How to Develop a Risk Management Plan

Project Manager’s have to make sure the scope of work is completed on time and within budget. Sometimes events and issues can cause the schedule or the costs to deviate from what was planned. One way that Project Managers address this is by having what is called a Risk Management Plan. The process steps used to manage events or issues that place the schedule, scope or budget of a project at risk is known in the industry as a Risk Management Plan.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Spreadsheet application such as MS Excel

1. Create a column to Identify project risks. Risk identification is the first step in the process. The risks that are identified may come from many sources. Team members may know of materials with long lead items that may cause schedule delays. There may be work products or deliverables that the project manager believes may be completed earlier or later than planned. Look at projects that have been done in the past to see what risk issues occurred before. Name this column “Risk”. In this column list all the risks you or your team have identified.
2. We now want to know the impact the risk event or issue may have on the project. In this step of the process we quantify the effect it may have on the schedule, the budget or the scope of work. This may be shown in schedule days, in dollars or in words as it related to the scope. We now add a third column called “Quantification” within which we calculate the possible effect of the identified risk.
3. There are many ways to respond to a risk issue or event. We can transfer it which is what most people do when they buy insurance. They can plan a work around, attempt a mitigation plan or perhaps accept the risk. In a fourth column called “Response” we indicate how we plan to manage the risk.
4. It’s always a good idea to monitor and control all identified risks. A fifth column that we may call “Follow Up” is where we can place notes or comments indicating who is responsible for the item, when it is due and information that helps the Project Manager make sure that the risk issue does not fall between the cracks.

Tips & Warnings

• If you use Excel you can have one tab displaying all the active risks and when risk items are closed out they can be moved to a second worksheet in another tab that you can call “Retired”.
• A simple formula Project Managers use to quantify risk is the probability of the event occurring multiplied by its potential dollar value. For example there is a 50% chance that it may happen and if it does the impact to the budget is $5000 (.5 x 5000 = 2500) The Event Monetary Value is $2,500.
• Some Project Managers create what is known as a “threshold” in their Risk Management Plan. A typical threshold is a risk issue or event that when quantified exceeds a dollar value of X or schedule impact of Y. If that threshold is met the activities to monitor and control the response to the risk are placed in the project schedule.
• Risks occur throughout the life of the project so always be on the lookout.