Risk management

In project management, a risk is a possible event or circumstance that can have negative influences on a project. Its influence can be on the schedule, the resources, the scope and/or the quality.

When a risk escalates, it becomes a liability. A liability is a negative event or circumstance that is hindering the project.

The primary data needed to do risk management are the following:

• ID: unique identifier for identification in other documents
• description: what is the risk?
• effect: what can happen if the risk becomes a liability?
• precaution: what can prevent the risk from becoming a liability?
• contigency: how to handle the liability?
• risk status: status of the risk: new, ongoing, closed
• risk escalation probability (P): what is the probability of the risk becoming a liability (rating from 0 to 1, for example)
• schedule impact (S): what is the impact of the liability on the project schedule.

In addition, every risk can also have a number of action points associated with it. This is to ensure contingency when the risk becomes a liability.

From the information above and the cost accrual ratio (CAR), i.e., the total average cost per person per time unit, a project manager can calculate

• cost impact (C = CAR * S): the cost associated with the risk if it arises.
• schedule variance due to risk (Rs = P * S): sorting on this value puts the highest risks to the schedule first.
• cost variance due to risk (Rc = P * C): sorting on this value puts the highest risks to the budget first.

Risk in a project or process can be due either to special causes of deviation or common causes of deviation and requires appropriate treatment.

See also: Project management, Earned value management, critical chain, precautionary principle.

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