The Components of a Risk Management Plan

Imagine trying to build a house without a house plan. Do you think the process would go smoothly? Would you be happy with the results? Do you think it would take less time than if you had planned it out first?

The answer to all of these questions is likely no. The same is true when it comes to managing risk which is why it is important to put a risk management plan in place to guide your project decisions.

A risk management plan indicates how risk identification, analysis, planning, monitoring, and control will be handled throughout the project's life cycle. The components of a risk management plan are:

• methodology
• scoring and interpretation
• thresholds
• budgeting
• timing
• tracking
• roles and responsibilities
• reporting formats

In order to begin the risk management plan there must be an analysis stage that looks at methodology, scoring and interpretation, and thresholds.
Methodology refers to the approaches, tools, and data sources that may be used to carry out risk management. The methodology chosen will depend on the project stage and the amount of information available.

Scoring and interpretation refers to the numerical ranking of risks. The method of scoring and interpretation must be determined in advance, used in a consistent manner, and measured using tools such as a risk rating matrix or probability analysis.

Thresholds describe the who, what, and how criteria for risks that will be acted on. Project team members may have different risk thresholds. An acceptable target threshold must be determined to gauge the effectiveness of the risk response.

Deacon Oil Explorations, Limited (DOEL) is one of the leading oil exploration companies in the country. The project that DOEL is about to embark on is of great importance and is predicted to move DOEL to the top of its field. DOEL has just finished the analysis stage for this project's risk management plan.

• methodology - In a brainstorming meeting, DOEL used open-ended questions to ask its staff what risks they thought would be concerns for the upcoming project.
• scoring and interpretation - DOEL's risk management team has decided to use a risk rating matrix to score risks. It will use a scale from 0.0 to 1.0, rating 0.0 to 0.3 as low risk, 0.4 to 0.7 as medium risk, and 0.8 to 1.0 as high risk. Having this planned in advance will ensure risks are scored and interpreted consistently.
• thresholds - DOEL's risk management team has decided that it cannot act on all identified risks. The team decided that risks scored at 0.7 or above will be acted on, while risks scored at 0.6 or below will not. Therefore, the acceptable threshold is 0.7.

After the analysis stage of the risk management plan, team members can start thinking about planning for the next three components: budgeting, timing, and tracking.
Budgeting involves setting the amount of money that will be invested in the risk management plan for the project.

Timing refers to how often the risk management process is performed. The process should be performed often enough so that the results will impact on decisions, and decisions should be reviewed periodically to allow for improvement.

The tracking process considers the current project, future needs, and lessons learned when documenting how risk activities will be tracked. It also takes into account when and how risk management processes will be audited.

Now that you know the basic structure of the risk management plan, it's time to focus on who is in charge and how reporting will take place within the process. The last two components are roles and responsibilities and reporting formats.

Roles and responsibilities should be established for every action in the risk management plan. It is necessary to define who leads, who supports, and who belongs to the team. Independent risk management teams are made up of people who are not biased.

Reporting formats refer to the reporting relationships and structures that exist within the risk management process. The reporting formats define the risk management response plan and indicate how results will be documented, analyzed, and communicated to stakeholders.

Bennett Publishing is getting its risk management plan ready for its new distance learning courses. They are assigning roles and responsibilities and determining reporting formats for the process.

Peter Croft has been chosen to lead the risk management team. He will conduct a brainstorming meeting with team members Jill, Richard, and Seela on Thursday.

It has been decided that the results of the risk management process will be reported to all concerned parties via an intranet site. The site will be updated regularly.

A risk management plan helps to guide your project decisions. It indicates how risk identification, analysis, planning, monitoring, and control will be handled throughout the project's life cycle. Risk management plan components such as methodology, scoring and interpretation, thresholds, budgeting, timing, tracking, roles and responsibilities, and reporting formats give substance and structure to the plan so it can be carried out effectively. Once you have a risk management plan in place, your project should sail smoothly.

Estimating Activity Duration

One thing you can't afford on a project is wasted time. Time wasted on a project will affect both the budget and the schedule. Fortunately, proper planning and accurate activity duration estimates can be used to keep your project on time and within budget.

