RISK MANAGEMENT PLAN
MEANING OF RISK MANAGEMENT PLAN
A risk management plan also called a “risk mitigation plan” is a well-defined document that tells how to deal with specific risks and what management actions must be taken against those risks in order to mitigate or remove threats to the project tasks and outcomes.
The risk management plan gives teams a sense of measures they need to take in order to identify, analyse and respond to all the risks running around within the project wheel.
This plan is part of a common risk management process that exists during the whole life-cycle of a project. The risk management process brings together all the driving forces that cause the project management team to take some action for treating risks.
PROCESS OF CREATING/ FORMULATING RISK MANAGEMENT PLAN
Any project immaterial of the size of the same carries a lot of risks, which may be financial, non-financial, legal or physical. Having an effective risk management plan is first and foremost to the success of any project. The task is to anticipate these risks well in advance before the project takes off.
A good risk management plan carries number of tools and strategies to mitigate risk. The strategy may be to avoid risk or transfer a component of it another project so that the impact is reduced.
Other risk management strategies may suggest the acceptance of the risk. This is decided after a thorough cost/benefit analysis. The risk management plan also depends on how the risks are prioritized by the organization. Based on relative priorities risks are given weightage, for example a certain organization may be more concerned about the physical and legal risks, whereas another organization may be focusing on operational or strategic risks. Risk priority defines the strategy and finally the plan.
Besides keeping the risk management cycle in mind; before the final draft, an effective risk management plan may traverse through following:
Make a List
Before starting or deciding on anything else it is important to make a list of potential risks. Even the minutest details need to be taken care of. Something that appears a minute threat now may transform into a potential risk in the near future. This is especially true for project management. Enlist the categories of the project and then evaluate each for risks. For example there may be a cost category; determine the factors that may increase cost and make a list. Prioritize the Risks: Arrange the risk in order of priority. Those that need to be dealt with first are listed first. Risks are prioritized on the basis of degree of impact and the likelihood of occurrence.
Developing and Action Plan
Plans are designed to minimize the impact of the risk and to check the occurrence. In addition, an action plan in developed against each risk i.e. in event of occurrence how do we respond to the risk, who all will be responsible and what are the contingencies.
Human Resource Deployment
Now people are deputed at specific points with specific roles. They work in tandem with the entire team and are specially deployed to undertake planned actions in case the anticipated risks come true. These actions are to be taken at specific points in time; a timeframe is necessary.
Finally, communication of the plan to stakeholders (both internal and external becomes necessary). Present the plan to those who are supposed to make key interventions and explain the timeframes and the actions and the responsibilities.
The formulation of the plan is in tandem with the risk management cycle which acts as the basic guideline. Both work in sync, in fact the interventions in step of communicating the plan discussed above cannot be without a thorough understanding of the cycle.
BENEFITS OF WRITING RISK MANAGEMENT PLAN
Risk management plans provide various benefits that make the document a worthwhile endeavor for every organization. From helping businesses to identify the potential risks they may face to treating them. Being aware of these risks allows companies to make plans and deal with them when they arise. But majorly, a risk management plan:
1. Boosts Results
By defining a risk management plan for your organization, your chances of a successful project are more likely as it minimizes and eliminates negative risks such that projects can be completed on time.
This enables your team to meet the budget and fulfill targeted goals. When you don’t have well-defined risk management strategies in place, your projects become vulnerable and get exposed to problems.
2. Help you be Proactive, and Not Reactive
Having a clear risk management plan lets you be proactive and take steps to reduce potential issues before they arise, instead of constantly fire fighting. Your team can take the risk that has been recognized and transfer them to workable steps that will reduce the likelihood of them happening.
3. Help you Evaluate the Entire Project
With the help of a devised risk management plan, you can assess the impact of your tasks by mitigating exposure to risks and exploiting opportunities that capitalize on your organizations’ strengths. In other words, it helps you evaluate your current project’s success and to helps you build best practices for the future.
A risk management plan can never be perfect. However, the degree of its success depends upon risk analysis, management policies, planning and activities. A well-defined management plan can be successful only if risks are properly accessed. And if not, the main objective of risk management plan itself is defeated. Critical evaluation of a risk management plan at every stage is very necessary especially at an early stage. It will allow companies to discover the flaws before it gets into the action. Once you’re through the process, you can address the issues and then introduce it.
EVALUATION OF RISK MANAGEMENT PLAN
The below mentioned steps can help in analyzing and evaluating a risk management plan:
Keep a note of all the events and activities of a risk management plan. Check out the problems arising from their implementation and assess if they have a serious impact on the whole process. Make a note of those that have serious implications.
Match the Outcomes of a Risk Management Plans with its Objectives:
Ends justify means. Check if the possible outcomes of a risk management plan are in tandem with its pre-defined objectives. It plays a vital role in analyzing if the plan in action is perfect. If it produces desired results, it does not need to be changed. But if it fails to produce what is required can be a really serious issue. After all, an organization deploys its resources including time, money and human capital and above all, the main aim of the organization is also defeated.
Evaluate If All the Activities in the Plan are Effective:
It requires a thorough investigation of each activity of a risk management plan. Checking out the efficiency of all the activities and discovering the flaws in their implementation allow you to analyze the whole plan systematically.
Evaluate the Business Environment:
A thorough study and critical evaluation of business environment where a risk management plan is to be implemented is essential. Take time to assess, analyze and decide what exactly is required.
Make Possible Changes in Faulty Activities:
After evaluating the effectiveness and efficiency of all the activities, try to make possible changes in the action plan to get desired results. It may be very time consuming but is necessary for successful implementation of your risk management plan.
Review the Changed Activities:
After making changes in already existing activities and events of a risk management plan, go for a final review. Try to note down the possible outcomes of the changed activity and match them with the main objectives of the risk management plan. Go ahead in case they are in line with them.
Evaluating a risk management plan sometimes can be very frustrating. It is definitely a time consuming process and also requires more of human efforts. Therefore, it is always better to analyze and evaluate a plan at every stage otherwise it will result in wastage of time, finances and efforts. In order to keep a check on it, specialized teams of risk managers can be appointed. The whole event can be outsourced to a risk management firm. The professionals at the firm can help to design, develop, implement and evaluate a risk management plan for your company.
Risks are bound to happen in all kinds of projects. But if you have a clearly defined risk management plan to help you navigate the process, you can mitigate error more effectively.
Note that the risk management plan is a living document that needs to be monitored and improved upon as the situation demands.