RISK MANAGEMENT STRATEGY EXAMPLE

Prince2™ Documentation

Release Status: FINAL

Author: John Aldridge, Senior Project Manager

Date: 01 January 2016

Filename & Version: p2_risk_management_strategy_example_v01

Project ID:PRDOC01

Methodology: PRINCE2™ 2009

FMD Consultants Limited assumes no responsibility for the usage of any information contained in this document
and the way it is handled and disclaims all liability in respect of such information and its provision. Subject to this
disclaimer, you may copy and utilise the material contained in the document.

This information is based on OGC PRINCE2™ material. PRINCE2™ is a registered trade mark of the Office of
Government Commerce in the United Kingdom and other countries. All registered trademarks recognised &
accepted.
1 Document History
1.1 Location
This document is stored in the following location:

Filename p2_risk_management_strategy_example_v01

Location www.fmdconsultants.co.uk\web

1.2 Revision History

This document has been through the following revisions:

Version Revision Filename/Location Brief Summary of Changes

No. Date stored:

VXX 06/10/11 XXXXXXXXXX XXXXXXXXXX

VXX 13/10/11 XXXXXXXXXX XXXXXXXXXX

1.3 Authorisation
This document requires the following approvals:

AUTHORISATION Name Signature Date

Executive
XXXXXXXXXX
Senior User
XXXXXXXXXX
Senior Supplier
XXXXXXXXXX

1.4 Distribution
This document has been distributed to:

Name Title Version Issued Date of Issue

Project ID: PRDOC01 Doc Ref: p2_risk_management_strategy_example_v01

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1.5 Related Documents
Summary of filenames and locations of related documents:

Document Type Filename/Location stored:

Project Brief XXXXXXXXXX

Business Case XXXXXXXXXX

Corporate Risk Management XXXXXXXXXX

Strategy

Risk Register Template XXXXXXXXXX

Communications XXXXXXXXXX
Management Strategy

Project ID: PRDOC01 Doc Ref: p2_risk_management_strategy_example_v01

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2 Contents

1 DOCUMENT HISTORY....................................................................................................2
1.1 LOCATION....................................................................................................................2
1.2 REVISION HISTORY.........................................................................................................2
1.3 AUTHORISATION............................................................................................................2
1.4 DISTRIBUTION...............................................................................................................2
1.5 RELATED DOCUMENTS....................................................................................................3
2 CONTENTS....................................................................................................................4
3 INTRODUCTION............................................................................................................5
3.1 RISK............................................................................................................................5
3.2 OBJECTIVES OF RISK MANAGEMENT..................................................................................5
3.3 SCOPE OF THIS RISK MANAGEMENT STRATEGY....................................................................6
3.4 RESPONSIBILITY OF THIS RISK MANAGEMENT STRATEGY........................................................6
4 RISK MANAGEMENT PROCEDURE.................................................................................6
4.1 IDENTIFY RISKS – RISK CATEGORIES...................................................................................7
4.2 RISK ASSESSMENT..........................................................................................................7
4.2.1 Risk Scales........................................................................................................7
4.2.2 Risk Actions......................................................................................................8
4.3 PLAN...........................................................................................................................8
4.3.1 Objective of Risk Planning................................................................................8
4.3.2 Risk Response Categories.................................................................................9
4.4 IMPLEMENT..................................................................................................................9
4.5 COMMUNICATE...........................................................................................................10
5 TOOLS AND TECHNIQUES............................................................................................10
6 RECORDS....................................................................................................................10
7 REPORTING.................................................................................................................10
8 TIMING OF RISK MANAGEMENT ACTIVITIES...............................................................11
9 ROLES AND RESPONSIBILITIES....................................................................................11
10 PROXIMITY.............................................................................................................12
10.1 CATEGORISING RISK PROXIMITY......................................................................................12
10.2 RISK PROXIMITY ACTIONS..............................................................................................12
11 EARLY WARNING INDICATORS................................................................................12
12 RISK TOLERANCE.....................................................................................................13
13 RISK BUDGET..........................................................................................................13
Appendix A – Risk Prompt List..................................................................................14
Appendix B – Risk Register........................................................................................15

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3 Introduction
3.1 Risk
Risk is the chance or possibility of loss, damage, injury or failure to achieve objectives caused
by an unwanted or uncertain action or event. Risk management is the planned and systematic
approach to the identification, evaluation and control of risk. The objective of risk
management is to secure the assets and reputation of the organisation and to ensure the
continued financial and organisational well-being.

