Risk Management Knowledge Area in Project Management

One of the key knowledge areas in project management is risk management. This involves planning how to manage risks, identifying, analyzing, and developing responses, and monitoring them.

When planning a project, it is important to include a risk management plan. This will help ensure that risks are identified and managed effectively. Risks can come from many sources, such as changes in customer requirements, unavailable resources, or political instability.

Once risks have been identified, they need to be analyzed to determine their level of impact and likelihood. This will help you develop appropriate responses. Potential responses include avoiding the risk, reducing its impact, transferring the risk to someone else, or accepting it.

Once the risk management plan is in place, you need to monitor it to make sure that risks are being managed effectively. This includes tracking the identified risks and the responses that have been put in place.

There are six processes in the Risk Management knowledge area. These are;

When most people think of the word "risk" in their everyday lives, usually negative things come to mind. That's because, typically, when people use the word "risk" they're referring to a negative occurrence. However, before we get into information about the risk management knowledge area, it's important to mention that risk can have both positive and negative meanings.

We define the positive risks that may occur in a project as opportunities, and we characterize the negative risks as threats. In Risk management, our main goal is always to increase the likelihood of positive risks happening, and minimize the likelihood of negative risks that have the potential to affect our project badly.

Risks always stem from uncertainty. Uncertainty, in the simplest terms, means not knowing what we will encounter at the end of a process, what the outcome will be, whether our predictions will come true. The level of uncertainty may differ according to the nature of the risks. Some risks may be identified before and necessary contingency actions are planned. These are called known risks. The ones that we had no idea before they happened, are called unknown risks.

Risk management starts in the initiating process group when we create the project charter as a part of project integration. In the project charter, we include a high-level summary of possible risks in the project. Then in the plan risk management process, we define how to conduct efficient risk management throughout the project and prepare a risk management plan which will guide everyone. In this plan, valuable information such as the methodology to be used, roles, and responsibilities especially regarding the risk responses to be applied. Risk categories, costs related to risk management, a probability and impact matrix, risk tolerances of the project and stakeholders are documented in the risk management plan.

In identifying risks process our main goal is to create a risk list by identifying as many risks as we can, using all the instruments we have. It is important that everyone in the project team, key stakeholders, and, more precisely, everyone who will contribute to the risk identification process is involved in the process.

Perform Qualitative Risk Analysis is another step together with quantitative risk analysis. It is simply sorting risks according to their priority by using qualitative methods. Quantitive risk analysis is doing the same prioritization process by using numerical data. Qualitative risk analysis must be performed in all projects whereas quantitative risk analysis may be skipped in some projects.

As a next step, risk responses about the identified and analyzed risks will be determined. For threats, several risk response strategies can be used. This includes avoiding the risk by eliminating the root cause of the threat directly, mitigating risk by reducing the likelihood and potential impact of the risk by using different approaches or transferring risks, like making a contract with an insurance company. Similarly, different approaches for positive risks can be chosen according to the case. This includes exploiting the opportunity with changes to the project to guarantee it happens for sure, enhancing by increasing its chance to happen or sharing it with a third party. Also accepting the risk is an option both for positive and negative risks.

Before leaving read also our other articles about knowledge areas.