Project Risk Management Paper 1 - Essay Example

It is important to clarify here that risks can be both positive and negative. Therefore, we can also define risk management as the act of reducing negative risks while trying to maximize positive risks. The process of risk management involves determining the outcome of the risk and using it to refine the objectives of the project, determining loose ends, and thus, improve the effectiveness and efficiency of the overall project. We can define the process project risk management into several steps, however, organizations usually combine the steps according to ease of use and utility.

One of the main objectives of project risk management is to identify the risks with the highest consequences and possibility of occurrence and then develop possible action plans in case any of risk actually occurs (). Progressive elaboration, which improves the management’s ability to handle details well also encompasses risk definition as part of its process. Organizations depict different behaviors when it comes to handling risk. Firms that are aggressive and are in a sustainable leading position in their industry would take up projects that are very risky.

Similarly, in such firms project managers with creative, innovative ideas are welcome in spite of the project being risky. On the other hand, risk averse organization who are mostly followers in their industry would hesitate from taking on risky project and project managers who take on risk and are aggressive in their management approaches would not be welcome here (What is a project, pg14). The initiating, planning, execution, monitoring and controlling, and closing process groups consists of sub-processes that are used throughout the project lifecycle.

These are the knowledge areas (Creating the project charter, pg 44). The monitoring and controlling and execution process groups are very high on the risk probability of occurrence whereas the other process groups have low probability (What is a project, pg 29). The nine knowledge areas of PMBOK have been divided in such a way that each one involves some amount of integration of the other. Project risk management is core to any project and this is why, it begins with the development of project charter.

The project charter is a formal document that authorizes the project to begin working and commit the resources. The project charter involves project statement of work, business case, contract, enterprise environmental factors, and organizational process assets. Each aspect of the project charters involves some form of risk assessment such as under the enterprise environmental factors, a project manager has to assess the risk tolerance of the stakeholders meaning the level of risk, the stakeholders of the project and the firm are willing to take for the execution of the project.

(Creating the project charter, pg 68). Process of Risk Management We can also define risk as the product of expected consequences of an event or loss and the likelihood of occurrence. Risk could be characterized into two categories: Macro-risk and Micro-risk. Macro-risk is consideration of risk for a large population of events, where as micro-risk deals with risks on an event-by-event basis. Both forms of risk managements are used depending on the situation (Why project risk Management?, pg 2).

Macro-risk Management – In the insurance and finance industries, risk is calculated using statistical tools: data collection, sampling, and data analysis.