3.2 Objectives of Risk Management

Good risk management is about identifying what might go wrong, what the consequences
might be of something going wrong and finally, deciding what can be done to reduce the
possibility of something going wrong. If it does go wrong, as some things inevitably will,
making sure that the impact is kept to a minimum.

Risk management should ensure that an organisation makes cost effective use of a risk
framework that has a series of well-defined steps. The aim is to support better decision
making through a good understanding of risks and their likely impact.

Risk management should be a continuous and developing process which runs throughout the
organisation’s strategy and the implementation of that strategy, methodically addressing all
risks surrounding the council’s activities past, present and future.

FMD Consultants Limited is committed to establishing and maintaining a systematic

approach to the identification and management of risk.
The risk management objectives are to:
 Ensure that risk management is clearly and consistently integrated and
evidenced in the culture of the organisation.
 Manage risk in accordance with best practice.
 Anticipate and respond to changing social, environmental and legislative
requirements.
 Consider compliance with health and safety, insurance and legal
requirements as a minimum standard.
 Prevent death, injury, damage and losses, and reduce the cost of risk.
 Inform policy and operational decisions by identifying risks and their likely
impact.
 Raise awareness of the need for risk management by all those connected
with the organisation’s delivery of service.
These objectives will be achieved by:
 Clearly defining the roles, responsibilities and reporting lines within the
organisation for risk management.
 Including risk management issues when writing reports and considering
decisions.
 Continuing to demonstrate the application of risk management principles in
the activities of the organisation, its employees and member companies.
 Reinforcing the importance of effective risk management as part of the
everyday work of employees and members.
 Maintaining a register of risks linked to the organisation’s business, corporate
and operational objectives, also those risks linked to working in partnership.

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  Maintaining documented procedures of the control of risk and provision of
suitable information, training and supervision.
 Maintaining an appropriate system for recording health and safety incidents
an identifying preventative measures against recurrence.
 Preparing contingency plans to secure business continuity where there is a
potential for an event to have a major impact upon the organisation’s ability to
function.
 Monitor arrangements continually and seek continuous improvement.

3.3 Scope of this Risk Management Strategy

FMD Consultants Limited maintains a corporate risk management strategy which controls
risks associated with the company as a whole, its relationship with its clients and the
management of new and existing business relationships.

This Risk Management Strategy is a subset of the corporate Risk Management Strategy and
relates specifically to procedures related to the development of software applications,
provision of methodology documentation and the presentation of that information to the
general public as a whole.

3.4 Responsibility of this Risk Management Strategy

The responsibility for the creation, maintenance and periodic review of this Risk Management
Strategy is held by John Aldridge, Senior Project Manager, FMD Consultants Limited.

It will be reviewed on a monthly basis and changed ratified through peer-group review.

4 Risk Management Procedure

The Risk Management Procedure encompasses 5 activities:

Communicate

4.1 Identify Risks – Risk Categories

Involved parties detailed in Roles and Responsibilities, below, should concentrate on events
that might affect the organisation’s achievement of its objectives. This should focus on areas
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which may impact costs, timescales, quality of deliverables, maintainability or usability of
any products. Strategic risks linked to the Corporate Objectives and Operational risks linked
to service and project plans need (as a minimum) to be identified and monitored. Techniques
recommended to identify risks are:
Review Lessons - Review lessons learned logs for similar profile work streams to determine
where uncertainties lay and see what threats and opportunities impacted them.
Risk Prompt List – Examine the Risk Prompt List (Appendix A – Risk Prompt List) in the
context of the work stream to determine if any of the defined areas of risk may be applicable.
This details known risk types which should be considered when determining the risk to the
project and fall under the headings of:
 Economic Risks
 Environmental Risks
 Financial Risks
 Governmental Risks
 Legal Risks
 Operational Risks
 Perception Risks
 Personnel Risks
 Project Risks
 Security Risks
 Strategic/ Commercial Risks
 Structures & Policies Risks
 Technical/ Infrastructure Risks

Brainstorming – Utilise group brainstorming to identify prospective risks which may not be
recognised by an individual. Utilise disparate groups for brainstorming to provide alternative
views of risks, for example user groups, development groups, finance heads and project
related personnel.
Project Schedules – Are any areas of the project falling behind schedule i.e. is the percentage
of work package completed running to schedule. Have all approval target dates been met.
Project Finances – Is the project running to budget and within tolerance? Are there any
exceptional costs which were not forecast?
Project Performance – Is the number of issues raised higher than expected or greater than
has been experienced in earlier projects. Are there a high percentage of issues which are
unresolved. Does it take longer to resolve issues than would normally be expected. Are
problems being experienced with any of the projects product quality.

