It is a given that in project management, a proper risk assessment would not only reduce the odds of a negative event occurring, but would also help minimize the scale on which it occurs. An unprecedented negative outcome is a nightmare for any project manager; from project procurement phase to project execution, a million and one things could go wrong but what exactly is a risk?
Simply put, risk is the possibility of a loss in value or you could look at it as a “brush” with uncertainty when actions are taken irrespective of an unpredictable outcome. In project management, risks are a common phenomenon; the possibility of a prototype getting lost is a risk, the likelihood that plans for a record-breaking edifice could get lost is also a risk. This is where risk assessment or risk evaluation comes in.
What is Risk Evaluation?
Risk evaluation is a concept in risk management that is chiefly concerned with the analysis of the odds and magnitude of individual risks. In a bid to ascertain the significance of the risk, the approximated risk is juxtaposed against preset risk criteria.
It considers any relationship with components that are within or outside the purview of the investigation. This process is always handled by actuaries or risk assessors.
So What Does a Risk Assessor Do?
It is the job of a risk assessor to identify and analyze any risks that pose a threat to the project. The risk assessor is responsible for the following:
The examination of any factors that could affect the project’s funding or assets.
- Carry out a quantitative analysis.
- Conduct in-depth research into the severity of any identified risk.
- It is the duty of the risk assessor to make recommendations that could significantly reduce or control the risk.
- The risk assessor reviews any legal documents that relate to the project.
- The assessor liaises with insurance companies and underwriters.
- The risk assessor also advises the project team on the best approaches for treating all identified risks.
In business, the possibility that a company’s actual ROI would differ from the expected ROI is always there. Although the responsibility of risk assessment or risk management does not fall solely on the shoulders of the project manager alone, but it is pertinent that the project manager and in extension the project team, has an idea of all that could go wrong during the project lifecycle.
The Importance of Risk Assessment
A well-executed project hinges on the ability to conduct a thorough risk assessment prior to the commencement of the project. This ensures the members of the project team not only know what to expect but understand to what magnitude such unprecedented outcome could occur.
It enables the stakeholders put together a contingency plan that could help them plan better and subsequently accept, relocate or reduce the risks.
The product of risk assessment is a safety statement. The safety statement ensures that:
- The organizational operates on the ethical side of things.
- All stakeholders have some sort of legal backing in the event of a lawsuit.
- Financially, it ensures that the organization is well prepared for any expenses that might be incurred.
Steps in Project Risk Assessment
1. The risk assessor identifies all potential risks
In identifying risks, the assessor could look at a database of similar past projects. A brainstorming session is then put together to jog the team members’ knowledge of past events while paying close attention to personal contacts, team dynamics and ignoring criticism of any sort.
The assessor will try to identify the root cause of the risk by dwelling on the factors that are critical to the successful execution of the project while everyone brainstorms on issues that could cause those success factors to go wrong. Questions like – “What can happen?” “Where would it happen?” “Why would it happen?” and “How would it happen?” are asked.
It would also be helpful to know if the risks are physical, legal, strategic or financial.
2. Categorization of risks
At this stage of the risk assessment, the risk assessor categorizes all identified risks based on probability and impact.
Here the assessor looks at what the chances are of the risk occurring and groups them into low, medium or high. For impact, you want to look at how wide it can spread, who or what areas would be impacted. This would also be classified as low, medium or high.
3. The assessor subsequently goes on to evaluate the risk
In evaluating the risk, the actuary or assessor (depending on who you get) decides on how best to treat the higher priority risks. It is very likely that an insurer would be called upon to provide coverage for the risks.
In some cases, suggestions may be proffered to reduce or eliminate the risk; the activities surrounding it could be redesigned while lower or medium category risks will be monitored to see if they develop into higher category risks.
4. Finally, all analysis and evaluations are documented, with proper recommendations made to the project team.
At this stage of the project risk assessment, contingencies are put in place to secure the project and all assets. This is done in a couple of ways:
- Funding the risk
- Transferring the risk (to an insurer)
- Acceptance of the risk
- Reducing the risk
A good project manager is one who understands that a number of things could go wrong and plans for them by engaging the services of a risk assessor who will conduct an in-depth risk assessment for the project.
It should also be noted that in project management, risk assessment is not handled by the project team alone. It is also the responsibility of the internal stakeholders to engage the expert services of a risk assessor to identify, categorize, evaluate and profer expert solutions for treating all identified risks.