What are the characteristics of risk management

1. Situational

Changes in a situation can result in new risks. Such changes include replacing a team member, undergoing a reorganization, changing the scope of the project.

2. Time-based

In this case, the probability of the risk occurring at the beginning of the project is very high (due to the unknown factor), and diminishes along as the project progresses. In contrast, the impact (cost) from a risk occurring is low at the beginning and higher at the end.

3. Interdependence

Within a project, many tasks and deliverables are interdependent on each other. These delays in these tasks will have a cascading effect on the other related tasks, and the result could be a domino effect.

4. Magnitude Dependent

The relationship between probability and impact is not linear in this case, and the magnitude of the risk makes a lot of difference. For example, consider the risk of spending $1 for a 50/50 chance to win $5 versus the risk of spending $1000 for a 50/50 chance of winning $5000. Since the probability of loss is the same in both cases (50%), the opportunity cost of losing is much greater in the latter case.

5. Value-Based

The risk may be affected by personal, corporate or cultural values. For example, completing a project on schedule may be dependent on the time of the year and the nationalities or religious beliefs of the work team. Projects being done in international locations where multiple cultures are involved may have a higher risk than those done in a single location with a similar kind of workforce.

About Abhilash Gopi In his own words

I got smitten by the Project Management bug when I was working under K.U. Harsha, my first Project Manager and have been lucky since then to work under democratic managers (Purushottam Sitla, Rekha Varma). I could learn on-job from these wonderful managers and has been equally successful in applying these principles.

I am currently working as a Senior Test Manager with Cordiant Technologies, Kochi, India. Cordiant (www.cordiant.com) is an Offshore Product Development Services provider for ISVs and Web Startups and its innovation is spearheaded by our President & CEO, Dennis Paul.

To learn more about Project Management, check out TechRepublic Academy.

Recommended Project Management Software

If you’re interested in learning more about top rated project management software, the editors at Project-Management.com actively recommend the following:

7 traits of effective risk management

Risk assessment process identifies and prioritises a company’s risks, providing quality inputs to decision makers for the purpose of formulating effective risk responses including information about the current state of capabilities around managing the priority risks. Risk assessment spans the entire organisation, including critical business units and functional areas. Effectively applied using business strategy as a context, risk assessment considers such attributes as impact, likelihood, velocity and persistence.

Like any other worthwhile business activity, risk management requires a process with a clear purpose, reliable inputs, well-designed activities and value-added outputs. The risk management process typically includes such activities as the identification, sourcing, measurement, evaluation, mitigation and monitoring of risk.

A well-articulated process view of risk management provides a benchmark for companies to help them formulate their proprietary view of their process that is responsive to their needs.

Here are the characteristics of good risk management:

1. Prioritise Risk

Successful risk management prioritises risk, or establishes risk analysis as an activity on a level equal to that of cost, time, and scope management. This involves increasing the visibility of risk management functions at all levels and inviting risk managers to top strategy meetings. Organisations with poor risk management systems, view risk management as an unnecessary adjunct and often don't integrate the same with the core project process.

1. It’s easier to spot projects in trouble

Risk management practices let you see where projects need attention, and which projects these are. Dovetailing perfectly with any existing Project Management Office processes you already have in place, good risk management can give you the context for understanding the performance of a project and contribute to any health checks, peer reviews or audits.

1. Financial Considerations

Having a risk-management program may be welcome news to your banker and insurance agent. Both are risk managers by profession, so you may see a banker willing to increase credit lines, while an insurance broker can affordably customize your coverage based on a well-designed risk program. The presence of a risk-management program may aid you in proving due diligence in legal action, potentially limiting and protecting your liability in case of a lawsuit.

1. There’s better quality data for decision making

Senior leaders have access to better quality and more helpful data which enables them to make better decisions more grounded in the reality of a project. Being able to access risk information in real time through a project management dashboard means that decisions are made based on the latest data, not a report that is already out of date before it reaches the Exec team.

1. Protecting Resources

When your risk-management program identifies and prioritises key risks that are likely to occur, you improve your company's chances to plan and respond. In turn, this saves you staff hours away from the core efforts of your business. For example, health and safety components of your program may address ergonomics and equipment safety, reducing lost-time injury. Production contingency planning gives your staff alternatives for re-routing production, when an important machine goes down, for instance.

1. Communication is elevated

Good risk management elevates the conversation. It creates a point of discussion between project teams and key senior stakeholders, prompting them to discuss the difficult topics and deal with potential causes of conflict. Suppliers are involved in the conversations too, as risk responses necessarily touch on their activities.

Including them in risk management discussions can create more positive working relationships with their key personnel, because they’ll see that their success is tied to the success of the project and that there is willingness to work as a whole team to do something about it.

1. Business Culture

The presence of an active risk-management program says something about your company's brand. Workers have knowledge of expectations and leadership from the start of their employment, while your business develops a reputation as thorough and professional. You build and support strategic planning through development of your program, and you establish a standard to which you can evaluate performance and adapt to changing needs. When you anticipate risk, your preparation begins, and the shock of the unexpected is dissipated.

Looking for financial risk management training? Find out more about financial risk management courses we can offer you and book onto our FRM course.

Back To Top

What are some of the characteristics of a risk?

What are the 4 characteristics of risk?

What are the seven common characteristics of risk?

What are characteristics of risk assessment?