Modern organizations face multiple risks, so it’s important to prepare a risk management plan before embarking on any new project. While your risk management software can manage risk on an enterprise level, you need a project risk management plan to ensure the new system doesn’t conflict with your existing framework.
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Comprehensive risk management planning means you and your team will be aware of potential risks within a given project. This way, you’ll have ample time to reassess your risk exposure. Whether you’re a business owner, project manager or risk management professional, this article will equip you with the knowledge and tools to develop a robust risk management plan tailored to your organization’s needs.
What Is a Risk Management Plan?
A risk management plan is a comprehensive documentation of your organization’s risk management process for special projects that offer opportunities to grow and reinvent. It requires close collaboration between your risk department, senior executives and key stakeholders to create a plan that doesn’t compromise the company’s risk exposure. It covers the entire risk management approach, from risk identification and assessment to response and documentation.
The risk identification process runs parallel to the project from the very beginning. It’s a continuous procedure where risks grow in complexity and number as the project’s parameters become more tangible. You can only begin the project once you have a risk register assessing the risk’s likelihood, severity and impact across all project areas.
Use a risk assessment matrix to determine risk likelihood and impact. Source
In essence, a risk management plan functions as a stopgap for potential risk events. Access to risk reports and financial analysis allows you to set acceptable risk levels for any upcoming projects. You can plan ahead, minimize risk incidents and maximize successful outcomes with effective risk management planning.
Importance
Risk isn’t inherently bad; it’s simply an event that can potentially affect your project in one or more areas. The risk management plan definition indicates it’s responsible for identifying these risk events and assessing whether they’ll negatively or positively impact the project’s overall outcome. The plan exists as the leading documentation of identified risks and shortlisted controls for any particular project at any point in time.
In reality, a risk management plan is a digital record of risks you might encounter across various stages of your project, from conception to completion. It gives you the freedom to pursue various imaginary “what if” scenarios to try and minimize adverse risk events via different approaches and implement the most effective option. You can create several contingency plans for any particular outcome in case plan A doesn’t work out.
Unfortunately, unpredictability and risk go hand-in-hand, and it’s not always possible to predict and mitigate every negative event. However, risk management planning can provide the oversight necessary to make a significant enough dent in risk events to give you the best shot at a positive outcome.
Process
The risk management planning process will differ based on the industry and the type of project you want to apply it to. That said, the barebones skeleton remains the same across its various uses. We’ve outlined different steps to a project risk management plan that can act as a template:
1. Risk Identification
The first step of any risk management plan is identifying all possible risk events that can negatively impact the project’s lifecycle. So this is where you take a step back, break down the blueprint and individually assess each component to ensure you and your stakeholders are aware of every single risk. You can record these risks in a risk register and discuss the next steps with everyone involved.
2. Risk Assessment
The next step is to analyze the qualitative and quantitative impact of identified risks. You’ll have to assess each risk based on several factors, including likelihood, severity, impact areas, cost of the impact and impact timeline. These elements in the risk register make up the risk assessment matrix that will help you decide the overall priority and severity of every potential risk event.
3. Response Planning
Once you have identified and evaluated potential risks, you can start preparing a response plan to mitigate negative impacts on the project. Collaborate with top-level executives and the risk management team to balance the organization’s risk appetite and ensure risk exposure doesn’t exceed acceptable limits.
Depending on individual assessment results, you can choose to either avoid, transfer, mitigate, accept or defer the risk incident; however, the final decision will always be with the project manager.
Risk Responsibilities
Clearly define all roles and risk responsibilities for a particular project, including identification, registration, assessment, review, approval, monitoring and contingency planning. Everyone needs to know what triggers are and what they must do to administer risk mitigation measures. Having a clearly defined hierarchy ensures there’ll be no confusion, and your team can spring to action as soon as possible.
Risk Mitigation
It’s a two-step process — execute the risk response plan you previously prepared to minimize the impact of the risk event and prepare a contingency plan.
Implementing a mitigation measure may not always proceed as smoothly as you want. However, make sure you document dependencies, failure points and potential alternatives as you go along with the plan.
A crucial part of risk mitigation is preparing a contingency plan or a plan B in case the primary risk response plan fails. A practical contingency plan has the following elements:
- Include an accessible roadmap of risk mitigation controls and the steps required to implement them.
- Mention what resources the plan will need to successfully execute the contingency plan, enabling the risk management team to evaluate its cost-effectiveness in the current situation.
- Define roles and responsibilities within the contingency plan and explore possible escalation procedures if necessary.
Don’t forget to update and review your risk response plans from time to time.
4. Monitoring and Controlling
No matter how good your project risk management plan is, it isn’t going to last forever. Continuous monitoring allows you to develop a proactive approach instead of a reactive one regarding efficiency and peak performance. Monitor your risk remediation plans and mitigation controls in real time and collect KPIs to identify risk trends and drops in performance.
Ongoing monitoring immediately alerts relevant stakeholders if there’s a noticeable drop in positive outcomes. If a particular control fails, you can initiate the appropriate contingency plan to serve as a fail-safe.
