How to Develop a Risk Management Plan
Developing an effective Risk Management Plan is an important part of any project. Unfortunately, this step is often avoided with the "deal with it later" attitude. If everything goes smoothly and without incident, that approach does no harm. But normally, issues do arise and without a well developed plan, even small issues can become emergencies.
There are different types of Risk Management and different uses that include calculating credit-worthiness, planning for adverse events (i.e. disasters), determining how long the warranty on a product should last, calculating insurance rates, and many more. In this document we will look at Risk Management from the standpoint of planning for adverse events.
1. Understand how Risk Management works. Risk is the effect (positive or negative) of an event. It is computed from the probability of the event materializing (becoming an issue) and the impact it would have (Risk = Probability X Impact). Various factors should be identified in order to analyze risk, including:
o Event: What could happen?
o Probability: How likely is it to happen?
o Impact: How bad will it be if it happens?
o Mitigation: How can you reduce the Probability (and by how much)?
o Contingency: How can you reduce the Impact (and by how much)?
o Reduction = Mitigation X Contingency
o Exposure = Risk – Reduction
▪ After you identify the above, the result will be what’s called Exposure – that’s the amount of risk you simply can’t avoid. Exposure may also be referred to as Threat, Liability, Severity or other names but they pretty much mean the same thing. It will be used to help determine if the planned activity should take place.
▪ Often this is a simple cost vs. benefits formula. You might use these elements to determine if the risk of implementing the change is higher, or lower, than the risk of not implementing the change.
o Assumed Risk If you decide to proceed (sometimes there is no choice, e.g. federally mandated changes) then your Exposure becomes what is known as Assumed Risk. In some environments, Assumed Risk is reduced to a dollar value which is then used to calculate the profitability of the end product.
2. Define your project. In this article, let's pretend you are responsible for a computer system that provides important (but not life-critical) information to some large population. The main computer on which this system resides is old and needs to be replaced. Your task is to develop a Risk Management Plan for the migration. This will be a simplified model where Risk and Impact are listed as High, Medium or Low (that is very common especially in Project Management).
3. Get input from others. Brainstorm on risks. Get several people together that are familiar with the project and ask for input on what could happen, how to help prevent it, and what to do if it does happen. Take a lot of notes! You will use the output of this very important session several times during the following steps. Try to keep an open mind about ideas. "Out of the box" thinking is good, but do keep control of the session. It needs to stay focused and on target.
4. Identify the consequences of each risk. From your brainstorming session, you gathered information about what would happen if risks materialized. Associate each risk with the consequences arrived at during that session. Be as specific as possible with each one. "Project Delay" is not as desirable as "Project will be delayed by 13 days." If there is a dollar value, list it; just saying "Over Budget" is too general.
5. Eliminate irrelevant issues. If you’re moving, for example, a car dealership’s computer system, then threats such as nuclear war, plague pandemic or killer asteroids are pretty much things that will disrupt the project. There’s nothing you can do to plan for them or to lessen the impact. You might keep them in mind, but don’t put that...
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