Risk management
In project management, a risk is a possible event or circumstance that can have negative influences on a project. Its influence can be on the schedule, the resources, the scope and/or the quality.In Finance, it is a technique for measuring, monitoring and controlling the financial risk on a firm's balance sheet.
When a risk escalates, it becomes a liability. A liability is a negative event or circumstance that is hindering the project.
The primary data needed to do risk management are the following:
- ID: unique identifier for identification in other documents
- description: what is the risk?
- effect: what can happen if the risk becomes a liability?
- precaution: what can prevent the risk from becoming a liability?
- contigency: how to handle the liability?
- risk status: status of the risk: new, ongoing, closed
- risk escalation probability (P): what is the probability of the risk becoming a liability (rating from 0 to 1, for example)
- schedule impact (S): what is the impact of the liability on the project schedule.
From the information above and the cost accrual ratio (CAR), i.e., the total average cost per person per time unit, a project manager can calculate
- cost impact (C = CAR * S): the cost associated with the risk if it arises.
- schedule variance due to risk (Rs = P * S): sorting on this value puts the highest risks to the schedule first.
- cost variance due to risk (Rc = P * C): sorting on this value puts the highest risks to the budget first.
See also: Project management, Earned value management, critical chain, precautionary principle, Value at risk.
| List of Marketing Topics | List of Management Topics |
| List of Economics Topics | List of Accounting Topics |
| List of Finance Topics | List of Economists |
