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It is related with preparing Risk Mitigation plan for the project.
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When planning a project to meet targets for cost, schedule, or quality, it is useful to identify likely risks to the success of the project. A risk is any possible situation that is not planned for, but that, if it occurs, is likely to divert the project from its planned result. For example, an established project team plans for the work to be done by its staff, but there is the risk that an employee may unexpectedly leave the team.
In Project Management, the Risk Management Process has the objectives of identifying, assessing, and managing risks, both positive and negative. All too often, project managers focus only on negative risk, however, good things can happen in a project, "things" that were foreseen, but not expressly planned.
The objective of Risk Management is to predict risks, assess their likelihood and impact, and to actively plan what should be done ahead of time to best deal with situations when they occur.
The risk management process usually occurs in five distinct steps: plan risk management, risk identification, qualitative and quantitative risk analysis, risk response planning, and risk monitoring and control. The central point of risk identification and assessment in risk management is understanding the risk. However, this is also where project managers and risk subject matter experts (SMEs) get the least help from recognized references, best practices, or work standards.
Currently, the Project Management Institute (PMIr) has a team of SMEs working on a Practice Standard for Risk Management. This team has identified one very good tool: the Risk Breakdown Structure (RBS). The RBS helps the project manager, the risk manager, and almost any stakeholder to understand, and therefore be able to identify and assess risk.
RBS is Risk Breakdown Structure, when you’re planning your project, risks are still uncertain: they haven’t happened yet. But eventually, some of the risks that you plan for do happen, and that’s when you have to deal with them. There are four basic ways to handle a risk.
1. Avoid: The best thing you can do with a risk is avoid it. If you can prevent it from happening, it definitely won’t hurt your project. The easiest way to avoid this risk is to walk away from the cliff, but that may not be an option on this project.
2. Mitigate: If you can’t avoid the risk, you can mitigate it. This means taking some sort of action that will cause it to do as little damage to your project as possible.
3. Transfer: One effective way to deal with a risk is to pay someone else to accept it for you. The most common way to do this is to buy insurance.
4. Accept: When you can’t avoid, mitigate, or transfer a risk, then you have to accept it. But even when you accept a risk, at least you’ve looked at the alternatives and you know what will happen if it occurs. If you can’t avoid the risk, and there’s nothing you can do to reduce its impact, then accepting it is your only choice.
By the time a risk actually occurs on your project, it’s too late to do anything about it. That’s why you need to plan for risks from the beginning and keep coming back to do more planning throughout the project.
The risk management plan tells you how you’re going to handle risk in your project. It documents how you’ll assess risk, who is responsible for doing it, and how often you’ll do risk planning (since you’ll have to meet about risk planning with your team throughout the project).
The RBS is a hierarchical decomposition of all identified risk that affects your project.
To this, you must be able to carry-out a well define PESTEL Analysis for your risk, then insert each variables in the pestel analysis to arrive at a complete picture of your RBS. To further make your RBS worth the while, it is advisable to transform it using a tornado diagram or risk radar to your stakeholders for a better understanding of the picture and easy presentation.
Risk-Based Capital (RBC) is a method of measuring the minimum amount of capital appropriate for a reporting entity to support its overall business operations in consideration of its size and risk profile. RBC limits the amount of risk a company can take. It requires a company with a higher amount of risk to hold a higher amount of capital. Capital provides a cushion to a company against insolvency. RBC is intended to be a minimum regulatory capital standard and not necessarily the full amount of capital that an insurer would want to hold to meet its safety and competitive objectives. In addition, RBC is not designed to be used as a stand-alone tool in determining financial solvency of an insurance company; rather it is one of the tools that give regulators legal authority to take control of an insurance company.
Breaking down RISK into smaller, granular and easy to mitigate risks nodes. That's simply help to build a better risk management plan. Now in complex projects as the project management takes extra effort on planning, execution and control, risk management equally requires extreme measures to ensure all unforeseen are catered in all aspects and that's where RBS helps in identifying and addressing from all the dimensions of a risk. Just to clarify that RBS is created for every single risk, listed in your risk plan.
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Risk management is to know what are the difficulties and problems facing the project in all aspects. Therefore, it is one of the most important factors in the success of the projects, which is the management of strong risks to know the future problems and how to solve these problems when it happens
