Project Risk Management
Project risk management is the identification of events that might have an impact on a project's success, and the preparation of responses to them should they occur. Risk management in project management is vital to avoid surprises and keep the project on course.
First, let's define a "risk".
A risk is an event that may happen and, if it does, will have a positive or negative impact on the project. If there is no impact there is no risk. Don't ignore the possibility that something may go right -- i.e., a project may get finished ahead of schedule and under budget. But don't forget that good things can have bad side effects. A project that finishes early may finish before everyone is ready for it, and its early impact may overwhelm its intended beneficiaries.
The project risk management process has four phases:
Identification of risks: A brainstorming session with stakeholders will generally turn up plenty of potential risks. Most will be things that people fear will go wrong. It's important for the meeting leader to keep asking, "What could go right?"
Risks Quantification: The potential impact of a risk is the product of two quantities: a) the probability of an event occurring and b) the cost (or benefit) that will arise if the event does occur. For example, if a delay in delivery of a critical component will cost $10,000 and the probability of the delay occurring is one percent, then this risk's potential impact is 0.01 x $10,000 = $100. Risk quantification allows one to rank risks and focus on those with the biggest potential impact.
Risk Response: If a risk event happens, what are you going to do in response to it? Some events may require drastic responses, like abandoning the project altogether. Others may require minor adjustments in labor scheduling, deployment of the finished project, etc. Many risks require no response.
Risk Monitoring and Control: Monitoring the progress of supply deliveries, the development of software code, and other processes that give rise to risk events lets one continually refine the probability that a risk event may actually happen. Monitoring allows one to exercise control of the risk-creating process, i.e., if software development is falling behind schedule then you can crack the whip over the programmers to reduce the risk that the component they are working on won't be ready on time and cause the whole IT project to be delayed.
Project risk management software helps to perform and keep track of all the risks involved in a project. It can help you see where you are in the evaluation and preparation for each risk, which risks are interdependent, and the complex risk assessment of multiple interdependent risks.