Risk management is a fascinating part of project management, and, for the exams, the good news is that the content is mostly straightforward. However, don’t mistake this for easy, as when it comes to revision, there’s a lot of detail to get into your head. Despite the information being straightforward.
The one concept you may find unusual is that of risk being positive, a good thing, as well as negative which of course is a bad thing. If you are finding that it difficult because it flies in the face of a normal understanding of risk, then this article will help you.
As you come to revise the risk theme, make sure you allow plenty of time particularly for the foundation exam as there is quite a lot to remember. I have included some helpful checklists in this article that cover the exam syllabus as well as making sure you have a thorough grasp of the essentials.
Seeing PRINCE2 risk as positive and negative
The definition of risk is “the adverse consequences of future events”. This suggests the risk can openly be negative as it describes something bad that may happen. However, the PRINCE2 methodology quite rightly asks you also to consider positive or upside risk, which is about good things that may happen in the future.
The key to understanding positive and negative risk is the word “uncertainty”. This makes it easier to see that something good can happen as well as something bad.
The right approach to risk management is to try and limit or prevent the bad stuff, and increase or make certain the good stuff. This is where lists of risk actions fit in, one for the downside risks or threats, and one for the upside risks or opportunities.
PRINCE2 risk actions
PRINCE2 is horribly complicated when it comes to risk actions. Different people have different ways of remembering list of things, but acronyms can be helpful, so I will introduce one to you in this article.
For negative risk actions to counter threats, I suggest the acronym of AS RAFT.
Avoid
Can you stop the risk happening? Can you avoid it altogether? You may avoid a specific risk by replacing or changing the risk of source.
Share
Get someone else to share the negative impact, perhaps for share of the benefits of the project
Reduce
Okay, so perhaps you can’t stop the risk happening, but can you reduce the chances of it happening and/or reduce the impact if it does happen?
Accept
You choose to note the risk but not to do anything about it, at least at the moment. Perhaps the action would be too costly, for example, or be too distracting
Fallback
This is not the best and to use as most would use the word “contingency”.
Basically contingency or fallback is allowing for the risk to happen, you can absorb the impact, either completely or partially. So because you may have a risky supplier, you put in some time contingency against the risk that supplier will be delayed, and only use this extra time if the risk occurs.
Transfer
Give it, or at least part of it, to someone else. A good example here is the use of insurance, by which financial risk is transferred to an insurance company, even though there is some form of payment involved.
Another example is subcontracting, where you may pay a fixed cost and if, suppose the risk is realized because the work is more complicated than you first thought, the subcontractor will have to find the additional staff to put onto the job and pay the extra themselves rather than the project.
PRINCE2 Risk opportunities
Some positive things may affect the project, and it usually wise to try and increase the chances of such beneficial impact. Again, the use of an acronym may help you remember, and in this case you need wisdom similar to that of a seer, so for positive risks use the acronym SEER.
Share
Remember that this action is common to both positive and negative risks. Here you may involve another organisation for example to invest in the project to bring about this happy result and to share in the benefits of it.
Exploit
Okay, so there’s a chance that the positive risk may be realized. However, the new taken action to make it certain, or nearly certain that it will happen?
Reject
If the positive risk is realized, then that will be good and everyone will be at least. However, it is not worth any action to try and increase the chances and defect of realizing for positive risk.
Such effort would, perhaps, just distract from getting on with the main work of the project.
Understanding the PRINCE2 Risk Budget
Sometimes, but not always, a suitable way to deal with the risk is to throw money at it. This additional money is put on standby as part of the risk budget.
If and only if the risk happens, the project manager can immediately spend the money set against that risk which has been Prix a proved by the project board. Therefore, the project manager can immediately implement the risk response.
The risk budget can be set up differently, but the above is a general guideline.
The risk budget is approved, initially at least, along with the project initiation documentation (PID) are, because it is specified in the risk management strategy. Some new risks may be identified later in the project, so the budget could, therefore, include an additional amount to help deal with any risks that haven’t been identified yet.
The PRINCE2 process is not a cycle
The PRINCE2 risk management procedure looks like a cycle, but it doesn’t really work that way. The four parts that appear to cycle are: identify, assess, plan, and implement. However, having implemented an action to control a risk, you would not normally start all over again to identify it!
To make sense of the apparent cycle, think of it as covering all risk in the project.
You identify the risk, assess it, plan actions and then implement them. You then identify any new risks perhaps when planning the next stage, and add them to the existing ones.
You will then assess new risks and the current state of existing risks before going on to plan any actions. The warning here is not to try to make sense of the model as a cycle in the normal sense, just take it as a high-level overview and it will make a lot more sense!
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