What is Risk Management?
Without referring to the millions of websites and documents knocking about that talk about Risk Management, I want to try and give a simple view from the perspective of someone who has to manage risk day to day across major projects. This is real risk management, hands on.
Of course, “Risk” and “Risk Management” will have variations of the same general meaning depending on the circumstances or context to which it is applied, but in principle, all risk management will follow more or less the same process.
So, what is a Risk? A risk can be any influence on an expected or planned outcome that changes that outcome. In child-talk, it’s anything that could stop you getting what you want or expect.
Here’s an important note: Risk hasn’t happened yet. If the outcome has already changed as a result of a risk “happening” then it’s no longer a Risk, it’s an Issue and has to be managed differently.
So basically – A risk is something, anything, that could happen that will impact or change a desired or planned outcome. There are so many different ways to state this that, as simple as the concept is, it can easily get confusing. Let me give you an example;
“If it rains today then the field trip has to be cancelled” – the risk is that it may rain. The impact is that the planned trip will have to be cancelled. Risk Management is recognizing the risk potential analyzing the probability and impact and either mitigating it or preparing alternative options that will allow the original plan to succeed.
Risk Management 101
On some of my projects in Asia I’ve had to seriously consider the impact of rain on project outcomes. I was on one job in Korea, Seoul, where we had a limited time to move a banks’ trading office from an old building that had been sold off, to a new building. The old building owner declared bankruptcy and sold off the office block. The new owner, the government, kicked everyone out on short notice. We had 3 months to find a new building, fit it out and move 200 staff including 120 trading positions.
This really tested my teams Risk Management ability. This was a working business, the only window to move the 200 staff was over a weekend – after trading stopped on Friday evening and before it started on Monday Morning. Guess what, we had a Typhoon heading in, and for those that don’t know how things work in Asia – Typhoons are given warning signals as they approach by the local authorities.
Each signal indicates a level of “threat” and or probability of a direct strike. As the signal rises in strength the threat (and danger to life and property) becomes imminent and public services shut down. People are told to go home or stay off the streets and, for several hours to several days, everything grinds to a halt.
I had a stressful time managing risk by the hour. The decision to roll back the move to the old office or proceed and hope we got everything in before the typhoon hit was a 15 minute review, every 15 minutes for the first half of the weekend. That was Risk Management like I never had to manage before. Risk Management is critically important to project work.
What is Risk Management?
So, the meaning of “What is a Risk” should, I hope, be graphically clear now..? Risk Management is the process of managing risk as it relates to specific circumstances. The techniques, tools and processes used to manage risk are quite pragmatic and common-sense. But we all know that there’s no such thing as “Common Sense” so the best way to get a consistent framework around managing risk is to learn some best practices based on industry proven templates and methodologies.
I’m not here to push one methodology or best practice against another. I have my personal preferences based on my industry and experience but I know and have seen many other project managers use varying techniques and tools in Risk Management, all valid and most of them effective at doing the job.
In a follow up article I will talk more specifically about Project Risk Management. I’ll share some templates and examples and hopefully stir up some discussions too. There’s no one right way to do Risk Management but there is a consistent framework that should be followed and there are some very good industry standards in Risk Management space.
Lean Implementation Tips
Finance and Hobbies
Personal Budgeting Strategies – 4 Common Personal Finance Management Mistakes to Avoid