Effective Management of Risk

Project risk management is the process of identifying, analyzing and responding to any risk that
arises over the life cycle of a project to help the project remain on track and meet its goal. Risk
management isn’t reactive only; it should be part of the planning process so to minimize future
implications.
Risk identification usually begins before the project starts, and the number of risks increase as the
project matures throughout the life cycle. When a risk is identified, it is first assessed to determine
the probability of occurrence, the degree of impact on the schedule, scope, cost and quality, and
then prioritized. The probability of occurrence, number of categories impacted and the degree (high,
medium, low) in which they impact the project will be the basis to prioritize risk.

Risk Management Planning:

It is the process of deciding how to approach and plan the risk management activities for a project.
Risk management planning is important for the risk management processes that follow to ensure
that the level, type, and visibility of risk management are commensurate with both the risk and
importance of the project to the organization. Similarly, A risk management plan also called a “risk
mitigation plan” is a well-defined document that tells how to deal with specific risks and what
management actions must be taken against those risks in order to mitigate or remove threats to the
project tasks and outcomes. Writing a risk management plan provide various benefits. Not only the
risks are identified but also can be prevented. It helps to boost results and lets company and people
to take proactive action so that risks are reduced and it surely let user to assess and evaluate the
entire project. Risks are bound to happen in all kinds of projects. But if we have a clearly defined
risk management plan, we can navigate the process efficiently and mitigate error more effectively.
Basically it helps to identify risks, assign ownership of each identified risk to team member, analyze
ease risk to fully understand the driving factors, prioritize risks according to urgency and severity,
response to those identified risk and helps to monitor the risk management strategy.

Source: cin/ufpe
Risk Identification:
Risks can be identified from a number of different sources. Some may be quite obvious and will be
identified prior to project kickoff. Others will be identified during the project lifecycle, and a risk
can be identified by anyone associated with the project. Some risk will be inherent to the project
itself, while others will be the result of external influences that are completely outside the control
of the project team. Risk identification consists of determining which risks are likely to affect the
project and documenting the characteristics of each. Along with identification, risk awareness and
risk communication are also important.

The objective of risk identification is to identify all possible risks, to eliminate risks or to develop
solutions for mitigating risks—those functions are carried out during the risk assessment and risk
mitigation steps. Some of the documentation and materials that should be used in risk identification
as they become available include these:

Project justification and cost-effectiveness (project benefits, present worth, rate of return, etc.),
Sponsor mission, objectives, and strategy; and project goals to achieve this strategy,
WBS,
Project performance specifications and technical specifications,
Project schedule and milestones,
Project financing plan,
Project procurement plan,
Project execution plan,
Project benefits projection,
Project cost estimate,
Project environmental impact statement,
Regulations and congressional reports that may affect the project,
News articles about how the project is viewed by regulators, politicians, and the public, and

Moreover documentation, Brainstorming, interviewing, SWOT analysis, checklist analysis are

certain tools in risk identification.

Qualitative and Quantitative Risk analysis

Investopedia defined risk analysis as' Risk analysis is the study of the underlying uncertainty of a
given course of action and refers to the uncertainty of forecasted cash flow streams, the variance of
portfolio or stock returns, the probability of a project's success or failure, and possible future
economic states.' There are basically two major types of risks analysis; quantitative and qualitative;
Quantitative risk analysis uses mathematical models and simulations to assign numerical values to
risk whereas qualitative risk analysis relies on a person's subjective judgment to build a theoretical
model of risk for a given scenario.

Quantitative risk analysis

The aim of Qualitative analysis is to identify key risks, which are then analyzed and managed in
more detail. Under quantitative risk analysis, a risk model is built using simulation or deterministic
statistics to assign numerical values to risk. Inputs that are mostly assumptions and random variables
are fed into a risk model. The model generates range of outcomes which are then analyzed using
graphs, scenario analysis, sensitivity analysis, decision trees and so on.. A Monte Carlo simulation
can be used to generate a range of possible outcomes of a decision made or action taken. Event
trees, also known as fault trees or probability trees, are commonly used in reliability studies,
probabilistic risk, and failure modes and effects analyses. Similarly, sensitivity analysis can be very
useful in determining what decisions the manager should make to get the desired results—or to
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