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

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

A risk assessment plan enables and empowers multi-disciplinary teams and the PM to create a more accurate timeline, scope, and budget, as well as allocate resources more efficiently.

If all of these aspects of the project are not taken into consideration at the beginning, before starting the project, the negative impact on other projects in the queue for that quarter or that fiscal year can suffer, which can significantly impact the bottom line of the program or a number of programs, which can affect upcoming fiscal planning and budgeting for the entire division or even company, depending on what kind of company it is.

It's basically a domino effect. If risks are not identified beforehand, it handicaps the rest of the project from being successful. The timeline may be too short. The project doesn't have the appropriate and necessary resources, and the budget ends up too low. Suddenly, you are missing deadlines and milestones, so your timeline keeps getting pushed. You are now having to get money from other departments or other projects because you didn't plan efficiently and are over budget. And then you end up keeping resources that were allocated to other projects (based on your original timeline and scope) and another project suffers OR what happens in most cases, is that other projects don't get deprioritized. Instead, the resources are now having to work twice as hard and twice as long because they are now overallocated.

Well, you get the gist :)

However, if risks are assessed, then we know whether the timeline/scope/budget/deliverable wanted by the client or customer is feasible or not. We can then level set expectations with them and educate them as to why changes may need to be made.

It also empowers the PM to "see around corners" as it were. The more information the PM has to anticipate potential issues, the better off he/she can head them off at the pass.

A risk assessment isn't 100% accurate. Just like the project itself, it is a growing, living thing that is continuously revisited and revised. By trying to anticipate as much of the risk as possible upfront, we can create a cushion for any issues that do come up that were unforeseeable from a planning perspective :)

Answer 2

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.