Risk management is the process of making and carrying out decisions that will minimize the adverse effects of risk on an organization.
Risks are potentialities, and in a project management context, if they become realities, they then become classified as “issues” that must be addressed. So risk management, then, is the process of identifying, categorizing, prioritizing and planning for risks before they become issues.
Risk management can mean different things on different types of projects. On large-scale projects, risk management strategies might include extensive detailed planning for each risk to ensure mitigation strategies are in place if issues arise. For smaller projects, risk management might mean a simple, prioritized list of high, medium and low priority risks.
It should be pointed out that not all risks are equal. Risk can be either positive or negative, though most people assume risks are inherently the latter. Where negative risk implies something unwanted that has the potential to irreparably damage a project, positive risks are opportunities that can affect the project in beneficial ways.
Negative risks are part of your risk management plan, just as positive risk should be, but the difference is in approach. Experts in risk management suggest organizations manage and account for known negative risks to neuter their impact, but positive risks can also be managed to take full advantage of them.
There are many examples of positive risks in projects such as completing a project early or acquiring more customers than a company accounted for. It’s important to note, however, that a positive risk can quickly turn negative and vice versa, so organizations must plan for all eventualities with their teams.
Leadership consultants recommend organizations adopt risk management into their daily routines. A project manager can help move an organization toward a stronger risk management culture through incorporating organizational learning from previous projects.
Want to learn more? Tonex offers Risk Management Training, a 2-day course that covers framework, methods, and practices of risk management across industries through real case studies. Concise and comprehensive, it covers both the theoretical underpinnings of risk management, as well as practical techniques for coping with financial challenges.
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