What is Risk Management?

Article by
Priya Pedamkar
Source: https://www.educba.com/what-is-risk-management/

Introduction to Risk Management

During software development, there are many factors, which need to keep in mind. Every
business comes with certain risks and it applies in the software industry as well. Being aware
of the risk is not enough. A project manager must also be ready if certain critical situations
arise. This is where risk management comes. Risk is something, which could happen and
cause some loss or threaten the progress of the project. To avoid such loss we create a “Risk
Management” plan.

What is Risk Management?

Risk management is the process of identifying, analyzing, and controlling the risks during and
before the software development.
Let us understand those terms thoroughly:

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1. Risk Identification
This is the first step in risk management. It is the process of identifying the risk in project
development. It also includes documenting those risks along with the characteristics. The
process is constant and carried throughout the project development. As the project evolves,
we get to know it better. We can explore and identify more unvisited or hidden risks.
This phase helps in two types of risk:
• Product Risk: A risk, which may arise due to functionality or unable to meet user
expectations.
• Project Risk: A risk, which involves any unexpected event which may occur and
impact the progress of the project.
The senior management like a business manager, project manager, test manager, and client,
does this process. They collaborate and brainstorms the idea of project risk, and create the
risk document.

2. Risk Analysis
The risks have been identified now it is time for the analysis process. In this stage, we analyze
and prioritize the risk. I.e. what could be the outcome if any of the identified risks occur?
Based on that those risks are get Categorized. What is the impact if any of the risks occur?
Based on it the severity is identified. The severity could be “High”, “Medium”, or “Low”. This
also helps in prioritizing the risks.

3. Risk Control
In this stage, we try to control and mitigate the risk based on their category and priority.
This is divided into three parts:
• Risk Management Planning: It includes proper and effective planning to deal with
identified risk.
• Risk Resolution: This involves removing or resolving the identified risk.
• Risk Monitoring: This involves monitoring the progress towards resolving issues and
taking appropriate

Why Risk Management is Important?

1. Precaution is better than cure. Knowing the risk in advance and having a contingency plan
helps in preparing in advance. This helps in lower the impact on the progress of the project
and the cost in the end.
2. Consider a small example of the software industry. Today we all run on the internet. What if
one fine day the lease line gets broke for any reason. What is the backup plan? How the day-

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to-day work is going to continue. As an organization, these are such issues, which you cannot
control. For this kind of situation, you should have a backup plan.
3. Therefore, no internet is an identified risk. When you analyze it you will know that this is a
“High” priority and a major risk. This will affect your business in terms of cost and productivity.
Now, what are your steps to resolve the risk? Having a backup lease line? Good idea right? It is
up to the organization how they want to recover from such a situation. In the end, it is all about
reputation and money. If you cannot deliver, you cannot run in the market.
4. Risk management is as important as project development. If the organization cannot
prevent or handle the risk then it is highly likely to vanish.
Risk is involved in every type of business. According to a study called “Chaos Report” for
projects in information technology, the following conclusion has drawn:
• 39% of projects finish on time and budget.
• 43% of projects are challenged.
• 18% are canceled before its deployment to summarize the benefits of risk
management.
• It ensures the successful completion of the project.
• It enhances the revenue by saving the expenses.
• It gives confidence and a competitive edge over other industries.
• It also helps in exploring new opportunities.
• It helps to avoid a big disaster.

Examples of Risk Management

Below is an example of a risk management plan:
where: Likelihood: This denotes the possibility of a risk to occur.

Likelihood Descriptor Description

A Almost Expected to occur in most circumstances.

Certain

B Likely Will probably occur in most circumstances.

C Moderate Should occur at sometime.

D Unlikely Could occur at sometime.

E Rare May occur only in exceptional circumstances.

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Consequence: This denotes the effect of the risk, which may occur:

Level Descriptor Description

1 Insignificant Low financial loss.

2 Minor Medium financial loss.

3 Moderate High financial loss.

4 Major Major financial loss. And may create a reputation in the

market.

5 Catastrophic The system is unable to meet user requirements, bad user

experience, Huge financial loss.

Likelihood Consequences

1 2 3 4 5

A S S H H H

B M S S H H

C L M S H H

D L L M S H

E L L M S S

H: High risk, detailed research, and management planning required at senior levels.
S: Significant risk; senior management attention needed.
M: Moderate risk; management responsibility must be specified.
L: Low risk; manage by routine procedures.

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Risk – What Consequence Likelihood Existing Consequence Rating Likelihood Level of Risk
and how Controls Rating Risk Priority
can it
happen

Requirements The built Likely Scheduling 5 B High 1

are not system is a interviews with
clearly failure. the customer,
defined. continuous
feedback from
the customer.

Loss of User is unable Rare Activating the 5 E Significant 2

database to access the failover group.
connection. website.

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Conclusion
A good project manager knows that risk happens. When you start planning for a
project the next thing comes into your mind is what could go wrong? Have
mitigation strategies handy and you saved yourself from big trouble.