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Managing risks

Risk management is all about deciding what to do about risk. There are several techniques that help control and reduce risk. These include risk reduction, risk avoidance, risk transfer and risk acceptance.

All projects have certain degree of risk that needs to be managed. Risks are uncertain events or conditions that could have a positive or negative outcome on the project. Uncertainty, opportunity and risk are closely related.

The first step is to determine any likely risks. This can be done by asking yourself, "What could go wrong?". Assess every part of the project, review the work breakdown structure, review the cost estimates and resource plans.

Consider the main internal and external events that could affect the project. You can never anticipate all the possible risks. Simply identify all those that are fairly likely.

Another way of looking at risk down to qualitative and quantative issues. For qualitative issues you would look at: suppliers, poor communications, labour and exchange rates (to name a few). You can then decide which of these risks is important by giving them a value, say out of ten. Some project managers put together what is known as a risk register, where you can list these values and you end up with one or two page overview of the major risks on the project.

For quantitative risk analysis you look at the critical path model and assess each of the durations for each task. In fact, you need sophisticated software for this analysis This is known as Monte Carlo analysis along the critical path by feeding a variety of different durations through the logical path. Each go at analysing the plan is called an iteration. It tends to be used only on major projects where risk plays a significant role.


Excerpts from The University of Sunderland BA (Honours) Business Management, courtesy Resource Development International (RDI) Jamaica.
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