Why do we need risk management as project professionals? An how do we go about it?

Risk is a term that has different meanings to different people depending on their focus and position in a project.  Let’s explore risk from a cost and time perspective.

As general members of the public we assess risk and accept our attitude to risk on a daily basis.  From driving a car, catching the bus or crossing the road to buying a coffee, buying some new shoes or buying a house.  Our attitude to risk is usually determined by our relative state of financial comfort.  What I mean is, some of us wouldn’t think twice about buying a new car if there is limited risk to their financial position, whereas others may need to seriously consider buying a coffee on the way to work.

The business world is not that different in terms of attitude to risk or accepting possible outcomes to risks.  In my opinion, the fundamental reason for risk management in projects is to have a level of comfort around knowing what the project outcome might be, moreover project predictability.

There are several great tools for defining and managing risk and the expectations that come with it.  However, the one of, if not the most, important factors in risk management are the inputs into the process.  The process needs to include as many stakeholders as possible as risk is not simply the opinion of one person. 

A fantastic way of answering the question “What are the Risks on this project?” is via a facilitated risk workshop. Another key factor is a good facilitator, highly experienced in Risk Management workshops, to keep the group on track and lead the discussion towards meaningful outcomes.  It is key to have stakeholder buy in and attendance to workshops without which the risk assessment has less influence over the project outcome.

Risk Workshops output should be a clear and concise list of risk events that have not only been assessed for residual risk ratings but also with probabilistic cost and schedule impact ranges.  This “risk ranging” allows for realistic scenarios, for example a Monte Carlo process, to be run to determine and appropriate level of contingency (Cost and Schedule) for the project. 

Depending on the business view on targets, a value for cost and schedule contingency can now be applied to the project and tracked toward that target.  A realistic and achievable target that is based on a detailed scientific approach is much more likely to be realized rather than applying a baseless % factor.

In summary, robust, honest and business endorsed risk management approach allows the business to be confident around the outcome for their projects.

Author: Chad Trethowan