Learning how to write a risk management plan can be difficult, especially on a time constraint. The good news is once you’ve learned how to write a risk management plan, it will be easy to replicate the steps across all projects. These tips will help you write your risk management plan.
Table of Contents
The Importance of Risk Management Planning
Risks can negatively impact a project risk will negatively impact a project. There are four basic ways to manage risk in a project. These different routes work differently and can cover different areas of the project. The four basic ways to handle risk are avoidance, mitigation, transference, and acceptance.
Avoidance: Avoiding the risks is one of the best ways to manage risk on a project. Sometimes that means turning a project down because the risk outweighs any rewards. However, this could also mean negotiating the contract to avoid those risks.
Transference: Transferring risk is very common in construction. The owner will transfer risk to a general contractor, who in turn might transfer risk to a subcontractor. Sometimes the risks are transferred to a company that can’t manage them or out of their parameters. In those cases, it’s better to get the risk transferred to a company that can handle the risk.
Mitigation: Mitigating risk is breaking down risks into easy to manage modules. Whether it’s eliminating the risks or planning for them, having actionable plans and procedures can reduce the impact of risks.
Acceptance: Acceptance is accepting risks. These should be low impact and low probability risks because if something goes wrong, you’ve accepted the risk.
Knowing the different risks strategies can help you write a risk management plan.
What to Include in a Risk Management Plan
It can be hard to determine how to write a risk management plan, especially if it’s your first time. There can be a lot to think about when writing your plan, and it can be easy to accidentally forget an important factor. A risk management plan should include several sections to better the overall plan.
Definitions – The risk management plan should include definitions of prioritized rankings, and any other terms used that should be defined. For example, the probability ranking should be set so that way when others read the plan, they know what a rank means.
Current Knowledge – This is a section to include current knowledge and assumptions about the project. Experience level, cost estimates, project completion records, and such should be included in this section.
Potential Risks – The potential risk section lists areas of risk that the project needs to take into consideration. This can include financial risks, occupational risks, and all other types of risk.
Probability And Effect – The probability and effect section of a risk management plan uses the potential risks section and adds probabilities and effects to the risks. It’s more of a risk assessment section.
Risk Assessment Plan – The final section is the risk assessment. This would include a list of possible outcomes, solutions and such depending on the prior parts.
These sections are essential to include in a risk management plan as any project manager needs to know these details to help manage risk.
What Are Your Potential Risks
The first step in writing a risk assessment plan is determining the list of potential risks. When deciding the overall list of potential risks, a risk manager can use these categories as a starting point.
The risk manager should consider how financial risks will impact the project. If the economy is slowing down, supply costs are risking, or there is unprepared growth, these can cause issues with the project. When thinking about how to write a risk management plan, risk managers should include financial risks in their consideration of risks.
Sometimes there is a miscalculation of time or resources, lack of policies, or the application of systems. These can cause issues with a project. These and similar risks can cause problems on a project and should be considered.
Some contracts require the contractors to complete the job on time and will penalize the contractors if they don’t. This is a risk that risk managers and project managers should be aware of.
Workers can get injured or die on the site; these risks are essential to consider. It’s important to know what can cause occupational risk and the ways that companies can go about mitigating or reducing it.
Natural disasters happen, as such it’s important to consider the conditions of the site. If the site is near a fault line, the project manager should consider the risk of earthquakes. Natural risks aren’t expected, but some of them can be prepared.
Once risks are identified, it helps to list them out. Listing out all of the risks makes the next steps of risk management more manageable.
Assigning risk or assigning values to the risk is the next crucial step. This will help determine the likelihood of the risk and identifies the risks to be on the lookout for. It’s also important to list out the consequences, costs and other figures associated with that risk. Without that crucial information, it is challenging to build a risk management plan.
Once the risks are listed, and the evaluation is complete, it is vital to determine which type of risk management to employ. Is it important to accept the risk, avoid, transfer or mitigate? These determinations will make up the backbone of the whole plan.
How to Write a Risk Management Plan
There is no right or wrong length in a risk management plan so long as all of the information is there, and it makes logical sense. Depending on the overall size of the project, and of the plan, it could be its document or part of a series. When the risk management plan is longer, it is typically its document, while a summary might be in the overall construction management plan. However, when it is smaller, it generally is part of a larger construction project management plan. Once this is determined it is easier to know who needs to see it and where it must be saved.
Another way to get started writing your risk management plan is to look at previous plans your company produced. Hindsight is 20/20, so it can be easier to identify what the plan missed and what it did well. By studying past plans, it can be easier to understand the formatting and needs of your construction risk management plan.
Review and Revise
Every plan will have faults; that’s why it’s important to review and revise all plans on a regular basis. While the project might not start until the beginning of a usually dry season, if there has been more rain than usual that could impact a project. Another scenario is if there is an unexpected tariff that causes the cost of supplies to increase. These unexpected changes cause risk to the project and are the reason why a manager creates a plan, to begin. However, it’s also why a plan should be reviewed and revised as need be.
Every project presents a unique set of needs and challenges, but the steps to create a risk management plan will be the same. Every company needs to assess the risk on every project. When companies don’t do that they are putting their profit and livelihood at risk. Writing a risk management plan every time makes the job and everything else easier.