Risk Management Framework

As stated in the Risk Management Guide Contents article, this is the first part of the series and I will dive directly into the subject without much introduction.

This figure presents a graphic model of the risk management framework challenge.


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risk management framework
Risk Management Framework

The chances of a risk event occurring (e.g., an error in time estimates, cost estimates, or design technology) are greatest in the concept, planning, and start-up phases of the project.

The cost impact of a risk event in the project is less if the event occurs earlier rather than later.(I applied logic to this one.)

The early stages of the project represent the period when the opportunity for minimizing the impact or working around a potential risk exists. Conversely, as the project passes the halfway implementation mark, the cost of a risk event occurring increases rapidly.

For example, the risk event of a design flaw occurring after a prototype has been made has a greater cost or time impact than if the event occurred in the start-up phase of the project.

Clearly, identifying project risk events and deciding a response before the project begins is a more prudent approach than not attempting to manage risk. Let’s look at an example of a failed risk management framework:

The cost of mismanaged risk control early on in the project is magnified by the ill fated 1999 NASA Mars Climate Orbiter.

Investigations revealed that Lockheed Martin botched the design of critical navigation software. While flight computers on the ground did calculations based on pounds of thrust per second, the spacecraft’s computer software used metric units called newtons.

A check to see if the values were compatible was never done.

Our check and balances processes did not catch an error like this that should have been caught,” said Ed Weiler, NASA’s associate administrator for space science.

“That is the bottom line. Processes that were in place were not followed.” (Orlando Sentinel, 1999.)

After the nine-month journey to the Red Planet the $125 million probe approached Mars at too low an altitude and burned up in the planet’s atmosphere.

Risk management is a proactive approach rather than reactive.

It is a preventive process designed to ensure that surprises are reduced and that negative consequences associated with undesirable events are minimized. It also prepares the project manager to take action when a time, cost, and/or technical advantage is possible.

Successful management of project risk gives the project manager better control over the future and can significantly improve chances of reaching project objectives on time, within budget, and meeting required technical (functional) performance.

The sources of project risks are unlimited.

There are sources external to the organization, such as inflation, market acceptance, exchange rates, and government regulations. In practice, these risk events are often referred to as “threats’ to differentiate them from those that are not within the project manager’s or team’s responsibility area. (Later in this Risk Management Framework we will see how budgets for such risk events are placed in a “management reserve” contingency budget. Link here.)

Since such external risks are usually considered before the decision to go ahead with the project, they will be excluded from the discussion of project risks. However, external risks are extremely important and must be addressed and included in any risk management framework.

The major components of the risk management framework ale depicted in the figure at the start of the article.

Here are the links to the processes in this Risk Management Framework:

  1. Risk Identification
  2. Risk Assessment
  3. Risk Response Development
  4. Risk Response Control

Each step has it’s own dedicated article(follow the links above) as I feel it is absolutely critical to examine them in more detail and if I would have decided to put them in the same place the article will have 10 000 words which is too long for a focused reading.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

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