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Risk
Management
Overview

The risk management process is a systematic and proactive approach to taking control
of projects by understanding or decreasing uncertainties (unknowns). Tailored risk
management can apply to projects with a range of durations from weeks to years and
budgets ranging from a few thousand to millions of dollars.

Risk management involves minimizing the consequences of adverse events as well as

maximizing the results of positive events. Therefore, risks can be good or bad events,
referred to in this book as oppornmities or threats.

It is essential that potential good events (opportunities)

are included in risk management. Such identification
allows the team to take advantage of opportunities Look for tt).e good AND bad
presented by the project. The things that go right things that can happen!
(cheaper parts, an activity completed faster than
scheduled) are what give you an edge over the things
that go wrong.

Risk management is a part of the project management process, and consistently following
that process is important for getting results. It allows you to take control of the project,
rather than letting the project control you. If the early steps of the project management
process are not followed, the benefits of the later steps will not be realized.

The six individual risk management processes are outlined next. They will be described in
detail in the following chapters.

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 ,--- - - - - - - -- - -- - ---------- - -----------.

Risk Management Overview

Plan Risk Management

This process focuses on determining how risk management will be done on the project,
who will be involved, and the procedures to be used.

Identify Risks
In this process, the stakeholders are involved in making a long, comprehensive list of
specific risks (threats and opportunities). This does not mean five items, but hundreds
of items. Risks to the entire project are identJ.fiedl-but risks are also identified at a lower
level-by work package or by activity.

Perform Qualitative Risk Analysis

This process includes subjectively analyzing the risks obtained in the IdentifY Risks
process and deciding which risks warrant a response-creating a "short list." Probability
and impact are determined qualitatively, a choice is made about whether a quanti:tative
evaluation is necessary, and the project risk score and the probability of meeting project
objectives are determined.

Perform Quantitative Risk Analysis

If it is necessary for the project, this process is performed to numerically analyze the
probability and impact of specific risks and the overall risk of the project.

Plan Risk Responses

This process involves determining what can be done to reduce the overall risk of the
project by decreasing the probability and/or impact of the short-listed threats and
increasing the probability and/or impact of opportunities.

Monitor and Control Risks

In this process, the risk response plans are implemented as risks occur throughout the
course of the project. It includes looking for risk triggers, identifying new risks, and
evaluating the effectiveness of risk responses.

Risk Management Is an Iterative Process ,

Risk management is not a one-time-only process. It is repeated throughout the life of
the project. Therefore, risk identification starts in initiating. It is heavily addressed during
project planning and continues during project executing and monitoring and controlling,

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Risk Management Overview

as changes are made or issues are discovered. Each of the individual risk management
processes should be done as completely as possible and then fine-tuned through
iterations.

There are two types of risk:

• Business risk: A risk of a gain or loss (e.g., a product that can lose money or make
money when sold)
• Pure (insurable) risk: Only a risk of loss (e.g., such as a risk of fire)

In any case, a risk is something that is less th;n 100 percent certain-if it is a fact, it is not
a risk! Risk management involves determining the following risk factors:
• Probability: The likelihood that a risk (threat or opportunity) will occur
• Impact (consequence); The effect on the project if the risk (threat or opportunity)
occurs
• Expected timing: When during the life of the project the risk (threat or opportunity)
might occur
• Frequency of the event: How many times the risk (threat or opportunity) might
occur during the life of the project

Risks are identified early in the project, but most do not impact the project until later
(see the fo llowing diagram). Therefore, the risk management process helps prevent future
problems from occurring.

,
The following chart shows the entire risk management process that is described in this
book. Use this chart to help make sure you understand how each part of the process fits
together.

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 Risk Management Overview

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..........

Risk Management Overview

Chapter Summary

Key Copcepts
• Risk management is a systematic approach with a process that must be followed in
order to gain results.
• Risk management should be used on .all projects.
• Risk management is an iterative process that recurs throughout the life of the project.
• A risk can be a threat or an opportunity.
• A fact is not a risk.

Key Terms
• Risk management process • Perform Qyantitative Risk Analysis
process
• Uncertainties
• Plan Risk Responses process
• Risks
• Monitor and Control Risks process
• Threats
• Iterative
• Opportunities
• Business risk
• Plan Risk 1\1anagement process
• Pure (insurable) risk
• Identify Risks process
• Risk factors
• Perform Qyalitative Risk Analysis
process • Probability

• Impact

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· ___._._'=___ .m"."____ 'e ' l " Be iJ2M¥p'E"+=

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Risk Management Overview

Matching Game: Overview

Instructions: Match the risk management key word to its definition.

Key JllJrd
1. Risk management process 10. Plan Risk Responses process

2. Uncertainties 11. Monitor and Control Risks

process
3. Risks
12. Iterative
4 . Threats
13. Business risk
5. Opportunities
14. Pure (insurable) risk
6. Plan Risk Management process
15. Risk factors
7. Identify Risks process 16. Probability
8. Perfonn Qyalitative Risk A nalysis 17. Impact
process

9. Perform Qyantitative Risk

Analysis process

Definition
A. Repeated throughout the life of the project E. Numerically analyzing the .risks obtained in
the Identify Risks process and analyzing the
8. A systematic and proactive approach to extent of overall project risk
taking control of projects by understanding
or decreasing the uncertainties F. Determining how risk management will be
done on the project, who will be involved,
C. Determining specific risks by project and by and procedures to pe used
activity
G. A risk of a gain or loss
D. Unknowns

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Risk Management Overview

Matching Game: Overview

H. Implementing the risk response plans l. Possible events that may positively or
as risks occur, looking for risk triggers, negatively impact a project
identifying new risks, and evaluating the
effectiveness of risk responses M. The likelihood that a risk (threat or
opportunity) will occur
I. Possible events that may pOSitively impact II
~ N. A risk ofloss
project

J. Determining what can be done to reduce o. Probability, impact, expected timing,

the overall risk of the project by decreasing frequency of the event
the probability and impact of the threats
and increasing the probability and impact of P. The effect on the activity or the project if the
opportunities risk (threat or opportunity) occurs

K. Subjectively analyzing the risks obtained Q. Possible events that may negatively impact a
in the Identify Risks process and deciding project
which risks warrant a response; creating a
"short list" of risks

Answer Key

l. B 10. J
2. D 1l. H
3. L 12. A
4. Q 13. e
5. I 14. N
6. F 15. 0
7. C 16. M
8. K 17. P
9. E

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Risk Management Overview

Questions for Discussion

1. How do you currendy manage risks on your real-world projects?

2. Why is following a process so important for achieving successful results?

3, Why should risk management include an analysis of things that could go right in
addition to things that can go wrong?'

4. Why should a company require that any risk that is 80 percent or more probable be
considered a fact and included as a constraint in the project management plan?

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