Risk Management Plan is a back up plan for effectively facing contingencies arising out of risk situations. It is mostly followed by business houses. Risk management plans involve in depth statistical analysis.
Definition of Risk Management Plan
Risk management plan is a contingency plan put in place by project managers. The purpose of such plan is to predict risks and create back up plans to face them. The risk management plan also involves the creation of a risk assessment matrix. One can note that risk refers to the effects connected with uncertain events.
Risk management plan involves assessment of risks of high impact as well as low impact. Risk management plan needs to be constantly reviewed and upgraded by project managers.
Techniques of Development of a Risk Management Plan
Risk strategies are prepared in risk management plans.
Mainly there are four types of strategies as stated below:
Risk acceptance: Accept the chance factor that the negative impact will occur.
Risk avoidance: Change plans so as to prevent the problem from arising.
Risk mitigation: Take steps to lessen the effects of the negative impact.
Risk transfer: Ship out the risk to an able third party.
Birds eye view of how a Risk Management Plan works:
To begin with we need certain definitions:
|Risk||Positive or negative effect of an event|
|Probability||Likelihood of occurrence|
|Impact||Negative effect of an occurrence|
|Mitigation||Reduction of the probability of occurrence|
|Contingency||Means of reduction of impact|
|Reduction||Mitigation of the contingency|
Exposure is the amount of risk that cannot be avoided. One needs to conduct a cost benefit analysis before taking up a planned activity. There the exposure factor is taken into account. Exposure becomes assumed risk when the planned project is finally executed. It is then assigned a dollar value and thereafter it gets into the final profit calculation. For beginning a project, first we need to collect relevant information and then identify the risks involved. After this we need to identify the implication of the risks and if possible assign a dollar value to it. Assignment of probabilities to the occurrence of the risk factors comes next. Ruling out of impossible events is also done at this stage. They have zero probability of occurrence. Here we also need to assign impact on some preset guidelines. Next comes mitigation strategy development. In a scale of high, medium and low, mitigation policies are usually meant for the first two. Then we need to put in place the contingency plan. After this, we have to check for the effectiveness of the risk management plan that has been followed.
Tips on fine-tuning of Risk Management Plan
- Keep it simple.
- Better not to completely overlook low probability risk factors. Multiple of such failures can lead to system collapse.
- One should also try to minimize risk identification errors.
Last Updated on : 8th July 2013