Why Is It Important to Plan for Risk?
What is project risk and why is it important to plan for risk?
There are several risks involved when it comes to a project. There can be an unexpected storm that causes a delay in getting supplies ordered or loss of electricity. The unknown is the reason it is critical to have a risk plan in place for every project. A project risk is an uncertain event that can potentially impact a project, either positively or negatively. Project managers need to create risk response plans that describe the risk mitigation strategies they will use to minimize the negative effect of risk events (Malsam,2021). Having a risk plan in place helps to minimize the effects of a risk such as cost and time. Therefore, a risk response plan is a way to reduce or eliminate any threats to the project.
Define a threat and an opportunity. Why is it important to know what these are on your project?
Opportunities refer to favorable external factors that could give an organization a competitive advantage. Threats refer to factors that have the potential to harm an organization (Kenton, 2021). For instance, an opportunity for a current construction project may be a reduction in the price of steel that reduces the cost of the total project. A threat may be workers on a project that may decide to strike due to drop of benefits, but this also can be an opportunity to lay off certain individuals that may not be needed for the project. As the PM it is just as important to plan for a threat(risk) as it is to look for opportunities.
What are the risk response strategies?
Avoid- By avoiding the risk you ensure the possibility of it posing a threat to your project. For instance, upgrading a computer system that has just been released. You may not be able to receive it do to being on back order, so you buy a older system to ensure delivery on time.
Reduce- If you accept that you cannot remove the risk, the next strategy is to try to reduce the risk. Testing the new equipment that is installed frequently would reduce risk of it crashing.
Transfer- Contracting out a particular aspect of the project to a third party.
Contingency plan- have a plan in place if the risk occurs such as if this occurs in Plan A we go with Plan B.
Accept- If the risk occurs you need to just accept it. Therefore, unless you’re avoiding the risk altogether, you are using a combination of the reduce (mitigate), transfer, and/or accept risk response strategy by default (Williams, 2021).
Take risks- To have a successful project you must take risks. Having a plan to mitigate the risk makes the projects actions post-risk smoother and more integrated.