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Project Risk Management – An Analogy
By Xiaoming Wang

In terms of project management theory, risk management in a project can be defined into three main activities:

  • Risk assessment and analysis
  • Risk reduction and monitoring
  • Risk management process and methodology

It might be difficult to understand the boring theory, thus a real-life example will prove very helpful.

Imagine, you and your partner plan to have dinner in a fancy restaurant on the Fifth Revenue for your three year anniversary. Basically, you need go through the following steps in order to make your wife/husband happy.

  • Find the phone number of the restaurant
  • Call the number and book the table
  • Go to the restaurant
  • Order
  • Eat, drink, talk, eye contact, and etc…
  • Pay

In the above steps, if everything is going well, brilliant! However, as you know anything could go wrong in real life, and you cannot know beforehand. Such as “the number is wrong”, “no table available”, “huge traffic preventing you from getting there”, “the restaurant did not reserve your table”, “you/your partner are not happy with the dishes”, “they do not accept a credit card or your credit card does not work”, etc… There are many of them. You might also think of more risks. So generally, a brainstorming is absolutely necessary on this stage. Just remember, the brainstorming starts earlier than your anniversary and go through the whole process.

First thing you need do is to assess and analyse these potential risks and their threats so that you can decide which one you need pay more attention and which not. Let’s make a matrix for these risks.

Risk description Status Impact*likelihood Date
The number is wrong Undefined unknown 11 Nov 2008
No table available defined Small 11 Nov 2008
The restaurant did not reserve your table identified medium 11 Nov 2008
You/your partner are not happy with the dishes identified critical 11 Nov 2008

You can easily figure out why “Your wife/husband is not happy with the dishes” is critical for this “project”. Because it might cause a big fight and ruin your “perfect plan”. The impact*likelihood of “No table available” is small because it is not some special occasion or a holiday (it’s a Monday). Generally it is not that difficult to figure out the risks and their likelihood based on brainstorming, assessment and analysis.

During the analysis, you can prioritize the risks by “Impact*likelihood” to determine which risk should be focused on.

So, when we know these risks and their threats, impact and likelihood, how do you manage them in order to reduce the impact to the lowest level?

There are four ways to manage risks. They are:

  • Mitigation
  • Transference
  • Acceptance
  • Avoidance

In most cases, we accept the risks with small “impact*likelihood” and try to avoid or transfer some risks. For the rest, you might not find a way to get rid of them, so mitigation is really the only thing that you can do.

For the risks specified in the matrix above, we can add columns “Strategy”, “action” and “Owner”. The duration of the action would be nice to have.

Risk description Date Status Impact*likelihood Strategy Action Owner Others
The number is wrong 11 Nov 2008 Transferred small Transfer Find the number online Me N/A
No table available 11 Nov 2008 Transferred Small Transfer Go to the nice drink place besides the restaurant, and wait for the table to be ready Me N/A
The restaurant did not reserve your table 11 Nov 2008 Migrated small Migrate Call the restaurant twice to ensure that the table is booked Me N/A
You/your partner are not happy with the dishes 11 Nov 2008 Migrated critical Migrate Ask around or search online to select those nice food Me It really depend on my partner’s mood

Next thing that you need do is to monitor the risks and guarantee that all the known risks are under control.

Mr Xiaoming Wang, MSc (Information Processing), is a consultant, project manager, trainer, coach and business analyst in ThoughtWorks. Xiaoming has valuable experience of enterprise information system development widely across banking, finance, retail, manufacture, hydrocarbon, HSE management, telecommunication, CRM,.CMS, BPMS and grid computing. His expertise includes Agile project management, Lean methodology consulting, organization transformation from CMM to Lean/Agile, program management and business analysis. Xiaoming has worked in diverse industries for four years then settled down in IT industry as an IT manager. He then moved to IT consulting field and now focuses on IT project management. He was also a contributor to open source, such as CruiseControl.

Xiaoming’s Weblog OSSME.COM has rich information of IT project management, agile practice and lean methodology.

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