What is project risk management?
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Project risk management cannot eliminate all the risk for a project, but it can ensure the project's exposure to risk operates at an acceptable level. There is always a big storm brewing just over the horizon, but it is the project manager's task to steer round the danger or prepare for it. Some of the risk factors are beyond your control, therefore planning to implement a series of actions should be conducted prior to an unwanted event occurring. Analysis, preparation and planning are therefore key to successful risk management. Many of the major decisions that will have the greatest impact occur during the early stages of the project; however, the information from which to base these decisions is likely to be mostly inaccurate or incomplete. To ensure the best decisions are made for the project, all of the important risks should be identified and assessed as early as possible. There are also risks which provide the project manager with opportunities, such as the early finish of a module. This prospect could lead to the team starting the next work package sooner, if the resource is planned to be made available.
A project risk is generally thought of as a crisis that has not happened yet. Experienced project managers know that risk management is preferable to crisis management it leads to fewer late nights and ruined weekends. Furthermore, hours spent on risk management are much less stressful than the same time spent on crisis management. The project manager tends to feel in control of risk management activities, but one of the things that makes a crisis uncomfortable is the feeling that the project is out of your control and that you are being driven by events, instead of driving them yourself. The personal motivation of project managers to avoid stress contributes to sound project management, but project risk management also has more direct and tangible business benefits. Solving problems takes time and money, and if risk management can avoid some of the problems then it is worthwhile. Even problems that cannot be completely avoided can often be mitigated at a lower cost, if some planning is done before they arise. Furthermore, uncontrolled project risks introduce unpredictability into the firm's cash flows that increases the firm's cost of doing business. Hence it makes sense for the firm to provide funds and resources for small additional tasks that may have been identified.
You may hear people argue that 'We cannot predict the future, so we cannot plan for events that may never happen. Anyway we will probably miss the problems that will really cause trouble, so risk management is not worth doing'. But in fact we can often predict much of the future accurately enough and most people have a good instinct for the sort of events that are likely to happen. The fact that we might still be surprised by events is no excuse not to take precautions against those that can be foreseen. If there are a number of uncertainties due to a lack of knowledge, it may be worth conducting an investigation to help identify and determine the potential risks. Project risk management protects the business by taking a dispassionate view of what might go wrong and what can be done to limit the likelihood and impact of such events. This approach leads to the steps outlined here: the first is to decide how to plan and execute the risk management activities, the next identifies and analyses the sources of risk, and the final step is to develop the required prevention and control measures to be put in place. The overall purpose of project risk management is to increase the probability of meeting the project objectives by the following means:
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