Risk Management Plan: Selling It To Executives

Dick Billows, PMP
Dick Billows, PMP
CEO 4pm.com

Regardless of its size,  you always have to sell the benefits of the risk management plan to the sponsor and stakeholders. But they’ll often be hostile.  That’s because they aren’t convinced that spending money on risk management improves the odds of finishing on time and within budget.  They may see risk management as a waste of time and money. Risk Management Main Page

You should never start your risk management presentation by boring your audience with the list of 63 negative risks that could adversely affect the project and 27 positive risks that could let you finish earlier and spend less money. You also shouldn’t present the results of your qualitative or quantitative risk analysis; no matter how proud you are of them.  That type of presentation will only convince your audience that you have wasted both time and money.

Risk Management Plan Presentation: How To Do It

In the first 60 seconds of your presentation, you should acquaint your audience with one or two significant risks and the impact those risks could have on the project. Let’s take a simple project and see how you might start the presentation.

“Good afternoon. I’m here to talk with you about our supply room project. The goal is to reduce the number of complaints from our employees. Last year, we averaged 53 complaints per month. Our goal is to reduce it to less than 3 per month. The major deliverables that will lead to achieving that goal are:

First, that 95% of the time employees can find the supplies they need in less than 60 seconds.

And second, that fewer than 3 items each month are out of stock.risk management plan presentation

We see two problems that could make it difficult or impossible for us to deliver that goal. The first problem is that the people who stock the supply room will not use the new, more efficient design which we will produce during the course of the project. We need an incentive so they don’t return to their old habits and recreate the same mess we have today. To avoid that problem, we would like to add a performance criteria to their job descriptions and annual performance reviews. It will require people to maintain the supply room design by restocking supplies in the specified locations.

The second problem is that employees will not know where to look for the supplies they need. If that happens, the complaints about the new design may be higher than the current complaint rate. To avoid that problem, our design will place the most frequently needed supplies (those that account for 80% of the withdrawals) near the supply room entry. We will also print and distribute a supply room crib sheet and map to all employees. We will also have a large-scale copy of the crib sheet and map on the supply room door.

If you approve this risk management plan, I believe we can completely avoid both problems.”

Taking this simple and direct approach to presenting your risk management plan is almost always more successful than a presentation that drowns your audience in data or complex statistics. Instead of all the numbers, you discuss the problems, the consequences and your remedy. Plus you do it in just a few minutes.

If you want to enhance your presentation skills, consider our online Presentation and Negotiation Skills course.  You work individually with your instructor at your pace. They’ll coach you with techniques for improving the content and media of your presentations as well as your speech and body language.

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Large Project Planning Techniques

When your success as a project manager leads to larger assignments, you should learn and be ready to use these Large Project Planning Techniques.  Planning larger projects requires different techniques than those that are successful fro small projects . When you started your career in project management, the projects were small and planning was relatively easy. So even poor techniques worked. Often the project sponsor was your immediate supervisor and you had frequent conversations about the project’s business result and deliverables. There was only one person to satisfy and the whole team worked for the same boss. All of you received your priorities from the same person. There were no conflicting goals or priorities. These factors contribute to the high success rate on small projects, even if the planning process is weak. Project Planning Main Page

Dick Billows, PMP
Dick Billows, PMP
CEO 4pm.com

When you move up in the project management ranks, however, planning large project gets more difficult and the consequences are more serious.  Now you must know how to use Large Project Planning Techniques. If you try to use your old small project planning techniques on larger more complex projects, management will quickly send you back to the minor leagues.

Large Project Planning Techniques are Different

On larger projects, the sponsor may not be your immediate supervisor. You may be doing the project for an executive with whom you haven’t worked before. In addition, there may be other executives involved whose career success depends on your project.  These stakeholders will have goals that differ from the sponsor and the other executives. In fact, your project planning effort may even take place in the midst of turf wars between functional areas or divisions of the company. People may try to use the project and its deliverables as part of their political battle.  Worst of all, there may be strong pressure to begin planning and even start work without the decisions about scope and deliverables locked down.  That approach is easier for the executives than trying to reach agreement on priorities. It also allows them to get the project started without making any commitments about exactly what they want it to deliver.

