We have spoken a lot about project management in the past few blogs. What it is, its phases, what a project manager does, the tools used and so on. As a project proceeds, risk becomes a very important aspect to consider. In case of unmitigated risks, the entire project might fail and the results would be disastrous for the entire organisation as well as the stakeholders involved. Therefore, risk management is one of the core project knowledge areas, an essential and ongoing process which can be described as the methodical process of identification, analysis and response to project risks involving several major phases which are similar to all projects.
Any risk management process, irrespective of the project in question, includes the steps of risk identification, analysis, risk response planning, risk monitoring and control.
Risk analysis has two main categories: Qualitative and Quantitative Risk Analysis.
During Qualitative Risk Analysis, the risks for further action are prioritised by assessing their probability of impacting project development. Under this analysis, we have:
Risk probability and impact assessment: Here, any and every plausible risk is investigated and analysed in relation to its possible effects, which may have either a positive or a negative impact on the project’s overall objectives. Risks are defined by means of an interview, an investigation or a meeting with all related stakeholders to document the identified results.
Impact risk rating matrix: The documented results of risk probability can be described in qualitative terms- very high, high, neutral, low and very low. A matrix is used, which represents risk scales for each of the risks. The matrix documents the risk probability scale between no possibility (0.0 rate) and certainty (1.0 rate), as well as the risk’s impact scale, reflecting the severity of its influence on the project’s objective.
Risk categorization: Risks are grouped by common causes so as to determine the most “exposed” areas of the project and then further help in curbing their effects.
Risk urgency assessment: In some cases, the risk of urgency can be combined with the risk ranking, a method used to evaluate the degree to which data about risks is useful for risk management, generating a final sensitivity rating.
Expert judgement: It is always helpful to have an expert’s opinion. Experts can be individuals with recent experience on similar project cases, or respected and reputed project management officials.
Quantitative Risk Analysis Process as opposed to qualitative analysis, aims to numerically analyse the possibility of every risk and its effect on project objectives, as well as the degree of overall project risk. This procedure uses several techniques and methods such as data collection and representational techniques to determine the probability of achieving project objectives, to quantify the exposure to risks and develop a size and cost assessment schedule. This includes:
Interviewing stakeholders: Here we carry out interviews to gather information and form optimistic (low rating) and pessimistic (high rating) risk scenarios.
Sensitivity analysis: Helps to define which risks have the most potential effect on the project. Generally, this analysis investigates the extent to which the uncertainty of each of the project’s elements influences the examination of the objective when other unclear elements are held at their baseline values and can be represented via a tornado diagram.
Expected monetary values analysis (EMV): Is a statistical method that measures the average outcome when the future includes scenarios that may or may not occur (such as positive values-opportunities, or negative values-risks). These are usually depicted by a Decision Tree Analysis, which is a diagram describing a decision under consideration and the implications of choosing from the available alternatives. This diagram, includes probabilities of risks and the subsequent cost or gain of each logical path.
Modelling and simulation: Is a tool that uses a model that converts the uncertainties into their potential impact on project objectives, generalized to the level of the total project. One might also use the Monte Carlo technique.
Cost risk analysis: For cost estimation analysis traditional project WBS can be used, otherwise, cost estimates can be used as input values, chosen for each iteration incidentally, according to the values probability distribution, in order to define the total cost.
Schedule risk analysis: The Precedence Diagramming Method (PDM) can be used for schedule risk analysis. It is a method of constructing a project network diagram that represents the activities and their connection with arrows to show dependencies. One can use this activity-on-node diagram to check whether the project objective will be completed by a certain date and within the cost estimation.
Expert judgment: Obtaining advice from experts to identify potential cost and schedule effects, evaluate possibilities, interpret data and identify weaknesses and strengths can be of great value.
Risks are a common reality in all projects. One of the biggest challenges faced by a project manager is to successfully identify and mitigate the risks being faced by the project, without getting too overwhelmed by its possible outcomes. This is where software tools like VComply help the project manager by keeping a track on what is being carried out by whom and whether the goals are being met.
Risk management is crucial to a project’s success and should always be high on the priority list.
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