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Simple Risk Management

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Any good project manager thinks about the things that could go wrong on their project, how to prevent them from going wrong, and what the backup plan is. Risk Management is about formalizing this practice.

Executive Summary

Here is the basic Risk Management Process:

  1. Consider and write down the risks for your project.
  2. Grade each risk with the potential impact.
  3. Grade each risk with the probability of it occurring.
  4. Write down a plan to prevent each risk from occurring. (Prevention Plan)
  5. Write down an action plan to lower the Impact if the problem occurs. (Mitigation Plan)
  6. (Optional) Write down a backup plan. (Contingency Plan)
  7. Keep checking the list and executing the Prevention Plans.

Consider Your Risks

You need to start by determining your risks. Part of this is determining the scope of the risks you manage. If you are working on an International Space Station which is a collaboration between many countries, companies, vendors, contractors, etc. there are more risks than you can consider. Hopefully, they aren't all you problem though. You need to narrow your list down to things you can control. You also need to keep the list manageable. If you list a few hundred thousand possibilities you're never going to be able to track them all and the list becomes useless. On the bright side, if you do oversee that many risks, you probably have managers below you. They should each be managing a subset of the risks so you don't have to (more on that in a future article). On the other extreme, if you're screwing in a light bulb you can probably handle the risk management in your head. Find a scope that will give you a quantity of risks you can handle managing. Like all things, as you practice you will improve and you'll find you can track more risks. I find a good starting point is to consider about one printed page, or one large whiteboard full of risks.

As an example, I'm going to consider the following risk: Vendor X may not be able to hit the quality bar on the primary character models. This includes the hero, the villain and the sidekick.

Potential Impact

You need to consider the potential impact of each risk. If the potential issue can cause your project to go over budget by billions of dollars and knock it years off schedule, you better pay attention to it. If the issue can cost you just a few weekends of overtime, you might want to spend more time focusing on the other issue. This is one of two factors that are used to help you prioritize the issue. The easiest way to rate this is on a scale of 1 to 5 with 5 being the most costly (worst).

For our example I'm going to say the potential impact is a month long delay as the models are reworked locally and 5 man months of cost. (Don't try to break down the metrics; I'm making the numbers up.)

Probability

The other factor that helps you prioritize risks is the likelihood of the problem occurring. A risk that is much more likely to occur will require more attention. Like Potential Impact you can rate this on a scale of 1 to 5 with 5 being the most likely to occur. In reality these are both just guidelines to help you understand what you should be paying attention to. The simple way to think of it is Impact times Probability. By multiplying Impact and Probability you will end up with a number between 1 and 25. In general, you should pay attention to the bigger numbers.

In our example, I'm going to assume we calculate the risk as possible, but not probable. We've seen a few examples of their work at this level, but not many and we haven't done this level of work with them.

Prevention Plan

Now that you've identified the risk, how are you going to prevent this problem from occurring? Write down this plan in as much detail as needed. If you can't come up with a Prevention Plan, you should ask your boss. Don't wait until it's too late. Surprises are almost always bad on a project. Your manager would rather know that you thought of the risk ahead of time and took action (even if you needed help), than find out after disaster that you thought of it, and ignored it.

My prevention plan will be: Vendor X will send us the latest version of these three models every Monday, Wednesday, and Friday morning. We will provide feedback be the end of the day each time we receive an update. This gives us two benefits. First, we'll be helping them to achieve the required quality. Second, we'll know early on if Vendor X is having trouble hitting the mark.

Mitigation Plan

Despite all your tracking and planning, sometimes things can still go wrong. That's when a good backup plan is important. Create a backup plan that will minimize the Impact. By defining the backup plan ahead of time, you know the Impact to schedule and cost. If a problem does occur there is no need to panic; you already know what to do. As a manager you need to be the calm in the storm. Having your Mitigation Plans in place ahead of time allows you to keep things manageable when they're trying to unravel around you.

Our mitigation plan is: If Vendor X cannot hit the quality bar by August 4th, we'll take the in-progress assets and contract a senior artist to finish them in house. This will take an estimated one week per asset (3 weeks total) at a cost of $X.

Contingency Plan

It is good to have a backup plan in case the Mitigation Plan is not sufficient to cover the failure of the task. It might be difficult to come up with a Contingency Plan for each risk, but it is a good exercise to try. I usually consider this one optional, but give it your best shot.

Our contingency plan is: If the in-progress assets turn out to be too far from the quality bar. Assets will have to be redone in house. Continue work with placeholders and limit work with the placeholders to first pass to limit the effect to the schedule.

Manage the Risks

Write down a Prevention Plan and follow through. It is immensely frustrating to know that one of your managers wrote down the Risk and a great Prevention Plan, but let the problem occur anyway because they didn't check back after writing it down. Schedule a time and a frequency that makes sense to go over this list. Maybe you need to check it every Monday to make sure your Prevention Plans are on track and your Mitigation Plans still make sense. It could be that daily makes more sense for your project. Decide how frequently you need to consult your list and make it a habit. Schedule it on your calendar. If you're not sure how often you need to do this, start going over the list every Monday morning. Evaluate how your Prevention Plans are doing and take action as needed. You can adjust how often you check back, but make sure you keep checking your list.

Conclusion

I'll be posting an example Risk Management Excel file soon to help document your risks. Whether you use Excel, Word, Post-Its, or a whiteboard tracking and managing your risks will make your projects run more smoothly.

Last Updated on Wednesday, 13 July 2011 15:08  

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