However, the project team is the biggest difference between large projects and the small ones you’ve been managing. On small projects, all or most of the team worked for the same boss. On larger projects, you will be borrowing people from other functional departments. Their priorities and your priorities are often starkly different. Additionally, many functional departments loaning people to your project team are really putting an observer on your team to “represent” their department’s interests. These borrowed resources can be a real management challenge. Their managers often pull them off your project whenever they need them for something in their home department. All of those threats may be new to you.  Learning how to handle them is required for your continued project management success.

Large Project Planning Technique #1 – Define the Scope and Deliverables

There is a strict rule on larger projects that most PMs learn by suffering the consequences of ignoring it. That is Never skip defining the scope and major deliverables.” That’s true even if the sponsor or stakeholders spout these phrases:

  • “We’ll plan as we go”
  • “Let’s make an exception on this project and start work without a plan”
  • “You know what you’re doing.  We trust you to do it right.”

Ignore all that stuff!  You are committing professional suicide if you proceed with setting a completion date and/or budget without objective measures of success. Those measures are the agreed upon acceptance criteria in the project scope. All those greasy executive promises will go up in smoke if you don’t deliver what they want.  Remember, without a scope they’ve sign off on, it will be impossible to give them what they want because you don’t know what they.

Large Project Planning Technique #2 – Define the Acceptance Criteria

Next you must secure the sponsor’s and major stakeholders’ written approval of a measurable scope with acceptance criteria. The acceptance criteria define success for the project as a whole and all the major deliverables. Here’s an example. You can’t just start work on the “World-class Customer Service” project. That doesn’t define success criteria for the project. The sponsor and executives must approve (in writing) the success/acceptance criteria for the project scope.  What you want is an acceptance criterion like, “Resolve 90% of customers’ issues on their first phone call.” That is objectively measurable. It also tells you what end result is good enough.

How do you get the executives to tell you the acceptance criteria? You have to ask them questions about the end result the project should produce. Often executives have not talked about that end result. In this example, they are reacting to the need to do something about the customer service problem. Therefore, you need to ask leading questions about what they want to see from the project. You don’t want to discuss how to get there. You want to ask questions like, “Six months after this project is done, how will our customers’ experience be different?” If you have some of the data you might say, “Now our customers have to wait on hold for 30 seconds and 60% of them have to call back a second time about the same problem. How will that be different six months after this project is over?” This last question is a particularly good one because when the executives answer it, they will answer with data. If they say that 30 seconds is too long on hold, asked them what the hold time should be.large project planning techniques

That Large Project Planning Technique is the way you get objectively measurable acceptance criteria. Once you get those acceptance criteria, they become the foundation for your planning and change control. The executives can certainly change those criteria whenever they wish. However, changes to higher results like “resolving 98% of the customers’ issues on their first phone call” will increase both the cost and duration of the project. This method of defining the scope will be your life preserver as you navigate the tricky political currents of larger projects. This measurable scope definition will also allow you to avoid change control battles. If you can’t clearly identify what is and what is not a change to the original scope of the project, you will have new features added every week without any increases in the project’s budget or duration. Moreover, you’ll be blamed when the project is late and over budget.

That’s why a Large Project Planning best practice is to have objectively measurable acceptance criteria for the scope, the project’s major deliverables and every task you will assign to a team member. Then everybody knows what to expect. Accomplishing this is exceedingly difficult. Executives have to commit to exactly what they want. Moreover, you need to stick to your guns on the definition of these deliverables. When they insist that you start work before they define the scope, you give reasonable answers like, “How can I possibly start work when I don’t know what you want from the project? That would be like you sending me to the grocery store with money bit not telling me what you want me to bring back.” You might also say, “If this customer service project is important to the company, we really need to define what we mean by good customer service. Otherwise we’re going to waste a lot of money and time and probably produce nothing of value for the organization.” You can move on only when you have objectively measurable acceptance criteria for the scope of the project.

