PMP Risk Management Part VI – The Need for Risk Management Plan

PMP Risk Management Part VI – The Need for Risk Management Plan
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Eshna

Last updated February 27, 2017


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The article provides knowledge on the topic of Risk Management for better preparation for exam.
 
In this article we shall continue our focus on the Plan Risk Responses Process
 
Plan Risk Responses (contd)
 
Outputs of Plan Risk Responses Process

  • Project Management Plan updates – The efforts spent in planning risk responses may lead to change in project plan by the way of adding, deleting or modifying work packages, team structure, decisions to outsource or do work in house, schedule or cost budget changes and more
  • Project Document Updates – Other documents such as quality management plan and so on may also change depending on changes to the project in the light of risk responses planning
  • Risk register updates – These may include
  1. Residual risks – These are risks that remain after risk response planning.  Residual risks are also risks that have been accepted and for which contingency or fall back plans have been formulated
  2. Contingency plans – These are plans that describe specific actions to be taken in case an event for which the plan is formulated occurs
  3. Risk response owners – this is a key concept in risk management.  The PM or the team doesn’t have to be responsible for all the ownership, and the risk may be assigned to a stakeholder other than the Project management team
  4. Secondary risks – any risks created by the implementation of selected risk response strategies also need to be analyzed as part of risk response planning
  5. Risk triggers – what may cause the risk response contingency plan to get in to action, in other words determining early warning signs for a risk event
  6. Contracts – A PM must be involved in signing of all contracts related to the project.  Before finalizing the contract, PM needs to ensure that the terms and conditions cover responses to all risks identified
  7. Fallback plans – These are required when contingency plans fail or are ineffective
  8. Reserves – It is required to have reserves for time and cost as part of project management

Reserves
 
No matter what is done to eliminate, mitigate or avoid risks and no matter how effective the contingency plans are, some risks will always remain in the project.  There should be a time and cost allocated to them, just as there is time and cost allocated to complete project work.  Reserves are not, hence, additional costs to the project rather regular/normal costs associated with project completion.

There can be two kinds of reserves for time and cost, contingency reserves and management reserves.  Contingency reserves account for known unknowns or risks identified in various risk management processes (remember, a risk is an uncertain event, hence known unknowns). They also cover the residual risks in the project.  Management reserves are also called unknown unknowns (or simply unknowns).  These refer to items or risks that could not be identified in risk processes.
 
Important tip for all exam seekers: Contingency reserves are calculated and become part of cost baseline.  The project manager is in charge of cost baseline and can approve the utilization of these reserves.  On the other hand, management reserves are estimated primarily using expert judgment and experience from previous similar projects and are in sole control of the management (approval is needed before relying on these funds). Management reserves are added to the cost baseline to get the project budget.
 
Important tip for all exam seekers: All non-critical risks identified must be added to a watch list where they are monitored, trends studied and decision to handle them taken appropriately.  During the project execution phase, watching out for new risks is another critical activity.
 
Important tip for all exam seekers: Risks’ status, effectiveness of risk response strategies, new risks identified, risks’ watch list, effectiveness of contingency plans are the critical items to be discussed in team meetings.
 
This concludes the article on Risk planning processes.
 
Please see the following article on last part of Risk management, Monitor and Control risks.
 
Rattan N Whig, PMP®


 
The views presented in this article are solely my personal views.  I advise all the readers to exercise discretion while adopting any views listed in this article or anywhere in the other articles for their benefits.  Another important aspect is that, whenever there is a difference or conflict in information presented in these articles and those listed in PMBOK® guide or any other publication by the PMI® institute, the dispute must be resolved in favor of the information published by PMI® institute.

 

PMP, PMI and PMBOK are registered trademarks of the Project Management Institute, Inc. 

About the Author

Eshna is a writer at Simplilearn. She has done Masters in Journalism and Mass Communication and is a Gold Medalist in the same. A voracious reader, she has penned several articles in leading national newspapers like TOI, HT and The Telegraph. She loves traveling and photography.


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