You identify them, record them, monitor them and plan for them: risks are an inherent part of every project. Some project risks are bound to become problem areas—like executing a project over the holidays and having to plan the project timeline around them. But there are many risks within any given project that, without risk assessment and risk mitigation strategies, can come as unwelcome surprises to you and your project management team.
That’s where a risk management plan comes in—to help mitigate risks before they become problems. But first, what is project risk management?
Developing a robust risk management plan is crucial for the success of any project. But what exactly should you include in such a plan?
In this comprehensive guide, we’ll walk through the key components that need to be part of an effective risk management plan.
A risk management plan helps identify, assess and mitigate risks that could potentially impact your project. It provides a framework for your team to proactively manage threats and capitalize on opportunities.
The specifics of what gets included in a risk management plan depends on factors like the project size, industry, objectives and constraints. However, most plans include these core elements:
Key Components of a Risk Management Plan
1. Purpose and Scope
- Clearly define the goals and boundaries of the risk management plan.
- Specify the parts of the project that will be covered.
- Outline the expected outcomes and benefits.
2. Roles and Responsibilities
- Identify the risk manager and team members involved.
- Define their duties in relation to risk management.
- List reporting relationships and escalation procedures.
3. Risk Identification Techniques
- Brainstorming sessions
- Interviewing experts/stakeholders
- Reference class forecasting
- SWOT analysis
- Examining past projects
4. Risk Categories
- Strategic risks – associated with high-level goals and alignment.
- Operational risks – related to processes, systems and people.
- Financial risks – involving budgets, cash flow and profitability.
- Compliance risks – related to legal, health, safety and environmental policies.
- Reputational risks – dealing with brand and public perception.
5. Risk Assessment Criteria
- Impacts – cost, schedule, quality, etc.
- Likelihood – probability and frequency.
- Proximity – how soon it may occur.
- Velocity – how quickly it could impact the project.
6. Risk Analysis Tools
- Risk breakdown structure
- Probability and impact matrix
- Risk data quality analysis
- Risk urgency assessment
- Monte Carlo simulations
7. Risk Prioritization
- Rank risks based on combined assessments of impact and likelihood.
- Focus response efforts on the potentially most damaging risks first.
8. Risk Response Strategies
- Avoidance – eliminate the threat.
- Transference – transfer liability to third party.
- Mitigation – reduce probability and impact.
- Acceptance – no action except continued monitoring.
9. Risk Monitoring and Control
- Define frequency of reviews and risk audits.
- Establish metrics and early warning indicators.
- Outline status reporting procedures and tools.
10. Risk Management Budget
- Estimate costs of risk management activities.
- Include contingency reserves to handle impact of risks.
Creating the Risk Management Plan
With the key components in mind, here are some tips for creating an effective risk management plan:
- Involve the right stakeholders from the start.
- Align risk management with overall project objectives.
- Keep the plan flexible enough to adapt to changing circumstances.
- Use templates and examples as guides but customize for your needs.
- Document assumptions, constraints and risk tolerances.
- Outline the escalation process for high priority risks.
- Maintain open communication channels with updates and feedback.
- Re-assess risks and the plan at predefined intervals.
- Provide training if required on risk management concepts.
Executing the Plan
Once the plan is created, the focus shifts to execution. Here are some best practices:
- Hold regular risk review meetings with owners.
- Monitor early warning indicators tied to risks.
- Verify risk responses are implemented and effective.
- Look for changes in defined thresholds.
- Keep the risk register and other documents current.
- Evaluate overall risk management performance via audits.
- Report risk status and recommendations to leadership.
Adapting the Plan
As the project progresses new risks can emerge and priorities may change. Here’s how to adapt the plan
- Review assumptions and risk categories for continued relevance.
- Identify new risks based on current project status.
- Re-assess priority of existing risks periodically.
- Determine if responses need to be changed or added.
- Allocate contingencies and reserves to critical risks.
- Update reporting requirements and frequencies.
- Refine risk processes to apply lessons learned.
Key Takeaways
An effective risk management plan is a living document that guides identification, assessment, response and monitoring of project risks. Be sure to cover the fundamental components but also tailor the plan to your specific needs and environment. The plan should strike a balance between structure and flexibility so it can evolve as required. With an adaptable risk management framework in place, you can feel confident in your team’s ability to manage uncertainty.
Assign Risk Owners
Additionally, you’ll also want to assign a risk owner to each project risk. Those risk owners become accountable for monitoring the risks that are assigned to them and supervising the execution of the risk response if needed.
When you create your risk register and risk assessment matrix, list out the risk owners, that way no one is confused as to who will need to implement the risk response strategies once the project risks occur, and each risk owner can take immediate action.
Be sure to record what the exact risk response is for each project risk with a risk register and have your risk response plan it approved by all stakeholders before implementation. That way you can have a record of the issue and the resolution to review once the entire project is finalized.
What Is a Risk Management Plan?
A risk management plan defines how your project’s risk management process will be executed. That includes the budget, tools and approaches that will be used to perform risk identification, assessment, mitigation and monitoring activities.
How to Create a Risk Management Plan
FAQ
What are the 5 components of risk management?
Which of the following are included in the risk management plan?
What is included in risk management?
