The Key Objective of Project Risk Management

Project Risk Management

The purpose of risk management is to identify potential problems before they occur so that risk-handling activities may be planned and invoked as needed across the life of the product or project to mitigate adverse impacts on achieving objectives. Effective risk management includes early and aggressive risk identification through the collaboration and involvement of relevant stakeholders. Strong leadership across all relevant stakeholders is needed to establish an environment for the free and open disclosure and discussion of risk.

The common risk management objectives:

• Develop a common understanding of risk across multiple functions and business units so we can manage risk cost-effectively on an enterprise-wide basis.
• Achieve a better understanding of risk for competitive advantage.
• Build safeguards against earnings-related surprises.
• Build and improve capabilities to respond effectively to low probability, critical, catastrophic risks.
• Achieve cost savings through better management of internal resources.
• Allocate capital more efficiently.

Risk management goals and objectives should be consistent with and supportive of the enterprise’s business objectives and strategies. Therefore, the organization’s business model provides an important context for risk management.

 How the key elements of a risk management process are constructed

Step 1: Identify the Risk. You and your team uncover, recognise and describe risks that might affect your project or its outcomes.

Step 2: Analyse the risk. Once risks are identified you determine the likelihood and consequence of each risk. You develop an understanding of the nature of the risk and its potential to affect project goals and objectives.

Step 3: Evaluate or Rank the Risk. You evaluate or rank the risk by determining the risk magnitude, which is the combination of likelihood and consequence. You make decisions about whether the risk is acceptable or whether it is serious enough to warrant treatment.

Step 4: Treat the Risk. This is also referred to as Risk Response Planning. During this step you assess your highest ranked risks and set out a plan to treat or modify these risks to achieve acceptable risk levels.

Step 5: Monitor and Review the risk. This is the step where you take your Project Risk Register and use it to monitor, track and review risks.

The relationship between a risk management process and a change management process

The goal of the change management process is to ensure that standardised methods and procedures are used for efficient and prompt handling of all changes, in order to minimize the impact of change-related incidents upon service quality, and consequently improve the day-to-day operations of the organization. If you don’t have a good handle on managing change, you don’t have a good handle on the risk to your operations. The avoidance of change can become a risk to the project as it can come as a shock later on if the team did not estimate it. Therefore, an effective change management process will allow the team to have a well planned out risk management process. When change is being put into question during the development of a project, it is easier to identify potential risks and have ready measures if these risks occur.