Project Management Risk – Three Levels

Dick Billows, PMP

Dick Billows, PMP
Dick’s Books on Amazon

The project management risk process has a bad reputation among executives. Often that reputation is well deserved. Too many project managers get carried away with fancy mathematics, too many meetings and far too much paperwork. The cost and level of effort are out of proportion to the benefits the project receives from the risk management effort. Executives who have seen project managers waste a great deal of time with endless risk meetings and generation of mountains of paperwork often decide they want no risk management.  Many executives won’t support risk management, even on large projects where it is vitally important. They want to get started fast and fight fires as they come up. Project managers face an uphill battle even if there are significant risks that can and should be addressed. Project Risk Management Main Page

Project Management Risk – Firefighting

In the eyes of the executives, firefighting instead of managing risks seems like a more prudent and economical course. It’s easy for people to convince themselves that when a risk event occurs they can quickly muster the resources to fight the fire, put it out and quickly get back to work. This mental model of firefighting is not very realistic. If one of the major risks occurs for which they have no planned response, work on the project comes to a screeching halt. People are pulled off their project work to take part in emergency planning for what to do about the risk and who should do it. Very often the team is simply frozen by the surprise risk event. It may take weeks or months to recover the lost initiative and productivity.

Project Management Risk – Three Levels

There is a middle ground between firefighting and overly elaborate risk management planning and implementation. This middle ground begins with an assessment of the project itself and then scaling the risk management effort to fit the project. You should tailor your risk management to the size of the project so the benefits exceed the cost of the analysis.

Project Management Risk Level 1 – for small projects typically done within an organizational unit. Small projects with small project teams and a relatively limited duration have risk management plans that you can formulate over a lunch with the sponsor and one or two team members. A very quick and subjective process can identify no more than four risks that could substantially reduce the project scope or increase its duration/budget. Then you do a “quick and dirty” qualitative analysis to judge the probability of the risk occurring and the magnitude if it does. You’re not doing any math here. You discuss people’s opinions about how likely and how big a deal the risk is. Finally, you’ll lay out the steps you could take to reduce the likelihood of the more significant risks occurring. Those are the risk responses that you put into the project plan. Your risk managproject management riskement planning is complete. This process lets you show significant benefits for a minimal investment.

Project Management Risk Level 2 – for projects that span organizational departments. That means it has stakeholders from a number of different functional areas or technical specialties. You’ll do a bit more analysis of the probability and magnitude of the impact of the risks, if they occur. You’ll also develop a formal risk response plan.

Project Management Risk Level 3 – for projects that impact the entire organization and possibly external customers. You’ll do quantitative risk analysis to provide data on the probability of a risk occurring and the magnitude if it does. You will most likely gather data on the probability of various risk events occurring. This data may come from project teams’ own experiences. Alternatively the scale of the project may justify hiring consultants who would conduct the data gathering as well rigorous statistical analysis.  But the end result is the probability of the risk occurring and the magnitude of the dollar or duration impact if it does. From those numbers you can calculate the expected value of each risk. This allows you to put a ceiling on the amount you can spend on each of your risk responses. This level of risk management also requires you to develop a formal risk response plan.

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