Why is a risk plan developed prior to completing the estimate? Give examples of planning (or not planning) for risk in a budget and how that impacted the execu

Question

 project management cost:  Why is a risk plan developed prior to completing the estimate? Give examples of planning (or not planning) for risk in a budget and how that impacted the execution of the project?

Answer 1

Developing a risk plan before completing the estimate is a critical aspect of project management for several reasons. Let's delve into some insights, best practices, and examples to understand why this approach is essential:

Insights:

1. Proactive Risk Management: Developing a risk plan early allows project managers to identify potential risks and develop strategies to mitigate or manage them before they materialize.
2. Improved Cost Estimation: Considering risks during the estimation process enables more accurate cost estimates by factoring in potential contingencies and uncertainties.
3. Enhanced Stakeholder Confidence: Having a well-defined risk plan instills confidence in stakeholders by demonstrating that potential threats have been acknowledged and addressed proactively.

Best Practices:

1. Early Risk Identification: Begin identifying risks as soon as the project is initiated, preferably during the planning phase. Involve key stakeholders and subject matter experts to ensure comprehensive risk identification.
2. Quantitative and Qualitative Assessment: Assess both quantitative and qualitative aspects of risks, including their probability of occurrence, potential impact, and mitigation strategies.
3. Continuous Monitoring and Review: Regularly monitor and review the risk plan throughout the project lifecycle. New risks may emerge, and existing risks may evolve, requiring adjustments to mitigation strategies.

Examples:

1. Planning for Risk in Budgeting:
2. Example 1: A construction project estimates the cost of materials based on current market prices without considering potential fluctuations in commodity prices. Midway through the project, a sudden increase in material costs due to market volatility exceeds the budget, leading to delays and additional expenses.
3. Example 2: An IT project estimates software development costs without considering the risk of scope creep. As the project progresses, new requirements emerge, necessitating changes to the software, which impacts both the budget and the timeline.
4. Impact of Not Planning for Risk:
5. Example 1: A manufacturing project fails to account for potential delays in obtaining regulatory approvals. When regulatory hurdles arise, the project timeline is extended, leading to increased holding costs for inventory and delayed revenue generation.
6. Example 2: A marketing campaign fails to consider the risk of adverse weather conditions for an outdoor event. When inclement weather disrupts the event, attendance is lower than anticipated, resulting in a lower return on investment.

You may notice that in each of these examples, the failure to plan for risks resulted in budget overruns, delays, or other adverse consequences during project execution. However, by developing a risk plan prior to completing the estimate, project managers can mitigate these risks and ensure smoother project execution.

Answer 2

The Risk Management Plan is part of the Project Management Plan, which is developed in the Planning Stage before the Execution Stage.

And the first process of Risk M. Plan, is to define (predict) different risks that may happen in the project life cycle, and develop the appropriate action(s) to deal with this risk.

Some examples of the cost-related risks associated is anticipated change in the price(s), taxes or even currency exchange rates along the project life cycle. Which in turn impact the project costs.

Therefore, some strategies to be developed and identified in the Risk Management Plan, stating the required action(s) in such cases.

For this reason, the Risk M. Plan is developed prior to Cost Estimate Completion.