A Risk Management Plan is a document that a project manager prepares to foresee risks, estimate impacts, and define responses to issues. It also contains a risk assessment matrix.
A risk is "an uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives." Risk is inherent with any project, and project managers should assess risks continually and develop plans to address them. The risk management plan contains an analysis of likely risks with both high and low impact, as well as mitigation strategies to help the project avoid being derailed should common problems arise. Risk management plans should be periodically reviewed by the project team to avoid having the analysis become stale and not reflective of actual potential project risks.
Most critically, risk management plans include a risk strategy. Broadly, there are four potential strategies, with numerous variations. Projects may choose to:
- Avoid risk — Change plans to circumvent the problem;
- Control/Mitigate risk; — Reduces impact or likelihood (or both) through intermediate steps;
- Accept risk — Take the chance of negative impact (or auto-insurance), eventually budget the cost (e.g. via a contingency budget line);
- Transfer risk — Outsource risk (or a portion of the risk - Share risk) to third party/ies that can manage the outcome. This is done e.g. financially through insurance contracts or hedging transactions, or operationally through outsourcing an activity.
(Mnemonic: SARA for Share Avoid Reduce Accept, or A-CAT for "Avoid, Control, Accept, or Transfer")
Risk management plans often include matrices.
Famous quotes containing the words risk, management and/or plan:
“Any time you take a chance you better be sure the rewards are worth the risk because they can put you away just as fast for a ten dollar heist as they can for a million dollar job.”
—Stanley Kubrick (b. 1928)
“Why not draft executive and management brains to prepare and produce the equipment the $21-a-month draftee must use and forget this dollar-a-year tommyrot? Would we send an army into the field under a dollar-a-year General who had to be home Mondays, Wednesdays and Fridays?”
—Lyndon Baines Johnson (1908–1973)
“Who is the happy Warrior? Who is he
That every man in arms should wish to be?
It is the generous spirit, who, when brought
Among the tasks of real life, hath wrought
Upon the plan that pleased his boyish thought:
Whose high endeavors are an inward light
That makes the path before him always bright:
Who, with a natural instinct to discern
What knowledge can perform, is diligent to learn;
And in himself posses his own desire;”
—William Wordsworth (1770–1850)