Large Project Planning Technique #3 – Define the High-level Deliverables

Next you must subdivide the objectively measurable scope into 4 to 7 high-level deliverables. These deliverables will lead you from where you are now to the end result, the project scope. This is also a critical step. From the first moment on the project, you will be under pressure to commit to a completion date and budget. As you work on defining the scope and high-level deliverables, you must refuse to make any kind of commitment or even discuss the cost and completion date. Instead, you should say, “I can’t possibly tell you how long it will take or how much it will cost until I know precisely and exactly what you want. Then I can estimate how much work it will take to produce it. Next, I will need to know what resources I have to do that work. When I have that information I can give you a reasonable commitment on completion date and budget.” When you have a network or hierarchy of deliverables with defined acceptance criteria, you can move onto the next step.

Large Project Planning Technique #4 – Develop Two Sets of Commitments

First, you need commitments from department and division heads about the team members who will work on your project and how much of their time the project will “own.” The second set of commitments is from the team members themselves. They must estimate how much work is required to produce the deliverables you assigned to them. Only after you have these two sets of commitments can you create a project schedule and calculate the budget based on the hourly rates of your project team members.

Large Project Planning Technique #4 – Develop a Change Management Process

The final Large Project Planning Technique is to enforce the principle that all changes to the project deliverables, schedule or budget, have a cost. There are no “free” changes. Every change has a trade-off. It isn’t possible to cut the project duration without any consequence to the project deliverables, schedule or costs. For example, the trade-off for finishing a week early might be an increase in the budget of $5,000 to pay for the required overtime.

Large Project Planning Techniques are Unique

These Large Project Planning Techniques are certainly different from techniques for managing small projects.  However, when you leave the warm cozy world of managing small projects in your home department, you need to follow a very specific sequence of steps to handle the challenges of larger projects. You need to operate like a consultant who is managing a project for a client. You must adopt a different way of dealing with the sponsor and stakeholders. You have to become comfortable with “pushing back” and insisting on doing projects the correct way. You also need to avoid giving the executives any commitments about the project cost and duration before you complete the planning steps correctly. You can’t allow executives to get away with a vague project scope just because it’s politically easier for them. It will lead to project failure and they will blame you.

More information on the lean project methodology

You can learn how to use these Project Planning Technique in our online advanced project management courses.

Risk Strategy – Video

Here is how to plan a Risk Strategy for your project. You have gone through the risk identification process and you have done qualitative analysis of those risks. You may have also done quantitative analysis on a few major risks. Now you have your data on the probability of each risk occurring and the magnitude of the impact (on duration and/or cost) if it does happen. Risk Management Main Page

Dick Billows, PMP
Dick Billows, PMP
CEO 4pm.com
Dick’s Books on Amazon

Let’s look at some examples. Say that each project has two risks:

  • Risk A is that turnover among the project engineers will exceed 15% year.
  • Risk B is that serious flooding during the spring will require the project team to relocate.

If you’re planning your Risk Strategy based on qualitative data, you have asked your team to subjectively evaluate the probability and magnitude of each risk. It will be in the form of:

  • Risk #A has a high probability of occurring and a high impact on the project if it does occur.
  • Risk #B has a low probability of occurring and a medium impact on the project if it does occur.

If you’re quantifying the probability and impact, you will have gathered data from historical records or experiments and will be able to summarize it like this:

  • Risk #A has a 14% probability of occurring and a $20,000 impact if it does The expected value of the risk is $2,800 (.14 x $20,000).
  • Risk #B has a 5% probability of occurring and a $1,000 impact if it does. The expected value of the risk is $50 (.05 x $1,000).

The quantitative risk analysis in your Risk Strategy is more usable than the qualitative analysis.  It also costs a great deal more to develop. The numbers are particularly useful because they allow you to calculate the expected value of the risk. That expected value, which you get by multiplying the probability times the magnitude of the impact, puts a ceiling on what you can spend to completely avoid the risk. You don’t have this information when you limit yourself to qualitative analysis. But you need to plan your Risk Strategy regardless of the limitations of your information.  Small Project Risk Management

Risk Strategy: What Risk(s) to Focus On

Risk Management: Risk Response Plan

You, the sponsor and stakeholders might decide to focus your Risk Strategy on risk #A – engineer turnover. You would accept risk #B – relocation due to flooding – because its probability and magnitude are small, based on both the qualitative and quantitative data. That means you will not plan any specific risk mitigation, avoidance or transfer to avoid the risk’s effect. You won’t spend any money trying to avoid or mitigate the risk. However, your Risk Strategy will include a contingency plan for this accepted risk. That plan will detail how to respond to the flooding risk if it occurs. The contingency plan might focus on identifying two available office locations that are nearby.