4.2 Risk Assessment

4.2.1 Risk Scales

Following the identification of risks, they will then be included in the risk
register which will identify the risk owner and the steps being taken to mitigate
the risk. Risks will be categorised against the potential impact to the business
on a scale of 1 to 10, 1 being the lowest impact and 10 being the highest
impact. Risks will also be categorised against the likelihood of the risk being
encountered on a scale of 1 to 10, 1 being the lowest likelihood and 10 being
the highest likelihood.

The Risk Impact and Risk Likelihood will then be multiplied to give a total risk
score, 1 being the lowest and 100 being the highest possible risk.
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A total risk score of:
 Below 30 will give a ‘green’ risk.
 Between 31 and 59 give an ‘amber’ risk
 Above 60 give a ‘red’ risk

4.2.2 Risk Actions

Frequency
Risk Impact Score of
Review
No action necessary < 10 n/a
Monitor as necessary - ensure being < 20 Quarterly
properly managed
Monitor as necessary - less important but < 30 Quarterly
still could have a serious effect on the
provision of key services or duties
Monitor as necessary- less important but < 40 Monthly
still could have a serious effect on the
provision of key services or duties
Monitor as necessary - less important but < 50 Monthly
still could have a serious effect on the
provision of key services or duties
Important risks - may potentially affect < 60 Weekly
provision of key services or duties
Key risk- may potentially affect provision of > 60 Immediate
key services or duties
Immediate action needed - serious threat to > 80 Immediate
Provision and/or achievement of key services
or duties

4.3 Plan

4.3.1 Objective of Risk Planning

The primary objective of this step is to prepare management responses using Risk Response
Categories for each of the identified threats and opportunities in order to reduce or remove the
threat or to maximize the opportunity. This should leave the project prepared with an action
plan should any risk materialise.

Concentration should be on ‘red’ risks as these have the greatest chance of arising and are
likely to impact the project most severely. Consideration should be given to ‘amber’ risks and
‘green’ risks in order to:
 Keep the risk at as low a level as is practical
 Be prepared to respond to the risk should its severity level increase during the
project
 Ensure that ‘green’ or ‘amber’ risks do not increase the chance of a ‘red’ risk being
encountered

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4.3.2 Risk Response Categories
a) Avoid – typically change an aspect of the project so the threat can no longer happen
b) Reduce – Either reduce the chance of the threat occurring or reduce the impact of
the threat should it occur
c) Fallback – Build a fallback plan for actions which will reduce the threat should the
risk occur
d) Transfer – A third party takes on responsibility for some of the financial impact of
the threat (via insurance or contractual agreement) to reduce the financial cost of
the threat
e) Accept – accept that the threat may be encountered, usually because it is either
unavoidable or financially unviable to avoid the threat
f) Share – work with third parties to share either the cost loss or gain associated with
the threat
g) Exploit – seize an opportunity to ensure the opportunity will happen and the
beneficial outcome will be realised
h) Enhance – take actions to improve the probability of an event occurring and to
enhance the beneficial outcome should it occur
i) Reject – a conscious decision not to exploit an opportunity as it is more economical
to continue without responding

4.4 Implement
The primary objective of this step is to ensure the planned risk responses are implemented,
their effectiveness monitored and corrective action taken where responses do not provide
effective solutions.

To ensure this is carried out efficiently, there will be a sole Risk Owner. This is a named
individual who is responsible for the management, monitoring and control of all aspects of a
particular risk.

There may be a Risk Actionee responsible for carrying out the required response action for a
risk or set of risks. The Risk Actionee should perform under the direction of the Risk Owner.

The Risk Owner and Risk Actionee may be the same person.

A risk will be assigned to a single individual.

An individual may be responsible for more than one risk but consideration should be given to
their workload and abilities to ensure any individual is not allocated more risks than they can
practically manage.

