Before we try to comprehend what risk based project management is, let us examine project
management itself. Project management is the process by which the outcome of the project
under consideration will be managed so that uncertainty can be controlled.
With this description, we can see that risk management is the key step underlying the
project management process. So risk based project management is essentially learning how to
manage the risk (or uncertainty) inherent to any project undertaken. When uncertainty is
reduced, or even completely eliminated, then the value of the project is protected and
expected outcomes become realized.
What are the steps in Risk Based Project Management?
1. Being aware of risk. – in this step, the project management planners will prioritize
risks so that threats which will probably occur first and pose the greatest potential loss
to the project can be tackled first.
2. Risk assessment. – here, the project managers have to strike a balance between a risk
which poses higher potential loss yet has lower probability of occurring, and a risk which
poses less potential loss but has a higher probability of occurring.
3. Creating strategies to control risk. – Common strategies employed are dodging the risk
altogether, permitting certain or even all outcomes of the risk to be absorbed, lessening
the potential negative impact, and allowing another party to shoulder the risk.
4. Reducing risk by applying managerial resources.
Where does risk come from?
A project can be threatened by various forms of risk that come from:
– the political system
– internal and external organizations
– environmental factors
Types of risk management
1. Management of risks due to legal or physical factors – this is inclusive of lawsuits
and natural disasters, among others.)
2. Financial risk management – this involves risk management employing traded financial
Risk Enterprise Management might be better known by its other name of Enterprise Risk
Management. Enterprise Risk Management essentially offers a methodology by which businesses
are able to change their stance for meeting potential risk. Using Enterprise Risk
Management, businesses can adopt a holistic attitude in considering and evaluating risk.
The methodology allows these corporations to look ahead so they can determine areas of
concern, and develop measures accordingly so they can meet demands of regulations.
Under Risk Enterprise Management, or Enterprise Risk Management (ERM), corporate planners
can look into the following areas of concern:
1. Risk Strategy – Planners should ask themselves: what the ERM strategy of their
business is at the moment; and what is the process by which members of the organization are
informed of this ERM strategy and able to execute it?
2. Risk Ownership – How does every sub-group within the organization help to achieve
the ERM strategy that was adopted? How are group members deemed accountable for the
effectiveness of the ERM strategy?
3. Risk Identification – How does the organization define risk? What are the five
leading risks of your business?
4. Risk Ranking – Considering the five leading risks identified, how probable is it
that these risks will happen? What is the time to impact matrix for each of these risks?
How severe is each risk expected to be felt? How bad is the financial impact on the
organization of each risk? Are any risks material? How does your business prioritize these
five leading risks?
5. Risk Treatment – How does your business presently manage risk? Is your risk
treatment approach effective?
6. Risk Solutions – Having examined #1 to #5, what risk management solutions should be
adopted? What action plans should be established? Can risks be monitored and how?
Acknowledging these categories of Risk Enterprise Management or ERM can help optimize
shareholder value as you pursue strategic advantages.