Then you would focus your attention on the more significant risk. Because risk #A – engineer turnover – is a negative risk you can use three Risk Strategies, individually or in combination.

  1. Avoid the risk. This Risk Strategy requires you to alter the project plan to completely eliminate the source of risks. In this example, you might purchase the deliverable “off-the-shelf” so you don’t have to develop it yourself. So engineer turnover would not harm the project.
  2. Transfer the risk. This Risk Strategy is similar to buying insurance for the risk. If you were concerned about a tornado, you might buy tornado insurance. For the engineer turnover risk, you might contract with an engineering consulting firm to provide the hours of engineer work you require.
  3. Mitigate the risk. This Risk Strategy requires you to reduce the probability of the risk occurring and/or the magnitude of the risk if it does occur. These mitigation actions usually require you to spend money and the limitation is the expected value of the risk you calculated above. One mitigation might be to raise the salaries of your engineers to reduce the probability of their being hired by another firm. You might also hire two additional engineers which would lower the impact of turnover because you would have the extra staff immediately available. You often can’t completely eliminate the risk with mitigation. You merely reduce the probability and/or the magnitude of its impact. You have a remaining part of the risk that you have to accept and for which you would develop a contingency plan.

Risk Strategy: Involve the Teamrisk strategy

Remember that the expected value of that risk of turnover among the project engineers is $2,800. That means you can’t spend more than that amount, even if you eliminate the risk entirely. That is the spending ceiling on the risk response. You would gather the risk management team together and ask for ideas that would reduce the project engineer turnover to 15% or less.

One team member might suggest that all the engineers working on the project receive a $200 bonus if they stay until the project is completed. With 14 engineers, there would be sufficient money to pay that bonus amount but then you would need to completely eliminate turnover above 15%. A number of members of the team might raise an objection. They say that engineers who are offered a substantial pay increase by another firm would not stay on the project for as little as $200. They also suggest that if other members of the project team didn’t receive a similar bonus it might create even larger morale problems. You would for other ideas for holding down turnover. A team member could suggest hiring additional engineers for the project team. This would give you the capacity to absorb turnover above 15%.

A few minutes of Risk Strategy, even on a small project, delivers a good return in proportion to the cost.

Risk Strategy: A 3-Tier Response Approach 

Project managers often skip the Risk Strategy process because the sponsor wants them to start quickly without wasting time on “useless paperwork” like risk management. This dooms you to non-stop fire fighting for the life of the project. We use a 3-tier Risk Strategy approach for projects of different scale and importance. On even a small project, you can do a simple risk assessment, investing as little as an hour and possibly saving days of lost time. That’s why we recommend using a 3 tiered Risk Strategy so you can match them to the scale and significance of the project. Here are definitions of the tiers:

  • Tier 1 – A project done within a department or small company where the PM and team all report to the project sponsor.
  • Tier 2 – A cross-functional project which affects multiple departments in the same organization.
  • Tier 3 – A strategic initiative or consulting engagement that includes both technical expertise and project management services for an outside client or customer.

Risk Strategy: Risk Management Template

Here are 5 risk management steps that lead to your Risk Strategy planning:

  • Identify the risks that threaten delivering the scope on time
  • Qualitatively assess the probability of the risk occurring
  • Qualitatively assess the magnitude of the impact if the risk occurs
  • Select the most significant risks
  • Plan how to avoid them or minimize the damage if we can’t avoid them.

In risk identification, you are simply harvesting as many risks as you can without making judgments about their significance. When you have the list of risks, you’re ready to begin qualitative risk analysis. That’s where you focus on evaluating the significance of each risk using relatively quick and inexpensive techniques. Specifically, you are assessing the likelihood a risk will occur and the impact (cost and time) if it does occur. You use these assessments to prioritize our risks in terms of their significance.