5. Reporting
Risk management planning is a continuous process that needs relentless reporting to make sure everything performs according to standards. It’s the best method to analyze if the components are responding appropriately to trigger events and if there’s a desync between risk identification, assessment and mitigation processes. It also reveals any new risks appearing during the project’s lifecycle and any changes in risk attributes.
The project manager and stakeholders need access to granular insights to evaluate and reevaluate the project’s viability, timeline and profitability. Regular reports ensure you don’t lose sight of the bigger picture and that the risk management plan doesn’t derail the actual project’s outcome.
Best Practices
Project risk management plans are often continuous, complex and comprehensive. There are a lot of things that can go wrong.
Consider these best practices to build a culture of risk resilience and discipline in your risk management team:
Communication Is Key
Communication is one of the most crucial elements of a risk management plan. Establish clear lines of communication between stakeholders, senior-level executives and the risk management team to keep everyone in the loop regarding new developments. Collaborate with key stakeholders from the project’s conception stage to completion to ensure there’s no gulf between the organization’s vision and the actual outcome.
Stick To Your Budget and Timeline
Risk management planning might seem expensive depending on the size and scope of the project in question. If you are unsure of any time or budget constraints, the first order of business is to collect, update and review all the appropriate information in your governance, risk and compliance (GRC) or enterprise risk management (ERM) software. Compare your project risk management plan to see if it agrees with your risk management framework.
Then, engage subject matter experts and financial advisors to establish a budget and timeline and stick to it as much as possible. Continuously changing the timeline or accommodating new changes can affect the project’s outcome.
Build a Risk-Aware Work Culture
A risk-aware work culture pays dividends in the long run. It’s top-down in its implementation; senior executives must create a culture of risk resilience, responsibility and risk consciousness. If encouraged from the top down, everyone else will soon share these values and beliefs to develop a proactive approach to risk management in general.
Document and Review Constantly
Methodically document and define all risks, roles, responsibilities, templates and controls you’ve handpicked for the risk management plan. It lets you audit it whenever you want, revert any changes and establish a clear hierarchy. Regardless of how long the project takes, having a documented record guarantees the project won’t suffer because of employee turnover.
Tools and Technologies
In this era of uncertainty, embracing the right tools has become a necessity! Join the digital revolution and let these technologies propel your risk management plan to new heights, ensuring success becomes your constant companion!
- Artificial Intelligence (AI) and Machine Learning (ML): This dynamic duo helps analyze massive datasets and spot patterns, trends and risks that might evade the human eye.
- Internet of Things (IoT) and Real-Time Sensors: These enable you to collect real-time data from various sources, be it environmental factors, machinery performance or supply chain operations, facilitating timely interventions before potential issues escalate.
- Risk Management Software: It automates the entire risk management process with centralized dashboards, real-time insights and workflows. Software like LogicGate, Resolver and Riskonnect excel in risk identification and assessment with user-friendly interfaces.
- Blockchain Technology: This system ensures risk data is tamper-proof to maintain trust and transparency throughout the business. It’s a game-changer for supply chain risk management that traces every step of the process and verifies the authenticity of the information.
- Data Analytics and Predictive Modeling: Numbers never lie, and data analytics unleashes the power of historical data to predict risks and their impact. It’s like having a time machine that helps you anticipate challenges and devise preemptive strategies.;
- Incident Management and Response: When risks materialize into incidents, you need to be ready with a robust response. These systems streamline communication, optimize workflows and escalate critical issues to handle emergencies.
Examples
Preparing a risk management plan from scratch can seem like a mammoth task, even after knowing everything you have learned so far. That’s why we’ve identified a few sample risk management plans for your reference. We hope these examples will be enough to get you started:
Department of Finance and Administration, Tennessee
The Tennessee Department of Finance and Administration prepared this sample risk management plan to guide organizations looking to develop their own. The template provides sections to define your risk approach, roles and responsibilities, and planning procedures. You can also prepare a risk assessment matrix to optimize risk prioritization and remediation processes.
Shire of Northam, Australia
The government of the Shire of Northam in Australia developed this risk management plan example to be used exclusively as a guide. It emulates a risk management plan designed for an outdoor project. You can edit and update the included sections as they apply to your project, including the identification, assessment, mitigation and reporting sections. It also provides a template to create a risk register, action plan table and mitigation timelines.
Department of Information Technology (DoIT), Maryland
The DoIT created this risk management plan example for businesses looking to deploy an IT system. It prepares for risk events during the system development life cycle (SDLC). You can update roles, risk categories, definitions and reporting methods as necessary. Populate the risk register as you go through risk management planning procedures and process it via appropriate channels.
Next Steps
The risk management plan is fundamentally important to your project’s success. It’s not something you want to rush, regardless of your timeline. So take your time, read through the entire guide and ensure you understand each step’s purpose. That being said, the hardest part is getting started.
We hope this guide will provide you with all the information you need to get started on your project risk management plan. If you’re looking for software to assist you, check out our free comparison report to quickly and easily match products to your core needs.
What challenges or benefits have you found with a risk management plan? Let us know in the comments below.