Elements of risk management plan in project management play a vital role throughout the project life cycle to meet the project’s objectives effectively and efficiently. So, in this article, we’ll discuss 11 elements of the risk management plan.
Table of Contents
What Is Project Management Plan
The project risk management plan is a component of the project management plan that describes how the project’s risk management process will be executed. So, a risk management plan includes the budget, approaches, and tools that help project managers identify risk, assess, mitigate, and monitor activities effectively and efficiently. Accordingly, the risk management plan is a document that plays a crucial role throughout the project life cycle to meet project objectives within the project’s triple constraints.
Related Post: Risk management in project management – A quick overview
11 Elements of Risk Management Plan
Elements of risk management plan in project management play a vital role throughout the project life cycle. So, let’s discuss them one by one.
Risk Management Strategies
Risk management strategies will help project managers manage project risk using approaches. So, as a document, the risk response plan is crucial because it describes the risk mitigation strategies that will be employed to manage your project risk. However, here are four strategies that help you mitigate risks.
- Avoidance – this strategy involves taking steps to avoid the risk entirely.
- Transfer – this strategy helps project managers transfer to risk another party.
- Reduction – this strategy helps project managers to take steps to minimize the likelihood or impact of the risk.
- Acceptance – this strategy helps project managers acknowledge and accept the risk without taking any action to mitigate it. However, acceptance of risk can be divided into two areas. Those are active acceptance and passive acceptance. Active acceptance of risk means setting aside extra funds to pay your way out of the trouble. Passive acceptance of risk means the ‘do nothing’ approach, while passive acceptance may be reasonable for smaller risks. However, it’s crucial to be proactive and mitigate risks ahead of time whenever possible.
Risk Management Methodologies
Risk management methodologies help project managers define the relevant tools, approaches, and data sources that will be used to perform risk management activities, such as risk analysis and risk assessments.
Risk Categories
Risk categories mean that help project managers group individual project risks. To do that, they can use a risk breakdown structure (RBS) because that guides the project team members to consider the full range of sources from which individual project risks may arise. As well as this will help you when categorizing identified risks or when identifying risks. Typically, the organization may have a generic RBS to be used for all projects, or there may be several RBS frameworks for different projects.
Project Timeline
Project timelines help project managers define when and how often the project risk management processes will be performed throughout the project life cycle, including (according to the PMBOK) initiating, planning, executing, monitoring and controlling, and closing. As well as they establish risk management activities or tasks for inclusion into the project schedule. In short, define the project schedule for the risk management activities.
Budget
As a project manager, you should identify the funds needed to perform tasks or activities related to the project risk management. Furthermore, they establish protocols for the application of contingency and management reserves. Moreover, having a section is required because it helps you identify the necessary funds to perform your risk management activities.
Roles and Responsibilities
The risk management team members have many responsibilities as risk owners. Therefore, they must monitor their project risks. Then, project managers should supervise their risk response actions. As well as they should clarify their team members’ responsibilities.
Project Stakeholder Risk Appetite
The risk appetites of stakeholders on the project are recorded in the risk management plan because they must inform the details of the plan risk management process. Furthermore, stakeholder risk appetite should be stated as measurable risk threshold in every project objective. So, these thresholds will help project managers to determine the acceptable level of the overall project risk exposure. On the other hand, they can used to inform the definitions of probability and impacts to be used when assessing and prioritizing each individual project risk.
Reporting Formats
Report formats are crucial because they help project managers define how the outcomes of the project risk management process will be analyzed, communicated, and documented. Furthermore, the risk management plan describes the content and format of the risk register, risk report, and any other required outputs from the project risk management processes.
Audit
By tracking project documents, you can determine how risk activities will be recorded and how risk management processes will be audited.
Probability and Impact Matrix
The probability and impact matrix is another vital element in the risk management plan. Furthermore, this is considered as a tool used in risk management to assess and prioritize risk within the project. Moreover, this helps stakeholders to evaluate the potential consequences (impact) of a risk and the likelihood (probability) of that risk occurring.
However, project managers can categorize risks into different risk zones by placing each identified risk into the matrix based on its estimated probability and impact. Those are as follows.
- High probability and high impact
- High probability and low impact
- Low probability and high impact
- Low probability and low impact
Once the risks are categorized as above, you can focus their efforts on addressing and mitigating high-priority risks, ensuring that project resources are allocated effectively to handle potential issues and opportunities. So, the probability and impact matrix is a valuable tool for strategic planning, decision-making, and risk assessment.
Definitions of Risk Probability and Impacts
The risk probability and impact level are specific for the following aspects.
- Project context
- Reflect the risk appetite
- Thresholds of the organization
- Key stakeholders
The project may start with specific definitions of probability and impact level, or the project may generate general definitions provided by the organization. The following example provides definitions of probability and impacts against three project objectives. These project objectives are time, cost, and quality. Furthermore, the scales help project managers evaluate threats and opportunities by interpreting the impact definitions as negative for threats and positive for opportunities.
According to the above project’s three objectives, negative threats will affect schedule delays, additional costs, and performance shortfall, and positive opportunities will affect reduced time, cost, and performance enhancement.
Conclusion
The elements of risk management plan in project management play a vital role throughout the project life cycle to meet project objectives. So, those elements are risk management strategies, risk management methodologies, risk categories, project timeline, budget, roles and responsibilities, project stakeholder risk appetite, report formatting, audit, probability and impact matrix, and definitions of risk probability and impact.
