Uncertainty can lead to risk. Realized risks can lead to project failure. Thus, it is critical for project managers to understand the relationship between risk and the success or failure of projects. Risk is a possible event that should it occur the impact would be budget over runs and/or schedule delays.
Everyone plans for risks every day for what appear to be the most minor tasks. Say you have a meeting at 9:00 AM outside of your office at a location you have not been to before and are unfamiliar with the traffic patterns, road construction, etc. Typically you would pull-up the location on your computer, perhaps use a map program noting distance, time and directions. You may additionally print this out. In addition you will probably ask your colleagues if they are familiar with this location and any of the traffic and construction issues. Additionally you may consider where to park, its location to the meeting site, cost, need for cash for the type of parking, etc. Normally this is not a formal process that is pursued but it is one that an individual goes through mentally and typically does not give much thought to. This is RISK planning none the less.
One of the defining elements of a project is uncertainty. The amount of risks increases with the amount of uncertainty, and uncertainty is inherit in all designed projects. Risk management process are utilized in the prediction, identification and mitigation of risks which will increase the likelihood of successful projects. The goal of risk management is to successfully mitigate risks to create a successful delivery of project scope.
There are many steps in the risk management process. Risk management should start as soon as a project has been initiated. The greatest opportunity for managing risks is in the early stages of a project. If the project is impacted due to risk occurrence the impacts to budget and schedule are extremely costly.
The risk management process begins with the evaluation of risks through the assessment of project objectives, scope, design documents, experience on projects of a similar nature as well as preliminary budgets and schedules. A thorough list of potential project risks is mandatory. If these can be identified a greater potential for project success is likely.
Once risks are identified they need to be evaluated. Do they end up on a watch list, or is a greater level of scrutiny required. Risks that require evaluation undergo an assessment of prioritization and are then evaluated by a qualitative and those that have the greatest impact for project impact will undergo a quantitative analysis.
A risk scoring matrix may be used for this breakdown analysis. (See above).
Once risks have been identified risk triggers and individuals responsible for monitoring their assigned risks need to be assigned. Project resources will also need to be assigned for Contingency and Management Reserve accounts.