Risk Strategy: Three Situations

Tier 1 – In-department Project Risk Situation

  • The PM and two team members spend 30 minutes on risk identification with a limit of 7 risks in two risk categories that threaten project success.
  • The PM and two team members spend 30 minutes on qualitative/subjective risk analysis. This is the only support for the risk response plan because the project’s scale does not support the cost or time for quantitative analysis. The two members of the team and the project sponsor will subjectively set the impact and likelihood values for risk and impact analysis.
  • The PM and sponsor will agree on the risk response plan in 30 minutes.

Let’s look in on how the process would work. For an in-department project, risk identification and qualitative analysis is all we’ll do before planning our risk responses.

The PM and the two team members take a short lunch and talk about the risk events that could cause them to fail to deliver the project scope. Then they discuss events that would affect finishing the project on time. They return with a list of 7 risks to consider. Six are negative risk events. The last is a positive risk event that would let them finish a week early.

After they’ve completed the risk identification, the PM and the two members of the team go to the PM’s cubicle. The PM smiles at them and says, “We’re 1/3 done. Now let’s spend about 30 minutes analyzing the risks we identified.

risk strategy1

Here’s a form we’ll use to get everyone’s assessment of the risks we face on the project. We want to describe each risk in terms of two separate dimensions; 1.) the probability or likelihood of the risk event occurring and 2.) the impact it will have on the project if it occurs. We’ll use a simple scale with three choices for probability and for impact:

  • low – meaning very unlikely to occur or a small impact
  • high – meaning very likely to occur or a large impact and
  • medium – between those two extremes.”

Following the risk assessment, the project manager charts the results, asks the boss to join them, and displays the simple grid for the group.

Risk Strategy Template

The PM says, “We all seem to agree that while we have several risks, only one risk has both a high probability and a high magnitude and that’s the risk of customers not using the new procedure.”
The boss says, “I thought this risk stuff was going to be a waste of time, but I’m already thinking of things we can do to educate the customers about the new procedures. That is one problem I would not want to hear about at the end of the project.”
Following the boss’ comments, the group begins to assemble a strategy. First, they discuss possibilities for changing the project plan in a way that allows them to completely avoid this risk. But it doesn’t take long before they realize there’s no way to avoid the customers having to learn the new trouble ticket procedures. They also briefly discuss being able to transfer this risk to another party and “buy insurance” to avoid the consequences. The boss brings that discussion to an end by telling them no training firm would undertake responsibility without charging them tens of thousands of dollars.

With limited strategies for avoiding and transferring the risk, the group focuses on mitigation. One mitigation that everyone likes is distributing professionally designed instruction manuals for the customer. That includes a laminated one page crib sheet to help them easily follow the new procedure. The boss agrees that wouldn’t cost very much and welcomes the idea of adding that mitigation to the project plan. They spend a few more minutes discussing other options including writing profiles of customers who did well with the new procedure and including it in the company magazine. No one likes that idea so they stick with the customer instruction manual mitigation idea. That brings their risk response planning to an end.

Tier 2 – Cross-functional Project Risk Situation

  • The risk management plan calls for using qualitative risk assessment as a screening tool for quantitative analysis.
  • The PM anticipates that they will analyze 12 or more risks in an intensive quantitative analysis.
  • Three committees will perform qualitative analysis. Each one is focusing on a particular category of risk within the categories supplied by the organization.
  • The sponsor will decide which risks go to quantitative analysis.

The cross-functional project manager distributes the qualitative risk assessment form to each of the three risk committees to use in assessing the project’s risks. The team members are quite familiar with estimating probabilities and magnitudes so the project manager uses a 1-10 scale for the estimates. The first page of one committee’s form looks like this:

risk strategy2

Then the project manager gives the committee leaders their instructions, “Each person will make an independent judgment about the probability of each risk event occurring and the impact on the project if it does. We’ll use a 1 to 10 scale for each assessment. So if a risk event is very likely to occur you should give it a 9 or even a 10. For a risk event that is very unlikely, give it a score of 1 or 2. We will do the same thing on the impact. When you come to that decision, forget the probability of the risk event occurring. Simply assess how big an impact it will have if it occurs. If its impact will bury the project and do us irreparable harm, you should score it a 10. If a risk event has minimal impact on the project, give it a 1 or 2.”

One of the team members says, “Aren’t we going to discuss each risk first?”

