Risk Management is a vital ingredient to overall project management. Consider: what is it that can push your project over budget, off scope or over schedule? The simple answer is unmanaged risk.

Performing a risk analysis in the initiation phases of a project is important as it provides information on a proposed project’s likelihood of success. If a project has a high number of High or Critical risks, the management may deem the project too risky to proceed with. The same may be true of periodic risk reviews.

Conducting regular risk reviews allows a project manager to plan:

• what will happen in the event of a risk event occurring (risk acceptance);
• to avoid a risk altogether (risk avoidance);
• to delegate handling of the risk to another party (risk transfer); or
• to reduce the impact of the risk (risk mitigation);

By determining the handling of all the risks facing a project, the project manager is effectively building an insurance policy that goes a long way to ensuring the quality, timeliness of delivery and cost effectiveness of a project.

How it works
Before deciding which of the above treatment options to apply to each risk, a risk manager will use two qualitative measures to categorise the risk. He or she will assign a Probability rating and an Impact rating to each risk. Probability and Impact are discussed next.

Using the ratings for Probability and Impact, a risk can be classified as Low, Medium, High or Critical. A risk manager will consider the risk classification when determining which treatment option to take for each risk.

Stay tuned, part 2 of the Risk Mangement Series will look at Risk Probability and Risk Impact.