Introduction to Risk Management

Let us begin with defining Risk. Risk, is an integral part of the business scenario, and can be termed as a potential event that can have opportunities that benefit or a hazard to a business component.  It could be an issue of an already occurred event. Risk can be an assumption that is not proven but is still necessary to assume to proceed successfully through the project. Risk can also be a constraint, and is characterised by threats and opportunities. Risk as defined by ISO is a combination of the probability of an event and its consequences.  Thus risk can be defined as: The effect of uncertainties on objectives (whether positive or negative).  Or  The chance of something happening that impacts project objectives Project risk, in particular, can be termed as risk that may have either positive or negative impact on the project. It is mainly caused due to uncertainty in project plan. However, these risks can possibly be controlled or can at least be tracked.   

A given project may come across different types of risks which include: 

• Financial risk: It usually includes loss of funding.  
• Process risk:  It includes business processes with many risks that probably lead to project failure. 
• Time risk: It includes risks related to time (delay). 
• Human risk:  It includes loss of critical employee or loss of employee which had more knowledge on the project processes. 
• Physical risks:  It includes damages caused to the physical resources such as powerful equipment or damage to the building. 

There might be many risks in a given project. The standard definition of project risk states that "The chance of something happening that impacts project objectives. The objective of risk management is  the core part of an organisation's strategic management that intends to reduce the effect of risk or avoid it to some extent. The real challenge is to identify the most critical risks that will have negative impact on the project and control them. Thus identifying and prioritising the risk is considered as part of risk management. For example, a person selected to complete a particular task in a project, may not have skills to do that given tasks. The project manager, who identifies this risk can plan for  training time and or can allot another skilled resource to complete that work on time. Risk management assists you to find out the methods, where you can manage the events that may have undesirable affect on financial or human capital of the organisation. Thus it enables you to prevent the adverse effect of events or risks. Risk management must analyse risk, plan for risk and bring various options to handle the risk to determine the ways in which a company may change the plan. It must also involve a process of documenting the complete risk management system. 

A project manager must identify and handle the risks by: 

• Identifying all possible risks. 
• Undertaking effective measures to avoid risks.  

Project risk management can be considered as the strategic tool used by many organisations to deal with risks in order to achieve project objectives. The main aim of risk management is to reduce the possibility of failure or any uncertainty of reaching the project's main objectives. The senior management must incorporate  these risk management process within the organisation's corporate processes and policies. It is important that each and every manager and employee consider the risk management as part of their job description. For this purpose, project managers/risk managers must follow a methodology or a process for managing risks.