Project Management in a Small Company: Part 3
Risk Identification and Analysis
Every project has risks, some are big and some are small. The goal of risk management is to identify these risks and plan for them to avoid unpleasant surprises during the project. Not every risk can be identified, but many can. Risk analysis should be conducted at the start of the project and revisited periodically throughout the project.
What is a Risk?
A risk is an event that could cause a problem in the project by increasing cost, decreasing quality, or lengthening the schedule. An opportunity is the reverse – an event that could increase revenue, increase quality, or shorten the schedule. Both opportunities and risks are identified during risk analysis. The project team should work towards managing risks and obtaining opportunities.
The first step in risk analysis is defining the risks and opportunities that could occur during the project. It’s always a good idea to have the whole team involved in the definition stage. Often the project manager will attempt to do this step themselves, but he most likely does not have the experience of the other team members and is likely to miss some key risks.
During the first meeting the team should identify all the risks that they can think of. Don’t worry about the probability that these events will occur at this point – that will be determined later. The output of this meeting should be a simple list of potential risks and opportunities.
The identified risks and opportunities should be analyzed as soon as the list is complete. During this process each risk is assigned a numerical score for probability (how likely is this to occur?) and impact (if it did occur how much will it affect the project?). These two values are multiplied to get a priority score which indicates how important each risk is to the project. Typically risks and opportunities with a low importance score will be ignored (at least initially), items with a medium score will be watched, and high-scoring items will planned. A sample worksheet and priority score table are shown below.
This post is part 3 of a 4-part series on Project Management in a Small Company. Stay tuned!