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The major output of risk response planning is the risk response plan. This plan is also sometimes called the risk register since it includes all risks, their details, and the expected response for each. This plan describes the reaction to each identified risk and includes:
A description of the risk, what area of the project it may affect, the causes of the risk, and its impact on project objectives
The identities of the risk owners and their assigned responsibilities
The outputs of qualitative and quantitative analysis
A description of the response to each risk, such as avoidance, transference, mitigation, or acceptance
The actions necessary to implement the responses
The budget and schedule for risk responses
Both the contingency and fallback plans
The risk response plan also acknowledges any residual risks that may remain after planning, avoidance, transfer, or mitigation. Residual risks are typically minor and have been acknowledged and accepted. Management may elect to add both contingency costs and time to account for the residual risks within the project.
Secondary risks are risks that stem from risk responses. For example, transference may elect to hire a third party to manage an identified risk. A secondary risk caused by the solution is the failure of the third party to complete their assignment as scheduled. Secondary risks must be identified, analyzed, and planned for, just as any another identified risk.
When multiple entities are involved in a project, contractual agreements may be necessary to identify the responsible parties for identified risks. The contract may be needed for insurance purposes, customer acceptance, or acknowledgement of responsibilities between the entities completing the project. Transference is an example of contractual agreements for the responsibility of risks within a project.
Through risk response planning a contingency reserve should be established for time and cost values to respond to given risks should the risks come into play. Identifying the probability of a risk and multiplying the value by its cost impact can calculate a contingency reserve. For example, a risk has a 20 percent chance of happening. Should the risk occur, it would cost $4000 to correct. The contingency amount needed for this risk is 20 percent of the $4000, which is $800.
On the Job | A contingency reserve may also be called a management reserve. Often, a management reserve deals with time while a contingency reserve deals with dollars. Some organizations lump time and money into the same reserve. You should know what nomenclature your organization uses—and what they anticipate the meaning of the reserves to be. |
To reduce risk, additional time or monies are typically needed. The process and logic behind the strategies to reduce the risk should be evaluated to determine if the solution is worth the tradeoffs. For example, a risk may be eliminated by adding $7500 to a project’s budget. However, the likelihood of the risk occurring is relatively low. Should the risk happen, it would cost, at a minimum, $8000 to correct and the project would be delayed by at least two weeks.
The cost of preventing the risk versus the cost of responding to it must be weighed and justified. If the risk is not eliminated with the $7500 cost, and the project moves forward as planned, it has, theoretically, saved $15,500 because the risk did not happen and the response to the risk did not need to happen.
However, if the risk does happen, the project will lose at least $8000 and be delayed at least two weeks. The cost inherent in the project delay may be more expensive than the solution to the risk. The judgment of solving the risk to reduce the likelihood of delaying the project may be wiser than ignoring the risk and saving the cost by solving the risk problem.
The risk reactions, contingency plans, and fallback plans should all be documented and incorporated into the project plan—for example, updating the schedule, budget, and WBS to accommodate additional time, money, and activities for risk responses. The responses to the risks may change the original implementation of the project and should be updated to reflect the project plan and intent of the project team, management, and other stakeholders. A failure to update the project plan may cause risk reactions to be missed—and skew performance measurements.
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