4.5 Communicate
Risks will be communicated outwards as part of:
 Checkpoint Reports - frequency defined in each Work Package, minimum of monthly
 Highlight Reports - defined by Project Board, minimum of monthly
 End Stage Reports
 End Project Reports
 Lessons Reports – at End Stage and End Project

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Inwards communications of risks, in particular new perceived risks should to the Project
Manager for assessment, ad-hoc and openly welcomed.

5 Tools and Techniques

Project risk will be managed through electronic library store of completed Risk Register
Forms with a hard-copy back-up of the forms maintained within the Project Office. Each Risk
Register form will detail the status of a single risk and will have a unique, sequential risk
identifier.

Access to Risk Register forms will be restricted to those defines in the roles and
responsibilities, below and to the Risk Owner.

6 Records
Appendix B – Risk Register details the format of the Risk Register and contains descriptions
for each Risk Register field.

7 Reporting
Individual risk overviews will be entered on the Risk Summary which will be readily
available for authorised individuals and which will be circulated at Project Boards.

The Risk Summary will detail:

 Programme Name / Project Name
 Risk Identifier
 Summary of risk description
 Risk Category
 Current risk colour (green, amber, red)
 Current risk weighting
 Previous risk colour (green, amber, red)
 Date registered
 Risk Owner

Access to Risk Summary will be restricted to those defined in the roles and responsibilities
(section 9) and to the Risk Owner.

8 Timing of Risk Management Activities

The Risk Register will be created on approval of this Risk Management Strategy. It will be
updated:
 On planning the next stage
 On authorizing a work package
 On any updates of the project plan
 Upon any updates of the Business Case
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  On the production of any exception plan
 On review of any stage status

It will be closed when approval for project closure has been given by the Project Executive.

9 Roles and Responsibilities

Role Responsibility

Corporate Management Provide the corporate risk management policy and risk
management guide.

Executive Be accountable for all aspects of risk management and

ensure an approved project Risk Management Strategy
exists.
Ensure risks associated with the Business Case are
identified, assessed and controlled.
Escalate risks to corporate management as necessary.

Senior User Ensure all risks to the users are identified, assessed and
controlled.

Senior Supplier Ensure risks relating to the supplier aspects are assessed
and controlled.

Project Manager Create the Risk Management Strategy.

Create and maintain the Risk Register.
Ensure all project risks are being identified, assessed and
controlled throughout the project lifecycle.

Team Manager Participate in the identification, assessment and control of

risks.

Project Assurance Review risk management practices to ensure they are

performed in line with the projects Risk Management
Strategy.

Project Support Assist the Project Manager in maintaining the project’s

Risk Register and Risk Summary.

10 Proximity
10.1 Categorising Risk Proximity
Risk events will be categorised as:
 Imminent – likely to be encountered immediately, typically within one week or less
 Within the stage – likely to be encountered during the current stage of the project
 Next stage – likely to be encountered during the next planned stage of the project
 Within the project – likely to be encountered before the project is closed
 Beyond the project – likely to be encountered after project closure

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10.2 Risk Proximity Actions
Imminent risks should be noted separately within reporting to highlight the risk to project
members to ensure it is being monitored adequately.

On completion of a stage, ‘within the stage’ risks should be assessed to determine if they were
encountered. If they were not encountered their relevance to the next planned stage should be
determined and their proximity classification modified accordingly.

On completion of a stage, ‘next stage’ risks should be assessed to determine if they are still
applicable to the next stage (i.e. the stage to be started) and, if appropriate, their proximity
should be modified to ‘within the stage’.

‘within the project’ risks should be reviewed at stage end to determine if they fall into the
‘next stage’ category (i.e. the stage after the stage to be started).

‘beyond the project’ risks should be reviewed at stage end to determine if they are still
legitimate risks. If the project is at closure stage, these risks should be highlighted in the
project closure documentation.

11 Early Warning Indicators

There are several early warning indicators which should be monitored during the lift of the
project:
 Forecast project spend / timescales exceeding approved tolerance – should the
forecast total spend exceed the project budget plus allowed tolerance, it is clear
there is a genuine risk of overspend (or non-completion) of the project. This should
be regularly monitored by the project manager to ensure spend is within allowed
limits
 Forecast stage spend / timescales exceeding approved tolerance – the implication is
that the stage has either been incorrectly costed, incorrectly defined or has
encountered unforeseen problems.
 Product quality not meeting quality requirements – have there been shortcuts in the
production of products which detrimentally impact product quality. In particular, has
spend to date fallen below the forecast spend to date or the products been
delivered earlier than planned.