The project manager answers, “No. I think it’s best if each person gives their assessment without being influenced by the others. Remember that we have people whose immediate superior is on the same committee. If people reveal their opinions before we each score the risks, the manager’s opinion may count for too much. Let’s have everyone make a judgment without knowing what the managers think. We may get better information with independent judgments and avoid some of the politics. For that same reason, we’ll keep the ballots anonymous; you’ll notice there is no place to fill in a name.”

A few days later, the project manager gathers the completed forms from the committees and tabulates the data into a spreadsheet designed for this purpose. The result is a table of data values and a graph for each of the committees.

The cross-functional project manager takes the committees’ data and recommendations to the risk management committee which is made up of the sponsor and an executive vice president. The project manager selects one or two risks from each committee’s qualitative analysis and recommends quantitative analysis.

Three of the risks have probabilities and impacts above eight so the committee decides that all three warrant quantitative analysis. They are particularly concerned about the risk of customers not using the new trouble ticket procedure. They ask the project manager exactly what they will get from this quantitative analysis.

The project manager says, “We will start with an influence diagram that we developed during risk identification. Then we’ll gather some opinions from industry experts and build a decision network to analyze where we can have our biggest influence in avoiding that risk.” On this larger and more significant tier #2, cross-functional project, the decision-making about risk response strategies can be much more extensive. It can also involve substantially larger costs than the tier #1, in-department project.

Tier 3 – Strategic/Consulting Project Risk Situation

  • A committee of executives will make final risk decisions based on detail work developed by risk committees focusing on special categories of risks.
  • The size of the project budget and its strategic significance for the client warrant elaborate quantitative analysis, which has been included in the risk-management plan.
  • The budget for quantitative risk analysis includes funds to pay experts’ fees and for research and data gathering. Presenting Your Risk Plan

The project manager presents the qualitative risk analysis information to the client’s management. Because these executives are familiar with making decisions based on data, the PM consultant includes qualitative measures of probability and impact and as well as data precision value. One of the executives asks, “What is the significance of that data precision score? Didn’t our people do a good job in the risk assessment?”

risk strategy3

The consulting project manager answers, “No, that’s not the case at all. That data precision score is reflective of the accuracy and validity of the data we have about each of the risks. It reflects our understanding of the risk, the amount of information we have available about it and the reliability and integrity of that data. The score is based on my firm’s collective experience with projects of this type. As you can see, there are a number of risks about which we know a great deal. As an example, the quality of the data we have about the third risk on the list is quite good. We have very reliable data from the company’s own quality control and quality assurance processes and I have given that risk a data precision score of 80 to reflect the quality of that data. On the other hand, the risk we are most concerned about is that the customers will not utilize the new trouble ticket procedure. I’ve given that a low data precision score because your organization has very little information. What we have is about other segments and is of questionable reliability. We are concerned about the risk because of its high probability and high magnitude. But frankly, the absence of good data is equally important. For that reason, I’m going to suggest we do a Monte Carlo simulation so we can more accurately assess the impact of that risk on the project’s overall duration and budget.”

The client executives accept the consulting PM’s recommendations and the list of prioritized risks. They authorize the project team to move on to quantitative risk analysis. For this very large strategic initiative level project, the quantitative analysis process can easily take months and include substantial and expensive data-gathering efforts. They will provide a better assessment of customer behavior and how it could be changed. From that data-gathering phase, the decision-makers will have sophisticated simulation information which would trigger the brainstorming process of the Risk Strategy.


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Risk Management Plan – Video

Dick Billows, PMP
Dick Billows, PMP
CEO 4pm.com
Dick’s Books on Amazon

Successful project managers always have a Risk Management Plan to avoid fires on their projects. That’s much better than putting out the flames after they have ignited.  These PMs don’t need “all-hands” emergency meetings when something unexpected happens. They don’t need to bring all project work to a halt and give people new tasks to respond to a crisis.  Instead, at the beginning of a project they design a Risk Management Plan that includes risk identification, risk analysis, risk strategy and risk response planning. They identify the most likely risks that will significantly impact the project and they plan for dealing with them. Then there is no emergency. There is no frantic reassignment of duties. The project team simply executes the Risk Management Plan they developed months before. Risk Management Main Page

Project managers who skip the Risk Management Plan do so because the sponsor wants them to start work quickly without “wasting time” on things like risk management. This will probably doom the PM to fighting fires for the rest of the project. Even on a small project, you can undertake a simple risk assessment process. By investing as little as an hour at the beginning of the project, you’ll possibly save dozens of hours later. You can use the project risk management steps below with your team and/or stakeholders.

