Risk management helps to avoid crises and learn from past mistakes.
This strategy is a way to remove problems and issues that may negatively impact a project’s progress or outcome. Describing this strategy is an important role to take, so let’s make sure you have a good idea of how to complete this task.
In this guide, we’re describing five essential steps to writing an effective risk management plan that covers all bases. Let’s begin with a quick definition before making our way to writing.
What is a Risk Management Policy?
A risk management policy is a document that describes potential project risks, so managers could plan and prepare for them. The policy is essentially a plan for reducing the negative impact of potential risks to ensure the best possible project outcome.
Project teams develop risk management policies that also include specific activities, techniques, roles, documents, and software involved in the risk mitigation process.
A straightforward risk management policy consists of these main sections:
- Risk identification (What are the risks?)
- Risk analysis (What can go wrong?)
- Risk reporting (How do we raise awareness of risks that happened?)
- Risk response (How do we deal with the risk?)
- Risk owners (Who deals with the risk that occurred?)
Let’s now look at these sections in more detail.
Writing a Risk Management Policy: 5 Steps
Let’s go through each essential risk management policy section to cover everything.
1. Describe Risk Identification Strategy
A project encounters numerous risks at all stages. That’s why the project team must identify them before starting their work. Many risks are common (for example, some cybersecurity threats might be typical for software projects), but some require extra research.
So, this section should include:
- List with both known and potential project risks
- A concise description of each risk and its severity
- Research findings revealing uncommon risks
A good practice is to create a centralized location of all risks using online project management software. It would include more in-depth descriptions and information, so the policy document doesn’t become unnecessarily long, say 20+ pages.
Project Management Institute recommends expressing risks as a sentence to keep things organized:
Source: Project Management Institute
If a lead programmer leaves the project, the departure will cause a two-week delay and lead to additional project costs.
2. Create a Risk Analysis Matrix
This section presents a summary of how serious each risk is for the project. In other words, you need to describe the likelihood of the risks occurring versus the impact it would have on the project.
Professional practice is to present this summary in a more organized format. In most cases, project managers make a risk assessment matrix.
Here’s how a typical risk assessment matrix looks like.
You can make a similar matrix for your risk assessment policy, too. But consider providing a research summary of additional risks if you feel like it’ll help readers. Strong research summary writing is required here to avoid making this section unnecessarily long.
If you decide to make the matrix, the most important thing is to present risks with their probabilities. Talk to your team about assigning each risk a certain probability of happening (low, moderate, or high) and add them to the matrix table.
Each risk should also be assigned a certain degree of consequence. Be sure to categorize the consequences based on their impact on the project. For example, an “insignificant” risk could be mitigated within a day, while a “major” one could cause week-long delays.
3. Define Risk Reporting Levels and Procedures
Reports are a great way to communicate risks to all project stakeholders. To make this process as effective as possible, consider including the description of multiple types of risk reporting. They ensure that information will reach the right people faster.
Several common risk reporting types are project-level and program-level reporting.
Task-level reporting. This is the lowest reporting level that includes reports made by appropriate team members. It commonly includes reports about price changes for key resources, a lack of resources or talent, or failures of third-party partners.
Project-level reporting. Includes reporting risks that are serious enough to be taken care of by the project manager. Examples include overlaps in roles, financial risks, and inconsistencies with strategic project goals.
Defining a clear report structure is essential for effective risk reporting. As someone who’s writing the policy, you shouldn’t teach stakeholders how to read and take action on each report. The writing and structure should be clear and simple to make the whole document intuitive.
4. Determine Risk Response
Writing this section means describing several main parts: risk mitigation, risk elimination, and risk occurrence.
Here are the basic details to describe:
- Risk mitigation. Includes procedures to reduce the severity of the impact
- Risk elimination. Describes specific processes and actions designed to eliminate the risk completely or protect the project from its impact
- Risk occurrence. Includes the description of an outcome in case a specific risk occurs
Defining the risk response might be difficult due to the range of risks involved. But you can apply certain principles to guide you:
- The response should be realistic and achievable
- The response should be scaled to the extent of the risk
- Relevant project stakeholders should agree to use a certain response action
- Cost of risk response action should correspond to the risk’s significance and impact
5. Assign Risk Owners
Many risk management policies assign risks to certain owners. In most cases, it’s the project manager, but other people should also be involved to ensure fast risk mitigation.
In this section, make a list of risk owners who could assist the project manager at certain stages. Having multiple risk owners is a good idea to have someone responsible for risk resolution.
Writing a Risk Management Policy: Summary
Taking a risk-based approach to project management is a great idea to prevent, mitigate, and eliminate various obstacles along the way. Creating a risk management policy is the first step in this approach.
Be as clear, concise, and to the point as possible when writing a risk management policy. This means cutting out unnecessary words, substituting text with visuals, and using shorter sentences. The clarity of the document will definitely help project stakeholders when they need to refer to the policy.