The PM risk standard

- In my opinion, managing risk is the most important aspect of project management. Without risk, why would a project manager be needed? Communication would always be perfect. Requirements would be complete. No stakeholder conflicts would put the project at risk, and life would be simple. Somehow, I don't see that happening anytime soon. The key is to respond to risk in a way that optimizes the project's outcomes. That's what PMI, in their Project Management Body of Knowledge seventh edition, commonly called PMBOK, establishes as the risk standard. The risk standard states that project managers should continually evaluate exposure to risk, both opportunities and threats, to maximize positive impacts and minimize negative impacts to the project and its outcomes. So as project managers, we're expected to optimize the way we respond to risk. Optimal responses to risk have certain characteristics. First, they need to be appropriate for the risk's significance. So major action isn't required to address a risk that will cost you $10 if it occurs. But major action should be launched if an unaddressed risk will cause your project with a critical deadline to be several months late. Next, the risk response should be cost effective. Don't spend $1,000 to avoid a risk that will cost $50 if it occurs. Then risk responses should be realistic. For example, it isn't appropriate to make a simple project significantly more complex with your risk response. I once had a stakeholder propose that we stop a project midway and take an entirely different direction to reduce the risk of delivering a solution. He wanted to use a brand new technical platform to deliver a solution. He tried to justify his proposal saying it was economical, but it wasn't a realistic way to address the risk. It was a massive change that would've required us to stop and redefine the entire project. Valid risk responses can be readily executed in a short timeframe with an approach that's easy to understand. Also, risk responses should be agreed to. Relative to risk, project stakeholders should always understand what you're doing, why you're doing it, and agree to your solution. Finally, you should appoint an owner to manage and monitor each risk response. Sometimes this will be the project manager, but it could also be owned by an important stakeholder, a technical team member, or a manager that's closest to the risk's situation. Compiling all of your risk and the information we've discussed in this video in one place is very useful. I've included a risk register template in the exercise files to help. These characteristics of optimal risk responses are great to keep in mind and use to evaluate risk-related actions. Here's an opportunity to practice applying these principles. Think about some risks you have on a current project. Pause the video and write down three optimal risk responses and the characteristics of those responses. To give you a chance to develop risk responses using these characteristics, the next six videos provide risk scenarios and solutions you can use, giving you more opportunity to practice.