Risk Management Plan in Theory

The Risk Management Plan is a concept with a very sound foundation. It’s proven that the cost of responding to unanticipated problems is always much higher and more disruptive than the cost of implementing risk strategies that you planned in advance. Further, if you keep the scale and cost of your risk management efforts in proportion to the scale of the project and the risks you are avoiding, a risk management more than pays for itself.

Risk Management Plan in Practice

Project managers routinely feel a great deal of pressure to start work on a project quickly since many executives think a Risk Management Plan is simply bureaucratic paper shuffling processes with no real-world pay off. There is some truth to that assumption, particularly in bureaucratic organizations where any activity like risk management is an opportunity for more papers, more procedures and endless meetings. In addition, there is the fantasy that good project managers are good firefighters so spending time and money on risk management is a waste of both. When bad risks flare up; you just fight the fires.  Project Risk Management

Risk Management: Risk Identification

Risk Management Plan for Three Different Sized Projects

Small Project Plans- Done within your organization for one manager or your boss.
Medium Project Plans- Affects multiple departments within your organization or done for customers/clients.
Strategic Project Plans- Affects the entire organization or its customers and has long term effects.

Risk Management Plan #1: Risk Assessment

Small Project Plans- You may limit the entire risk management effort to 30-60 minutes. The tasks are to identify risks and plan risk responses for 2-3 major risks.
Medium Project Plans- You would add qualitative risk analysis on 10 to 20 significant risks. Perhaps you would do quantitative risk analysis on the 2 to 3 biggest risks. The aim of the risk analyses is to develop cost data as justification for your risk responses.
Strategic Project Plans- The scale of the project and the consequences of failure justify an extensive Risk Management Plan. Spending several weeks and over $10,000 on risk analysis is routine. It is normal to hire outside experts to assess the risks quantitatively.

Risk Management Plan #2: Identify Risks

Small Project Plans- Risk identification could be done over coffee with the sponsor and a few key stakeholders identifying key threats and opportunities. Remember that not all risks are bad.
Medium Project Plans- Risk identification is usually broken up by major project deliverables with separate groups working through the identification process for each. The project manager provides each group with the risk categories they should address.
Strategic Project Plans- The project scale justifies the use of multiple teams with each assigned one or more categories of risk. These are grouped by risk type (regulatory, competitive, technological, etc.) or the risks associated with a specific deliverable (facility construction, systems development, personnel etc.).

Risk Management Plan #3: Qualitative Risk Analysis

Small Project Plans- None
Medium Project Plans- Use qualitative analysis for all risks.
Strategic Project Plans- Use qualitative analysis as a screening and prioritizing tool to identify risks with large expected value and to justify more expensive quantitative analysis.

Risk Management Plan #4: Quantitative Risk Analysis

Small Project Plans- None
Medium Project Plans- Only for very significant risks or opportunities.
Strategic Project Plans- Used to justify risk responses that cost a great deal of time or money.

Risk Management Plan #5: Risk Response Plan

Small Project Plans- Short statement of how you will respond to each risk if it occurs.
Medium Project Plans & Strategic Project Plans- More detailed set of risk responses using one or more of the following strategies: avoidance, mitigation, transference or acceptance with a contingency plan. You may combine all four of these risk reduction strategies in sophisticated responses. You will implement careful monitoring of the project using risk triggers for early warning.  Risk Strategy

Risk Management Plan & “Best Practices” In the Real World

A slow education process regarding the Risk Management Plan works best with executives. Savvy project managers make a case for doing a limited amount of risk management by using examples from previous projects where they could have avoided delays and cost overruns with some risk management. Wise executives respond well to those examples, particularly seeing data from previous projects. Even the most skeptical sponsor will usually listen to arguments about the risks’ damage to project completion dates and budgets.

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