defined stop date is when the event is over.

A risk is an unplanned or uncertain event that can impact a project. If an event won't affect the project, it's not considered a risk. We usually understand risk as negative, but there are actually two types of risks when it comes to projects. We would define a threat as negative risk; however, there is also positive risk, or what we call opportunity. In our family reunion project, vegetarian family members, a ripped volleyball net, a 'no dogs' policy, and thunderstorms are all threats because they weren't taken into consideration and would impact the reunion in a detrimental manner.

Why Is Risk Management Important?

Why worry about risk management? Why not just deal with issues as they arise? First and foremost, a project manager, the person responsible for leading the project from inception to completion, has the responsibility of anticipating and preventing project problems. Second, it's nearly impossible to ensure a project stays on schedule and on budget without risk management. The reality is that there is no such thing as a risk-free project, so it benefits the project team to anticipate and mitigate risks.

Steps to Risk Management

As already noted, risk management consists of identifying, assessing, prioritizing, and mitigating risks. Identifying risks, the first step, is a group task; no single person can identify all risks involved in a particular project. Using the project team and subject matter experts if needed, the team should list the events that could impact the project, such as the events in our family reunion planning project. It is always a good idea to talk to stakeholders (stakeholders are people who have an interest in or are impacted by the project) before beginning risk identification. Many times, risk will be identified simply by talking through the project with stakeholders.

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