Chapter 6 – Risk Management
6.4. Contingency Plan, Risk Response Plan
The project risk plan balances the investment of the mitigation of risks against the benefit for the project. The project team often develops an alternative method for accomplishing a project goal when a risk event has been identified that may frustrate the accomplishment of that goal. These plans are called contingency plans. They are a Plan B. If plan A falls apart, what is Plan B?
The risk of a truck drivers’ strike may be mitigated with a contingency plan that uses a train to transport the needed equipment for the project. If a critical piece of equipment is late, the impact on the schedule can be mitigated by making changes to the schedule to accommodate a late equipment delivery.
Contingency funds are funds set aside by the project team to address unforeseen events that cause the project costs to increase. Projects with a high-risk profile will typically have a large contingency budget. Although the amount of contingency allocated in the project budget is a function of the risks identified in the risk analysis process, contingency is typically managed as one line item in the project budget.
Some project managers allocate the contingency budget to the items in the budget that have high risk rather than developing one line item in the budget for contingencies. This approach allows the project team to track the use of contingency against the risk plan. This approach also allocates the responsibility to manage the risk budget to the managers responsible for those line items. The availability of contingency funds in the line item budget may also increase the use of contingency funds to solve problems rather than finding alternative, less costly solutions. Most project managers, especially on more complex projects, manage contingency funds at the project level, with the approval of the project manager required before contingency funds can be used.
More on the Risk Response Plan
The Risk Response Plan includes who, what, when, and the cost of action. Without a risk response plan, there could be impacts that are costly with time, money and quality. This can cause a reactionary approach to the project, which is also costly. The project may get delayed or even cancelled. Making decisions under pressure is stressful, and people can make more mistakes. Therefore, the risk response plan helps the team evaluate what to do, quickly, to respond to an event happening. They ask themselves: What is the best alternative if something goes wrong? This helps with a smooth adjustment of the plan. This, in turn, increases the chance of success. All stakeholders would agree to the Risk Response Plan. In summary, the below checklist is important in project planning.
The steps to developing a Risk Response Plan include:
- Identify the risk event
- Identify whether the response will avoid the risk? share/transfer the risk? mitigate (reduce) the risk? accept the risk?
- Develop the contingency plan
- Decide what would “trigger” the team to implement the contingency plan (sometimes time is used)
- Assign who is responsible for monitoring the potential risk
- Wise Project Managers ensure they have a Risk Response Plan in place before the project begins.
HR in Focus: Human Resources and Risk Management
The HR Specialist may be involved in helping to build the Risk Management Plan from beginning to end. They may facilitate the process for the project team, allowing the team to focus on the content, brainstorming and critical thinking. They may be only included in potential risk events that include people in the team or external to the team. These could include risks of poor employee behaviour, the team losing a member, a team member’s sickness, discipline for team members who are not performing, handling discrimination in the group, security risks, employee disparity in salaries, and handling an injury on the job.
As professionals, the HR Specialist would assist the team in identifying all the possible employee risks (employee behaviour, management style and leadership, and salaries as examples). They would look for ways to reduce or eliminate these risk situations. The involvement of HR in the Risk Management Plan protects the employees in the team and the organization.
