Project Risk Management - How to Manage Project Risk

0:00 in this video I want to give you an overview of risk management and how to manage project risk risk management is a core part of all project management and the reason is simple projects are novel and uncertain endeavors and that novelty that uncertainty means that things can happen that you're not expecting projects are inherently risky and so we need to manage that risk to stay in control of our projects and the basic risk management process has four steps the first step is to identify the risks

0:48 and the best way is always to get a group of people together and just list out everything you can think of that could possibly go wrong of course some of the things you think of are incredibly unlikely but we'll come to that later another good way to identify risks is to look at the different aspects of the project and ask what can go wrong on a category by category basis however you choose to break up your project and so risk management can start in earnest once you've started to think about the scope of your project and you can go to a greater level of depth once you've got a work breakdown structure another great approach is as you move through your

1:34 career from one project to another keep a record of all the risks that are identified in each project and that way you'll have a master list of risks which you can draw down on Friday define potential risks for each new project once you've identified your risks the next step is to understand them to analyze those risks now the definition of a risk is uncertainty that can affect outcome therefore the two principal components of a risk are the likelihood with which it might happen and the impact it will have if it does the uncertainty is

2:20 measured by likelihood and the effect on the project is measured by the impact there are other things we can bring into our analysis if we're taking on risk management at an advanced level like proximity however for most of us for most projects estimating the likelihood and the impact of our risks is the key to good risk analysis now when you're thinking about likelihood fuel risks my key piece of advice is keep it simple because human beings are rubbish at estimating the likelihood of uncertain events and the consequence of that is that if you try

3:06 to be too precise too specific about the likelihood of your estimates then they're likely to be rubbish a simple scale on low medium and high or if you want a little bit more precision very low low medium high and very high is all you need as a scale for the likelihood of your risks for the impact you can use a more sophisticated scale if you choose the first thing to think about is what do you really care about you care about the impact of risks on your budget because if that's the case then you may have a scale of hundreds of dollars thousands of dollars tens of thousands of dollars hundreds of thousands of

3:52 dollars and even millions of dollars or you may care about the scheduled effect of a risk what will it do to the delivery date in which case your impact scale might be days weeks months quarters or years you might be interested in the reputational effects if something goes wrong how will it affect our reputation will we see a small paragraph in a trade journal or a local paper or will we say a full article or will that article make its way through to the national press or will it get on to the front page of the Nashville press or will it dominate the ten o'clock news for day after day but for most of us a simple scale is to

4:42 first think about the smallest level of impact being one that requires some form of corrective action a greater impact may need you to think about a new plan for how you're going to deliver that part of the project or you may need a whole new strategy for how you're going to deliver the whole project or it may be worse than that and no amount of re planning and new strategies will allow you to achieve all of your objectives one or more of your objectives will be compromised if this risk occurs and of course the greatest level of risk that you should be managing without highly specialized experience is the risk that the project will fail the global of your

5:29 project is compromised yes of course there are higher impacts than that people are being hurt or the reputation of your organization and being permanently tarnished but of course if those are real risks you need to bring in experts to help you manage them now once you've analyzed your risks you can then triage them by looking at where they appear on a simple graph of likelihood versus impact and of course the further up towards the top right-hand corner that they appear then the more serious that risk is and the more strategies you will need to manage your risk so step 3 of our risk management process is to put together a

6:15 plan for how you will handle that risk and we build our plans from a number of component strategies and the six core strategies that I always build my plans from are firstly to see if you can do anything to remove the risk entirely this is the gold standard but on many projects it for many risks it is not possible to remove the risk entirely but if you can you should do so the second strategy is to reduce the likelihood to make it less likely that that risk will materialize strategy number three is to reduce the impact of the risk if it happens then

7:02 what can we do to make it less severe less serious fourthly we could transfer some or all of that risk to a third party the obvious example is insurance but remember every time you enter into a contract for professional services of one form or another you are transferring some of that risk to the other party and using the contract to enforce that transfer the fifth approach is to accept that the risk may happen and to build a contingency plan so that you can handle that risk should it materialize a plan B this is about having the resources and

7:48 the preparedness to deal with the outcome should the risk occur and of course the sixth strategy is to accept the risk if the level of threat is small enough and you consider that none of the other strategies offers a cost-effective solution for reducing the risk then it's totally appropriate to accept the risk and accept that if it does occur you'll need to do something about it but hopefully it will not be a very serious risk because otherwise you will have implemented one or more strategies and clearly for the highest likelihood and impact risks to the top right you will need a whole basket of strategies to

8:35 handle them and finally the fourth stage of risk management is of course to put your plans into action and hopefully you have documented your risks and your plans on a risk register which is if anything is the one single most important project management document that you will have that risk register becomes part of your audit trail and therefore a document of governance but it's also a management tool that allows you to track what you are doing and to keep an eye on your risks and of course every time you take an action you can then record that action on your risk register and monitor

9:21 the impact it has on your risks if the action doesn't satisfactorily reduce the risk then analyze why not come up with an additional plan and take further action and that's the cycle of success understand the situation put together a plan take action and review where you are and understand the outcome so risk management is a simple four-step process it's supported by some very simple straightforward analytical tools that you can use on any project and a set of six strategies from which you can build plans to handle your risks

10:08 the primary tool for risk management is your risk register or risk log and I would recommend that every project manager builds your own version base it on a template like ours by all means ideally in the form of a spreadsheet or something like that but critically having using a risk log is not the same as managing your risks you've got to act on the plans you put together you've got to allocate each risk to a named individual make them responsible and follow up make sure that changes are happening if you do all of this you'll find that risk management becomes part of your routine and when

10:55 you do risk management well and effectively as a part of a regular project management routine you will stay in control of your risks rather than have them control you if you've enjoyed this video please do give it a thumbs up please subscribe to our channel and hit the notification bell for more project management videos into your inbox and I will look forward to seeing you in the next video