Risk Management

Have you ever thought that when we purchase a brand new car, the first action we take before driving the car out of the dealer is purchase an insurance policy? And what is the intention of the insurance we purchased? Exactly! To minimize the consequences of the eventual accident. Now, utilizing the project management vocabulary, we are managing the risk of losing the car or having to pay expensive repair bills. When we purchase the insurance policy, we are transferring the risk to the insurance company.

Naturally we manage risks intuitively. We want to protect what is valuable for us. There are many examples of risk management decisions and actions we take everyday that we don't think about it, we “just do”. The formal risk management toolkit intends to formalize and standardize the risk management processes in a project. Certainly you agree with us that in a multi-million dollars project we can not “just do”. There should be a certain level of formality and procedures to follow.

In order to start the formalities, let us define risk in a very simplistic way that everybody in your organization will be able to understand and relate. The key goal here is to drive the message home, we do not want to transform risk management into monster that people are afraid to talk about and worst, to take care of the risk. The definition of Risk is "an uncertain event or condition with positive or negative consequences".

Normally the first thought that crosses people's minds when we talk about risk or conduct a risk workshop is a negativity. However, quite the contrary risk is simply an uncertain event or condition. This uncertainty could have a negative or a positive impact, normally we classify the risk in two categories: Threat and Opportunity, respectively.

There are two main methods to manage risks; the implementation of these methods in your project should be well thought out and discussed to strike the right balance between simplicity and thoroughness. The two methods are qualitative and quantitative risk management processes. There will be cases where both methods will be applied in conjunction within the same project and there will be cases where only qualitative risk management will be implemented.

We have a series of articles in the works to dive deeper in qualitative and quantitative risk management methods, our opinions and how to make it effective and direct. We’ll discuss the methods, triggers, mitigation strategies and other aspects.