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Risk Management Basic Knowledge for Stakeholders and Team Members

Through the years involved in projects on different industries, I have realized that the stakeholders and project team members such as: Sponsors, Functional Managers, Engineers related to different areas, Leaders, Supervisors, Foremen, Contractors, etc.; they as the representative of a certain technical department have no sufficient or sometimes none Project Management knowledge to carry out an effective risk identification.

When a Risk identification session is set up with all the people involved in a project, during it, you can observe people confusing the basic risk management concepts like Risk and Cause. Sometimes they identify the “Risk” with the definition of “cause” and vice versa, inverting the concepts. In the other hand when the Risk Response Plan needs to be defined, the stakeholders and team members don´t know how to redact it properly, causing difficulties in Risk Response Planning process and Risk Controlling.

This article has the intention to explain the Risk Management basic concepts in an easy manner to be digested by people who have no previous project management knowledge through two practical examples. The first example is based on a daily life task case where everybody is involved, and the other example is more focused on a professional level based on a house building project in order to get the full understanding of the stakeholders and the project team members.

Basic Concepts: Risk, Cause and Risk Response Plan – Mitigation Plan

Project Risk is an uncertain event or condition that, if it occur, has a positive or negative effect on one or more project objectives such as, scope, schedule, cost and quality[1].

A Cause may be a given or a potential requirement, assumption, constraint or condition that creates the possibility of negative or positive outcomes[2].

There are different ways to enhance opportunities or reduce threats to project objectives, those are:

Risk Responses – Negative Effect

  1. Avoid
  2. Transfer
  3. Mitigate
  4. Accept

Risk Responses – Positive effect:

  1. Exploit
  2. Enhance
  3. Share
  4. Accept

For practical purpose of this article, the mitigation plan will be the risk response used on the examples further, due to this risk response plan is the most commonly used.

Risk mitigation is the risk response planning whereby the project team act to reduce the probability of occurrence or impact of the risk[3].

Having the Risk and the Cause in place; the easiest, organized and suggested way by the author properly to redact a risk properly as it follows below:

Risk-Cause-Impact

How to Identify and Redact a: Risk, Cause and Risk Response – Mitigation plan

Risk – Cause:

  • The Risks must be identified based on the Project Objectives
  • The Risks cannot be a constraint (a constraint is something that already exists and should be responded with a contingency plan)
  • When the risk is going to be identified you should ask yourself: What are the things I don’t want to happen that can impact the project objective?
  • The cause of the risk could be a constraint, an assumption, requirement or condition that originates the unwanted or wished event.

Risk Response – Mitigation plan:

  • The mitigation plan must be verifiable and measureable, e.g. an action, a minute of meeting, an email, a document, etc.
  • Must comply with: What, How, What for, and When.
  • Mitigation plan ALWAYS must be focused and developed on the risk cause.

Risk Management Basic Concepts – EXAMPLES

Below you will find the practical use of the risk management basic concepts in two examples. The first example is based on a simple situation of a daily life task: “To get to the office at 7:30”. The second one is based on the construction industry “A house building project”. The logic sequence of the examples for your understanding is the following: Risk #1 is related to Cause #1 and the Mitigation plan #1. 

EXAMPLE 1 – DAILY LIFE TASK CASE

Objective: To get to the office at 7:30

Risks (What are the things I don’t want to happen that can impact the project objective?)

  1. Getting up late
  2. Roads with traffic jam
  3. No taxi availability
  4. The car ran out of gas

Causes (Condition, assumption, constraint or requirement that originates the event or risk)

  1. I didn’t set up the phone alarm / went to bed late last night
  2. Non alternating routes
  3. Rush Hour
  4. Ran out of cash

Risk Response – Mitigation plan (What, How, What for, and When– Focused on the risk cause.

  1. To set up the daily alarm on the phone tonight, downloading an alarm App.  Ways to measure: to download the app and the setting up of the alarm tonight.
  1. To look for the alternating roads less congested, using the App WAZE half an hour before leave home, to avoid traffic jam on main roads. Ways to measure: the use of the App WAZE half an hour before leave home. 
  2. To get up earlier, to avoid the traffic jam setting up the alarm 1 hour earlier, tonight. Ways to measure: to set up the alarm 1 hour earlier, tonight.
  3. To save money monthly, in a piggy bank to have some extra cash for uncertain events. Ways to measure: to save money monthly in a piggy bank.

Suggested Risk Redaction: = Risk / Cause / Impact

  1. Getting up late, due to I didn’t set up the alarm the night before, causing me to get late to the office.
  2. Roads with traffic jam, due to not have alternating routes, causing me to get late to office.
  3. No taxis availability, due to the rush hour, causing me to get late to the office.
  4. The car ran out of gas, due to running out of cash, causing me to get late to the office.

EXAMPLE 2 – A HOUSE BUILDING PROJECT

Objective: A 2 level house, complying with the national construction standards, with a 6 month maximum duration and USD $200.000 budget.

Risks (What are the things I don’t want to happen that can impact the project objective?)

  1. No availability of local carpentry specialized man power at the fifth month of the project.
  2. Fines or environmental sanctions.

Causes (Condition, assumption, constraint or requirement that originate the event or risk)

  1. Due to high demand of man power by other projects that are being executed locally.
  2. Due to not complying with the regulations imposed on the Environmental License by the contractor XYZ.

Risk Response – Mitigation plan (What, How, What for, and When– Focused on the risk cause.

  1. To identify specialized carpentry man power on the cities nearby the project, through a man power survey during the first month, to have a contingency plan in case that at the fifth month the local carpenters are not available. Ways to measure: the man power survey during the first month.
  2. To ensure the Environmental License regulation accomplishment including the regulations into the contract obligations of the contractor, before the kickoff meeting, , to avoid fines and sanctions during project execution. Ways to measure: the contract of the contractor XYZ including into the obligations section all the regulations imposed by the Environmental License.

Suggested Risk Redaction: = Risk / Cause / Impact

  1. No availability of local carpentry specialized man power at the fifth month of the project, due to high demand of man power by other projects that are being executed locally, causing delays on schedule and project quality.
  2. Fines or environmental sanctions, due to not complying with the regulations imposed on the Environmental License by the contractor XYZ, causing costs overruns, and schedule delays.

Based on the previous examples we can conclude that a Risk differs from a Cause due to the Risk is the event that can impact on one or more project objectives and the Cause is what originates the risk. Additionally we can conclude that there are different risk responses depending if the effect is positive or negative as mentioned before, and as the most commonly risk response used the Mitigation plan that must comply with some criteria to be effective.

If a stakeholder or a team member understand this risk management basic concepts, the risk identification and the risk control processes will be more efficient and effective, furthermore will be very useful even for personal life.

 

[1] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 345). Pennsylvania, USA: Project Management Institute, inc.

[2] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 310). Pennsylvania, USA: Project Management Institute, inc.

[3] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 345). Pennsylvania, USA: Project Management Institute, inc.