Estimated reading time: 5 minutes
There are 4 Strategies for Project Risk Management according to Project Management Institute (PMI)®’s PMBOK® Guide. Project risk management is defined as the process of identifying, analysing and then responding to any risk that arises over the life cycle of a project to help the project remain on track and meet its goal. It anticipates the returns on investments and projects all potential backlash an organisation might face. Hence, effective project risk management strategies enable you to identify your project’s strengths, weaknesses, opportunities and threats. Once you have identified the risks, it’s the responsibility of the project management professional to tackle them with right strategy. Each strategy has their own advantages and disadvantages. Here are the 4 Main Strategies for Project Risk Management:
A risk can sometimes be so high that you might have to avoid the activity all together. Avoidance eliminates the risk by removing the cause. The project manager may also change or isolate the scope and objective of the project that is in trouble. Some risks can be avoided if the information is analysed early. This strategy is usually a last resort, when the other strategies don’t seem to mitigate the risk and is still too high.
In case you decide to not avoid the risk all together, the next common strategy would be to reduce or mitigate the risk as much as possible. The organisation should improve quality control processes, compliance with legislation, staff training etc. to reduce the likelihood of risk happening in the first place. In order to mitigate the impact from it, organisations should set-up emergency procedures and minimize the exposure to the sources of any potential risks.
In this strategy, you transfer the risk to a third party. The third-party is generally an insurance company or a vendor who is paid to handle the risk on behalf of the organisation. The impact of the risk is also borne by the third party. The organisations have a pay a charge known as risk premium in order to avail the benefits. It is very rare that an insurance would cover the whole risk amount, but it cover a decent portion of the damage.
Project risk management comes at its own price. When the organisation tries to avoid a certain risk, it missed out on its potential benefits as well. Risk reduction strategies comes at its own costs and in risk transferring the organisations has to pay the risk premium. Sometimes, when the risk is moderate is other strategies don’t seem that viable, organisations just go ahead and accept the risk. Acceptance requires no other action except to document the risk and the team handles the risks as they occur, it is advisable to have a recovery plan as well.
Any organisation which has a comprehensive understanding of these strategies will be in a better position compared to others. These strategies are generally implemented under certain conditions which are predefined by the organisation.
Project Risk Management is a 3-day training course held from 24 – 26 August 2020 (Kuala Lumpur). In this 3-day course, you’ll work through the proactive approach to threat and opportunity—based on a clear understanding of the powerful nature of both qualitative and quantitative approaches to risk management. You will be able to effectively pinpoint the various types of risks, identify, analyse and prioritise risk, master the various risk-based financial tools and techniques.