6.5. Risks in Project Phases

Project risk is dealt with in different ways depending on the phase of the project.

Initiation

Risk is associated with things that are unknown. More things are unknown at the beginning of a project, but risk must be considered in the initiation phase and weighed against the potential benefit of the project’s success in order to decide if the project should be chosen.

Planning Phase

Once the project is approved and it moves into the planning stage, risks are identified with each major group of activities. A risk breakdown structure (RBS) can be used to identify increasing levels of detailed risk analysis. This format helps the team have a clearer understanding of where risks are most concentrated. Visit the PMI website to see an example of an RBS.

Implementation/Execution Phase

As the project progresses and more information becomes available to the project team, the total risk on the project typically reduces as activities are performed without loss. The risk plan needs to be updated with new information, and risks related to activities that have been performed must be checked off.

Understanding where the risks occur on the project is important information for managing the contingency budget and managing cash reserves. Most organizations develop a plan for financing the project from existing organizational resources, including financing the project through a variety of financial instruments. In most cases, there is a cost to the organization to keep these funds available to the project, including the contingency budget. As the risks decrease over the length of the project, if the contingency is not used, then the funds set aside by the organization can be used for other purposes.

To determine the amount of contingency that can be released, the project team will conduct another risk evaluation and determine the amount of risk remaining on the project. If the risk profile is lower, the project team may release contingency funds back to the parent organization. If additional risks are uncovered, a new mitigation plan is developed, including the possible addition of contingency funds.

Closing Phase

During the closing phase, agreements for risk sharing and risk transfer need to be concluded, and the risk breakdown structure must be examined to ensure all the risk events have been avoided or mitigated. The final estimate of loss due to risk can be made and recorded as part of the project documentation.

“9.5. Risks in Project Phases” from Essentials of Project Management by Adam Farag is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.