Effective Risk Management Strategies

Written By:  Mark A. Frasher; May 29, 2017

Implementing an effective risk management strategy can be a difficult task for any program or project manager.  We live in a world of uncertainty and our projects are not immune.  No matter how hard you try to stop it, Murphy's Law - what can happen will - seems to be lurking around the corner.

No matter how big or how small our projects are, there is risk.  The effects of risk that are actualized can be fatal to an organization or the business as a whole.  This is why having an effective risk management strategy is so important.  Not planning for risk is tantamount to playing Russian Roulette with your projects.  So what steps exactly does one take when confronting risk in their project?

Think of risk management as troubleshooting, problem solving, or decision making in the future.  Many of our complex business problems, including projects, are solved using fundamental decision making techniques.  Solving the problem for risk can be done using similar methods.  

For example, statisticians use the following methodology for decision making:

  1. Define the problem.
  2. List possible alternatives.
  3. Identify possible outcomes.
  4. List the payoff of each combination of alternatives and outcomes.
  5. Select a mathematical theory model to solve the problem.
  6. Apply the model and make the decision.

Obviously, for project management purposes, you won’t be using complex statistical models to solve your risk management problems (although you might in some cases).  But if this methodology is followed it provides a foundation for identification, and planning of risk and the appropriate, effective risk management strategy.

In many project management texts, there are specific steps that can be made to solve the risk management puzzle.  Following is a common methodology specifically designed to help you prepare and mitigate project risk:

  • Identify the possible risk:  This includes identifying all factors that threaten (positively or negatively) project objectives.  It is important to understand that a realistic approach must be taken to identify risks that have real potential to affect the project objectives.
  • Analyze and prioritize:  Each risk will affect the project in a different way.  Each risk will affect the project to a different, varying degree of severity.  Each risk will have a different likelihood of occurring.  The project manager’s job is to identify and assess the risk to understand their impact and likelihood of occurring.
  • Develop a response:  Choosing a strategy to reduce the likelihood of risk, and a mitigation strategy in the event risk come to fruition.  There are four basic risk response strategies:  Avoid, Mitigate, Transfer, and Accept.  Read more about these tools here.
  • Contingency and Reserve Planning:  This is your rainy day fund.  When rain begins to fall (risk actualization) you need to have funds set aside to implement your contingency plans.  Be careful though, over planning, and setting aside too much money for risk contingencies can be detrimental to other projects or the organizational strategy.
  • Continuous Risk Management:  Risk management and planning doesn't only occur at the beginning of the project.  As a project manager, you must revisit your risk register and reassess the project for new risk throughout the project life cycle.

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