I have found it beneficial to develop a “risk strategy” before getting too involved in estimating or bogged down in detailed planning. It’s important to remember that an estimate is an educated guess. First, get educated about the project, then tailor your estimate to reflect what you have learned.
Strategizing is an ideal learning process. It engages your key stakeholders and team members early in a big-picture, proactive, value-added way about the realities of the project. A risk strategy involves:
Ø identifying critical risks,
Ø assessing potential impacts,
Ø exploring available responses,
Ø evaluating feasible options.
Developing a risk strategy is reconnaissance about the project’s overall environment (e.g., strengths, weaknesses, opportunities, threats, impacts, etc.). I think of it as standing on a hilltop and surveying my surroundings before charging off on the mission.
Factoring the results of a risk strategy into an estimate is ordinarily handled by including either reserves in the budget or buffers in the schedule. Reserves and buffers simply represent money or time set aside to deal with bad things happening on your project. They cushion the project from known-unknowns.
Budget reserves can be estimated using expert judgment, analogous estimating or calculating the total expected monetary value (i.e., Probability X Cost Impact) of all critical risk factors. Determining realistic schedule buffers requires employing critical chain scheduling techniques. Critical Chain Project Management by Lawrence P. Leach is an excellent book on the subject. It’s important to note that reserves and buffers are not “padding”. Risk is a reality on a project. Prudence demands that it be accounted for in the budget and work plan.
Finally, risk planning and estimating are not a strict chicken-or-egg situation. Instead, they both evolve and are refined through progressive elaboration as you learn more about the project while moving forward.