Holiday Pirates Travel Planning Step 9:
A personal description of an effective and efficient risk management process.
Risk and uncertainty are terms basic to any decision making framework. Risk is imperfect knowledge where the probabilities of possible outcomes are known and uncertainty exists when these probabilities are not known. Uncertainty is therefore imperfect knowledge and risk is uncertain consequences.
Uncertainty is central to all projects and that uncertainty management is a more descriptive term of the risk management process, and more appropriate for managing the sources of uncertainty that includes risks, threats, and opportunities.
Ambiguity is associated with uncertainty in the interpretation of variable data sources influenced by the behavioural constructs of those involved in the process. Clarification and hence management of ambiguity and uncertainty, improves the effectiveness and efficiency of decision making.
This management process is mirrored within a project environment. Uncertainty in a project includes: Best practice in project management is therefore concerned with the management of uncertainty that matters to the project in an effective and efficient manner.
The requirements for an effective risk management process therefore include the project context and characteristics of all participants. Project contexts are characterised by the nature of the project, the immediate working environment, and the identity and actions of other participants.
The implementation and effectiveness of the response is then monitored and measured and adjustments made where appropriate. The purpose is therefore not to necessarily eliminate all risk but rather to remove avoidable risk, reduce uncertainty and retain a desired level of intrinsic risk.
Key actions to reduce intrinsic risk include: The conventional stages of risk management are typically represented by a six phase approach namely: Risk management planning is an iterative process throughout a project and involves the frequent review project objectives and technical description, project assumptions, roles and responsibilities which form the basis for a risk management plan.
The project context includes the environment, project characteristics, and organisational culture drivers of participants. These in turn influence the risk management process to be implemented.
This phase requires the explicit statement of inclusion of both opportunities and threats with detailed documentation of opportunity management processes. Risk identification is an iterative organised process for identifying risk events which may affect the project.
It repeated at different phases of the project life cycle. There are a number of techniques for risk identification including, but not limited to, brainstorming, checklists, prompt lists, questionnaires, and Delphi groups as well as various diagramming approaches.
The techniques may be used to identify both opportunities and threats. Additional approaches include a strength, weaknesses, opportunities and threats SWOT analysis, constraints and assumptions analysis or force field analysis to identify positive and negative influences on the achievement of objectives.
Identified risks are then assessed qualitatively by assigning values to an event probability and consequences as a basis for determining a qualitative risk factor. The most common technique is a two dimensional probability-impact matrix that allows the relative significance of the risk to be ranked on a high, medium, or low impact basis.
This allows independent assessment of the probability and consequence of a risk as well as the qualitative definition of the basis for the risk and its risk level. A double sided probability-impact matrix is suggested to separate out opportunities and threats using the same technique to complement the qualitative risk assessment method.
Quantitative risk analysis involves the determining the probability of the incurrence of a risk, assessing the consequences of the risk and combining the two to identify a risk level using tools such as Monte Carlo analyses and decision trees.
Several factors complicate the analysis including possible multiple effects on a number of systems by a single risk event and false impressions of precision and reliability through the deployment of mathematical techniques. The purpose therefore is to assess the overall level of risk exposure, to highlight specific areas of risk and to develop responses to that risk.
The same quantitative techniques can be deployed to take account of opportunities and threats in the context of uncertainty measurements in terms of time and cost as well as the probabilistic combination of individual uncertainties.
This is especially true because ranges of variables and associated probabilities are calculated and could be assigned best case minimum optimistic or worst case maximum pessimistic estimates to include threats and opportunities.
The risk response planning phase is the identification of the course of action or inaction as a response to identified risks that is appropriate, affordable, and achievable.
Response methods typically optimally balance risk with other factors such as cost and time, and are driven by the unambiguous allocation to responsible individuals for implementation and monitoring purposes.
Risk responses are usually grouped according to the intended effect on the risk being managed. Responses to risks generally fall into one of four major categories:The Purdue University Online Writing Lab serves writers from around the world and the Purdue University Writing Lab helps writers on Purdue's campus.
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