Risk management is an important process in business projects, organizations, and even for individuals who want to achieve goals without encountering unwanted surprises. Risk management is an effective method of identifying, evaluating, and anticipating potential risks in order to reduce their negative impact on both the project and individual interests. In this article, we will discuss what risk management is, why it is important, and how it is used to overcome these risks.
What is risk management?
Based on the Project Management Institute (PMI), risk management is the art and science of identifying, analyzing, and responding to factors that create risk during the project in order to achieve goals. By knowing the risks in advance, we can be prepared to face the risks that arise, both positive and negative risks. This allows future problems that impede the success of our project to be anticipated and their impact to be minimized.
The urgency of risk management
Risk management is very important in projects because sometimes unexpected risks arise in projects. This risk can impact the budget, schedule, and quality of the project itself. Let’s go through all three variables one by one:
- Keeping a schedule. By implementing risk management, we can identify potential risks from the start, allowing the project team to formulate ways to avoid delays and keep the schedule under control regardless of the emergence of threats from these risks.
- Save costs. By knowing the risks that are likely to occur, we can predict the costs involved and minimize unnecessary additional costs.
- Quality improvement. Once we can anticipate future risks, we can be better prepared to deal with them while improving the quality of the projects we manage.
Application of risk management
In practice, there are 6 steps to risk management:
1. Risk Identification
The main thing that needs to be done is to identify any risks that may arise during the project. There are two ways to identify it: looking at the whole project or identifying areas that may be at risk
2. Risk Analysis
Once identified, the collected risks are further analyzed. There are many variables that need to be analyzed and all of them need to be analyzed in detail using both qualitative and quantitative methods to get accurate predictions.
3. Prioritize the most important risks and issues
Not all risks need to be specifically anticipated and thought through. Create a risk categorization from high to low to more easily find which priority is most important.
4. Appointment of risk officers
You can’t handle everything on your own. There must be someone to help you monitor the risk. This person must also understand what to do if the risk occurs
5. Responding to Risks
This is the hardest part. Responding to risk is the main task of risk management. An answer leads to the success of the project that is affected. First, it must be determined whether the risk involved is positive or negative. If the risk is negative, a risk contingency plan must be implemented to minimize the impact of the risk
6. Monitor risks
After responding to those risks, the response to those risks must be monitored so that risk management progress can be counted as a success. Remember, a risk is being managed, and new risks may arise. Therefore, as project managers, we must vigilantly monitor our projects until they are completed and successful
Application of risk management based on PMBOK
Apart from the above version, the Project Management Body of Knowledge (PMBOK) also has its own version for implementing ideal risk management. There are 5 steps to implementing risk management according to PMBOK:
- Risk Management Planning. The first planning step is to determine which approach to use
- Risk Identification. Just like the risk identification in the previous method, this phase serves to collect risk factors
- Qualitative risk measurement. This stage is used to measure how influential risk is on a project
- Risk Response Planning. After the risks have been identified and analyzed, a risk response plan is created to determine what to do when dealing with those risks
- Control and monitor risks. When executing risks, risk control and monitoring must also be taken into account as in the previous method. This is done so that the success of the project can be assured regardless of the risks involved.
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