Sunday, December 7, 2008

Risk Owners and Risk Thresholds

Author H. Stanley Judd once said, "A good plan is like a road map; it shows the final destination and usually the best way to get there."

As a project manager, you need to have an effective risk management plan in place before beginning risk response planning. A risk management plan can act as a guide to help you identify, analyze, and respond to various project risks and their potential consequences. This plan, which is created during the risk identification and planning process, details how the risk management processes will be structured and performed. It ensures that risks are properly managed throughout a project's life cycle.

The risk management plan has two important components that will be used in risk response planning: 1. a list of risk owners; and 2. risk thresholds.

A list of risk owners
One risk management plan component that will be used as an input to risk response planning is a list of risk owners. Risk owners include those project stakeholders who are responsible for the development, implementation, and execution of one or more risk responses. This risk management plan component is essential as a risk response planning input because it helps to ensure that everyone involved in the risk response planning process has clearly defined roles and responsibilities.

Typically, project managers are responsible for assigning the various risk owners within a project. These risk owners may be chosen from within the project team or from available subject matter experts. During risk response planning, risk owners may decide to develop risk responses as a group or divide the responses among the team members, based on their expertise.

Risk thresholds
Another component of the risk management plan that can act as an important input to risk response planning is risk thresholds. Risk thresholds are the levels of risk that are acceptable to individual project stakeholders, such as the project team members, customers or sponsors.

It is important to remember that project owners, customers, and sponsors may all have different risk thresholds for a given project, depending on their individual needs and interests.

The acceptable risk threshold for each project stakeholder forms the target against which the project team will measure the effectiveness of the risk response plan execution.

Liam, from Northern Pulp & Paper, is studying his company's established risk threshold for his current project. He wants to know how the risk threshold will influence his risk response planning process. Liam finds that the company will not tolerate a total project cost overrun of more than $5,000. He realizes that such things as purchasing additional materials or increasing staff may not be viable risk response options when handling identified project risks. Liam will keep this in mind as he progresses through the risk response planning process.

Equipped with a clear and accurate understanding of these two components, you will be able to ensure that potential project risks are dealt with effectively and in a timely manner.

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