Sometimes we struggle to illustrate the value of risk management. We sense we are doing the right things. How can we show the benefits?
Some products such as weight loss programs are promoted by showing a “before picture” and an “after picture.” We are sold by the extraordinary improvements.
The “before picture” and “after picture” are also a powerful way to make known the value of risk management.
We have risks in which no strategies or actions have been executed. In other words, we have a “before picture” of the risks. When we execute appropriate response strategies such as mitigating a threat, the risk exposure is reduced. Now we have the “after picture.”
Let’s look at one way to create pictures of our risk exposure for projects, programs, portfolios, and enterprises.
The first step to turning risk assessments into pictures is to assign risk levels.
Assume that a Project Manager is using a qualitative rating scale of 1 to 10, 10 being the highest, to rate Probability and Impact. The Risk Score is calculated by multiplying Probability x Impact. Here is an example of a risk table with a level of risk and the corresponding risk score range.
Level of Risk
21 – 39
40 – 59
60 – 79
Figure 1: Qualitative Risk Table
Imagine a Project Manager facilitates the initial risk identification and assessment. The initial assessment results in fifteen Urgent Risks – eight “High” risks and seven “Very High” risks.
Figure 2: Number of Risk before Execution of Risk Response Strategies
We decide to act on the Urgent Risks alone and leave the remaining risks in our Watch List. The team develops risk response strategies for the Urgent Risks such as ways to avoid and mitigate threats.
Figure 3: Number of Risks after Execution of Risk Response Strategies
After the project team executes the strategies, the team reassesses the risks. We see a drop in the number of Urgent Risks (lighter bars). The team has reduced the risk exposure and improved the potential for success.
How to Illustrate Programs, Portfolios, or Enterprises
Now, imagine a Program Manager managing four projects in a program. We can roll up the risks of the four projects into a single view. Figure 4 below illustrates the comparison of the number of risks before and after the execution of the risk strategies.
Figure 4: Number of Program risks before and after the execution of risk response strategies
Of course, we can also illustrate risks in a like manner at a portfolio level or an enterprise level (i.e., Enterprise Risk Management).
Tip of the Day
When you ask team members to rate risks, it is important we specify whether the team members are assessing the “before picture” (i.e., inherent risks) or the “after picture” (i.e., residual risks) or both. Inherent risks are risks to the project in the absence of any strategies/actions that might alter the risk. Residual risks are risks remaining after strategies/actions have been taken.
Question: What types of charts or graphics do you use to illustrate the value of risk management?