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.

Analyzing Stakeholder Interests

Stakeholder analysis is the process of discovering who has a stake in your project and identifying their interests. To perform stakeholder analysis, you must identify the stakeholders, their roles and primary interests in the project. Then you must analyze the relationships between stakeholders, looking to capitalize on similarities and resolving differences.

• Step 1: Identify the stakeholders.
  Stakeholders can be internal or external. Internal stakeholders are the people directly involved in the functioning of your project. They include project managers, performing organizations, and project team members. External stakeholders are outside your organization. External stakeholders for your project may include sponsors, customers, suppliers, financial backers, special interest groups, the media and the public.
  

• Step 2: Identify their roles.
  You can enhance the usefulness of your list of stakeholders by determining the role each stakeholder plays in your project. Stakeholders may manage the project, provide financial or human resources, or provide supplies. Viewing stakeholders within the context of their roles is necessary to accomplish the rest of your stakeholder analysis.
  

• Step 3: Identify their primary interests.
  Once you know the roles of stakeholders, you can discover the interests they have. The interests of your stakeholders are the outcome of the roles they play in your project. The logical conclusion of what stakeholders do for your project is what they want from your project. It is important for you to know what they want from your project.
  

• Step 4: Analyze the relationships between stakeholders.
  Evaluating conflicting project desires is part of the fourth step of a stakeholder analysis. Once you have listed the stakeholders, their roles and interests, you can analyze the relationship between all the diverse interests in your project.
  

To properly analyze your stakeholders, you need to ask yourself:

1. How will each group respond to project decisions?
2. What effect will their reactions have?
3. How will their interaction with each other affect the project?

LUXX Corporation, an appliance manufacturer, is creating a new toaster for the market. Jodi is in charge of the project. She must determine how to prioritize the four departments' wishes, while demonstrating that she has taken everyone's requests into consideration. Jodi has identified the stakeholders and their competing interests in this project.

The research and development department wants more time to come up with the best toaster possible. It also wants to use its capabilities to the fullest by providing as many features as possible.

The marketing department wants to make this toaster attractive to the general public. This means promoting as many features as possible and having an early market release date, while keeping the price to a minimum.

The accounting department wants to keep costs low while charging the public as much as possible. It also wants this toaster to be on the market as soon as possible. Driving these desires is the interest in the margin of profit.

The quality assurance department wants a trouble-free toaster. The quality assurance department wants well-designed features, that work well, and plenty of time to complete proper testing procedures.

As you can see, many of these wishes conflict with one another.

The steps involved in stakeholder analysis are designed to reveal the conflicting interests among stakeholders so that these differences may be managed. Ultimately, stakeholder analysis helps you to gain the support of all your stakeholders and ensures that everyone involved in a project is directed toward the same project goals.