Risk Management

Strategizing for Project Risk Management: An Overview

Plan Risk Responses is a crucial process in project risk management. It involves developing options, selecting strategies, and agreeing on actions to address overall project risk exposure and individual project risks. The key benefit of this process is the identification of suitable methods to manage overall project risk and individual project risks.

Resource allocation and activity insertion into project documents and the project management plan are integral parts of the Plan Risk Responses process. These actions ensure that necessary resources are available and that risk response activities are integrated into the project plan.

Effective and appropriate risk responses can help minimize individual threats, maximize individual opportunities, and reduce overall project risk exposure. Conversely, unsuitable risk responses can increase individual threats, decrease individual opportunities, and increase overall project risk exposure.

After risks have been identified, analyzed, and prioritized, the nominated risk owner should develop plans to address each significant project risk. The significance of a project risk is determined by the threat it poses to the project objectives or the opportunity it offers.

The project manager plays a crucial role in responding appropriately to the current level of overall project risk. Risk responses should be suitable for the risk's significance, cost-effective, realistic within the project context, agreed upon by all involved parties, and owned by a responsible person.

Selecting the best risk response often requires choosing from several options. Structured decision-making techniques can be used to select the most appropriate risk response. For large or complex projects, a mathematical optimization model or real options analysis may be used for a robust economic analysis of alternative risk response strategies.

Specific actions are developed to implement the agreed-upon risk response strategy, which may include primary and backup strategies. A contingency plan can be developed for use if the selected risk response strategy is not fully effective or if an accepted risk occurs. Secondary risks, which arise directly from implementing a risk response, should be identified.

A contingency reserve, often allocated for time or cost, may be developed. The contingency reserve may include identification of the conditions that trigger its use. This reserve provides a buffer against potential risk impacts, helping to ensure project success despite uncertainties.