These should be regularly monitored by the Project Manager / Project Support to ensure each
stage is performing according to planned cost, timescales and quality.

12 Risk Tolerance
Risks are scored on a scale of 1 to 100, one hundred being the greatest risk. Risks with a score
greater than 60 should be noted to corporate management for information. Risks should be
escalated to corporate management immediately the risk score exceeds 80.

13 Risk Budget
There is no specific risk budget. Project tolerance will be employed where necessary to
minimise the impact of risks.

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It should be noted that there may be some risks defined during the project which require a
separate budget, e.g. insurance against risk encounter or insurance against financial
implications of risks.

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Appendix A – Risk Prompt List

Checklist of Common Risk Sources

Personnel Risks Governmental Risks
Illness Permits
Conflict Customs
Labour Problems Environmental Standards
Skill Shortage Patents
Motivation Health & Safety
Commitment Nuclear Regulations

Project Risks Strategic/ Commercial Risks

Budget Under-performance to specification
Scope/ Complexity Management will under – perform
Vision Insufficient Capital Revenues
Decision Process Lack of availability of Capital Investment
Timescale
Commitment Perception Risks
Politics Racially/ethnically/gender offensive
Poor Estimating Health Threatening

Security Risks Financial Risks

Theft Cash Flow
Espionage Payments
Natural Disaster Exchange Rates
Operational & Maintenance Costs
Operational Risks Procurement Costs
Inadequate Business Continuity
Health & Safety Constraints Economic Risks
Marketing/ Communications Shortage of Working Capital
Manufacturing Failure to meet projected revenue targets
Purchasing Market Developments have adverse effects
Inadequate Design
Professional Negligence Legal Risks
Human Error/ Incompetence Scope Creep
Safety being compromised Contract
Performance Failure Personal Liability
Unclear Expectations Penalty Clauses
Breaches in Security New or Change legislation impacts activity
Unforeseen regulatory controls or licensing
Structures & Policies Risks requirements
Business Structure
Business Planning Process Technical/ Infrastructure Risks
Service Plan Scalability
IT Plan Integration
Recruitment Process Security
Staff Development Process Standards
Managerial & Accountability Structures Compatibility
Change Management Procedure Performance
Risk Management Procedure Inadequate Design
Quality Management Procedure Infrastructure Failure
Organisational Strategy Increased decommissioning costs
IS Programme Plan Residual Maintenance Problems
Contingency Management Procedure
Bureaucracy Environmental Risks
Complaints Handling Procedure Transport Problems
Building Facilities & Temperature

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Appendix B – Risk Register
RISK REGISTER FORM [Form ID if applicable]
Ref:[Location/Filename] Version:
Programme Name:[If applicable] Project Name:

Risk Identifier: Risk Description: Risk Category:

[A unique reference for every risk [In terms of the cause, event (threat or opportunity) and effect (description in words of [Type of risk in terms of the
entered into the Risk Register e.g. the impact)] project’s chosen categories
0001] (e.g. schedule, quality, legal]

Probability: Impact: Expected Value: Proximity:

[These should be recorded in accordance [These should be recorded in accordance [These should be recorded in accordance [How close to the present
with the project’s chosen scales] with the project’s chosen scales] with the project’s chosen scales] time the risk event is
anticipated to happen]
Pre-Response Post-Response Pre-Response Post-Response Pre-Response Post-Response
[Estimate the [Estimate the [Estimate the [Estimate the [Estimate the [Estimate the
inherent values residual values inherent values residual values inherent values residual values
(pre-response (post-response (pre-response (post-response (pre-response (post-response
action)] action)] action)] action)] action)] action)]
Risk Response Category:
[How the project will treat the risk – in terms of the project’s chosen categories
e.g. - For threats: avoid, reduce, fallback, transfer, accept, share
- For opportunities: enhance, exploit, reject, share]
Risk Response:
[Actions to resolve the risk (should be aligned to the chosen response categories. Note that more than one risk response may apply to a risk)]
Date Registered: Risk Author: Risk Owner: Risk Actionee: Risk Status:
[Date the risk was identified] [Person who raised the risk] [Person responsible for [Person(s) who will [Active or Closed]
managing the risk] implement the action(s)
described in the risk
response]