Project managers use activity attributes to select and sort the activities that comprise a project. They look at all aspects of a project before determining the project schedule knowing that a "missed" or inaccurately estimated activity can drastically alter the project schedule.

Activity lists, which describe all the activities to be performed on a project, are used in estimating the duration of project activities. Resource requirements that detail the people, equipment, and materials needed for a project are also used as inputs in this process.

Activity duration estimates are quantitative assessments of the likely number of work periods that will be required to complete an activity. Activity duration estimates give project managers a range of possible results.

Project managers can determine a timeline for a project from the range of possible results. This range can be an indication of the number of work periods or the probability that the activity will take as long or longer than expected.

Sam is a project manager for an aerospace company. He is using activity duration estimates as an input to project schedule development. Sam has estimated that assembling the wing will take at least 8 days, but no more than 12.

There is a 15 percent probability that the assembly will take more than 12 days, and an 85 percent probability that it will take less than 12 days.

Since there is a high probability that assembly will take less than 12 days, the project manager will schedule 10 days for this activity.

While activity duration estimates help project managers determine how long activities will take, activity attributes also play an important part in selecting and sorting the given project activities.

Activity attributes are important because they enable project managers to select activities and sort them into convenient groupings. Project managers use these groupings to find out information about a given project. Activities exhibit three types of attributes: responsibility, geographic area, or building, and activity type.

The responsibility attribute refers to who will perform the work. The geographic area or building attribute refers to where the work will take place.

The activity type attribute refers to whether an activity is grounded in specific details or is based on a summary of events.

Activity duration estimates help project managers determine the likely number of work periods an activity will take to complete while activity attributes are important for sorting and selecting project activities. Both inputs are essential in planning a project so that it remains on time and within budget.

Components of Project Scheduling

Have you ever scheduled a job that required more time to complete than you had initially planned for? Did you know that calendars, leads, and lags can help you schedule the appropriate amount of time for a project activity?

Calendars
In much the same way you use an agenda to keep track of your day-to-day appointments, a project manager uses a calendar to ensure that a project is progressing according to plan.

Project managers use calendars to identify project workdays. Calendars can be altered so weekends and holidays are not included. The arrangement of normal working days, together with non-working days, such as holidays and vacations, and any overtime periods, are used to determine the project completion dates.

To create and use a project calendar, you need to know the range, units and start date.

• The calendar range is the calendar's span from the start date, up to and including the last date work is performed.
• Calendar units can be in hours, days, weeks, shifts, and minutes. They are the smallest unit of time used for scheduling the project.
• The calendar start date is the first calendar unit of the working calendar.

Project managers use two types of calendars when creating a project schedule: project calendars and resource calendars. These two calendars identify periods when work is scheduled to occur.
Project calendars define global project working and non-working periods and affect all project resources. For example, work will only take place on weekdays.

Resource calendars affect specific resources or categories, like people, material or equipment. For example, scheduling around a team member's vacation.

Leads and lags
What would you do if your project was delayed by three weeks, while you were waiting for a necessary piece of equipment to arrive?

Dependencies within a project may require detailed specifications to accurately define the relationships. These specifications are in the form of leads and lags, which are important aspects of the schedule development process.

• A lead is a modification of a logical relationship allowing for the acceleration of the successor task. For example, in a finish-to-start dependency with a five-day lead, the successor activity can start five days before the predecessor has finished.
• A lag is a modification of a logical relationship which directs a delay in the successor task. For example, in a finish-to-start dependency with a five-day lag, the successor activity cannot start until five days after the predecessor has finished.

Leads are included in a schedule when an activity must be expedited. Lags are included when an activity needs to be slowed down.
Remember, if your project needs to reflect an assumed delay you may need to implement a lag at the anticipated interval in the schedule. On the other hand, if your project has imposed constraints such as time or future restriction on resources, your schedule may need to include a lead.

Understanding why you must include these components in your resource and project calendars will increase the odds of keeping your project on track, ensuring a successful completion.