Concepts
This is the focus of the Project Management Institute Risk Management Professional (PMI-RMP) credential, a globally recognized validation of your expertise in assessing project risks and advocating risk mitigation strategies. To achieve this highly regarded credential, you must demonstrate your proficiency in establishing a risk management strategy and implement it effectively throughout the project lifecycle.
I. Understanding Risk and Risk Management
A risk is considered an uncertain event that, if it occurs, can have an effect on the achievement of a project’s objectives. These effects can be either positive, where they help accomplish objectives, or negative, where they prevent those objectives from being accomplished. Risk management, therefore, involves the systematic process of identifying, analyzing, and responding to project risk.
II. Steps in Developing a Risk Management Strategy
The PMI-RMP exam covers five main domains related to risk management, and one of the important areas is Risk Strategy and Planning. Here are the following steps involved in establishing a risk management strategy:
- Risk Management Planning: This requires developing a plan for how risk management activities will be structured and performed. It defines the methodology, resources, schedules, risk categories, stakeholders’ roles, and responsibilities, and the risk tolerance thresholds.
- Risk Identification: This is the collaborative and iterative process of identifying risks in a timely and comprehensive manner. It involves identifying sources and types of risks and documenting their characteristics.
- Qualitative Risk Analysis: This is the process of assessing and combining the probability of occurrence and impact of identified risks to prioritize them.
- Quantitative Risk Analysis: This process numerically analyzes the effect of identified risks on overall project objectives by assessing a range of possible outcomes.
- Risk Response Planning: This involves developing options and determining actions to enhance opportunities and reduce threats to the project’s goals.
- Risk Monitoring and Control: This process tracks identified risks, monitors residual risks, identifies new risks, and evaluates effectiveness throughout the project.
III. Risk Response Strategies
Risk response strategies are the means to minimize threats and enhance opportunities. The following table provides an overview of the four main risk response strategies:
| Risk Response Strategy | Description |
|---|---|
| Avoidance | Implementing measures to eliminate the threat or protect project objectives from its impact |
| Mitigation | Implementing measures to reduce the probability of risk occurrence of a threat or its impact |
| Transfer | Moving the impact or ownership of a risk to a third party |
| Acceptance | Willingness to tolerate the risk |
IV. Using Risk Breakdown Structure (RBS)
A Risk Breakdown Structure (RBS) is a hierarchical representation of risks, starting from the highest levels of risks and drilling down to specific risk categories. It helps organizations to identify and manage the potential risks that might affect a project’s progress or outcome. When the RBS is filled with identified risks, it provides a visual schematic of the identified project risks in their categorized locations.
In conclusion, establishing a risk management strategy is a critical endeavor that every PMI-RMP aspirant must master. It requires strong analytical skills, leadership ability, and a comprehensive understanding of all project aspects. As a PMI-RMP credential holder, you will have what it takes to understand project risks in depth, have the knowledge to plan for uncertainty, drive stakeholder alignment, and improve project outcomes.
Answer the Questions in Comment Section
True or false: Stakeholder risk tolerances are not critical to the risk management strategy.
- False
Explanation: Understanding stakeholder attitudes and tolerance to risk is an essential element of developing a risk management strategy in project management.
What is the primary objective of establishing a risk management strategy?
- A) To ensure project completion
- B) To ensure that all risks are eliminated
- C) To increase project costs
- D) To identify and effectively manage project risks
Answer: D) To identify and effectively manage project risks
Explanation: The main purpose of a risk management strategy is to identify and lay out procedures and methodologies for risk management.
True or false: Risk assessment involves the identification, analysis, and prioritization of risks.
- True
Explanation: Risk assessment plays a vital role in risk management strategy by helping to identify, analyze, and prioritize potential project risks.
In risk management strategy, what does risk “communication” involve?
- A) Telling stakeholders about project progress
- B) Sharing information about risks and risk management activities
- C) Discussing team issues
- D) Reporting project status to the team
Answer: B) Sharing information about risks and risk management activities
Explanation: Communication in risk management involves sharing risk-related information and updates with stakeholders and team members.
A register that serves as a repository for information regarding identified project risks is known as:
- A) Risk Matrix
- B) Project Charter
- C) Risk Register
- D) Issue Log
Answer: C) Risk Register
Explanation: A Risk Register is a commonly used tool in project management that provides a structured way of identifying and documenting potential project risks.
True or false: A risk management strategy can be effective even without being fully integrated into the broader project management strategy.
- False.
Explanation: A risk management strategy should be integrated into the overall project management strategy to be effective, as risks impact all areas of a project.
Which of the following is NOT a part of a risk management strategy?
- A) Risk identification
- B) Risk analysis
- C) Cost estimation
- D) Risk response planning
Answer: C) Cost estimation
Explanation: While cost estimation may be influenced by risk management, it is not a part of the risk management strategy itself.
True or false: Qualitative risk analysis involves the use of numerical values.
- False
Explanation: Qualitative risk analysis uses non-numeric data such as ranking or rating scales, unlike quantitative risk analysis which uses numerical values.
If a risk occurs and you had planned to accept it by doing nothing, this is an example of:
- A) Risk avoidance
- B) Risk mitigation
- C) Risk acceptance
- D) Risk transfer
Answer: C) Risk acceptance
Explanation: Risk acceptance is a strategy where the project team decides to acknowledge the risk and not take any action unless the risk occurs.
In project risk management, who is responsible for creating the risk management strategy?
- A) The project manager
- B) The project team
- C) The stakeholders
- D) All of the above
Answer: D) All of the above
Explanation: While the project manager generally oversees risk management, all those involved – including the project team and stakeholders – help create the risk management strategy.
Risk monitoring and control are ongoing processes that must continue throughout the project. True or false?
- True
Explanation: Risk monitoring and control are continuous processes that need to be carried out regularly to ensure the effective management of risk.
The effectiveness of risk responses has to be continually evaluated. True or False?
- True
Explanation: The effectiveness of risk responses is to be routinely evaluated to ensure that the strategies are working and whether any revisions are necessary.
Great article on establishing a risk management strategy! Very insightful.
Thanks for the blog post! Helped me a lot with my PMI-RMP preparation.
I have a question. Should risk ownership be assigned during the risk identification phase or later?
Does anyone have any recommended tools for risk assessment?
I found the article to be a bit too generic. A deeper dive into specific methodologies would have been more helpful.
Risk management planning is vital for project success. Fully agree with the points discussed.
Thanks for sharing this. It will be useful for my PMI-RMP exam.
How do you balance between qualitative and quantitative risk assessment?