What is Risk Management? - Best Accounting Schools

Business professionals who regularly work with teams on large projects probably have an understanding of the importance of risk management. This process involves assessing the framework of a project and considering potential problems or obstacles that could occur during its implementation. Project managers work in a proactive manner where the aspects of containing risk is concerned. It’s best to anticipate issues and to brainstorm ways to handle them ahead of time than it is to attempt to address an issue at the last minute. The primary goals are to minimize the chances of problems arising, as well as to lessen the potential severity of any issues that do occur. Read on to discover more about this concept and the ways it which utilizing it can improve project efficiency.

About Risk Management

The systems involved in managing levels of risk on a project have a broad purpose beyond simply identifying potential hazards. It’s imperative that project managers be able to assess the level of risk, as well as the kinds of effects it could have on project outcomes. A project leader must decide whether the presenting problem is one that can be dealt with or if it is prohibitive to the project. The manner in which the manager decides to proceed primarily depends upon how comfortable the individual is with ambiguity. Essentially, the process is one of identifying a problem and then implementing such tasks as planning, budgeting and organizing to solve it. This assessment and evaluation process ensures that issues are handled proactively, rather than in a reactive manner that causes panic and, often, unsatisfactory results.

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Process Requirements

While the assessment of risk occurs mostly at the beginning of a project, it must be re-visited continually until completion in order to be effective. At the onset, the management team has to identify the most likely problems that could occur throughout the venture. Next comes an assessment, based on past experience and historical data, regarding the likelihood of each event. Decisions will be made and preventative measures laid out to deal with the most likely eventualities. One principle of risk management states that most issues will occur at the beginning of a project. Therefore, teams generally should focus efforts on maintaining timely progression and minimizing risk throughout the first stages, with follow up taking place regularly as things continue. Because the stakes are highest as teams reach the final deliverable, it is imperative that they don’t slack on risk management at any stage.

Responses to Risk

Once the risks are assessed, teams must consider their response to problems. There are various possibilities. Avoidance involves completely eliminating a possible threat by removing factors that could cause that threat. This makes sense if the factors are non-essential and can be the most expedient option sometimes. Mitigation of risk is quite common. This concept involves weighing the cost of potential risk with the probability of its occurrence. The ultimate goal is to lessen the damaged incurred by an event. Finally, there is acceptance, in which the inevitability of an occurrence is unavoidable. In such cases, it is imperative that a contingency plan for how to deal with such a fallout be put into place.

This summary should give a basic picture of the steps involved in managing project risk. Project management is crucial to limiting surprises and scrambling that could cause a project to fail.