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6 |
Guide to risk managementPreparation of a risk register and prioritisation of risks |
6.1 |
Hopefully the client and key suppliers will each have started their own assessment of the risks relating to the achievement of their respective business objectives in the context of the particular project before entering into contractual arrangements. |
6.2 |
The reason for the formal preparation of a risk register is the underlying truth that, if the parties do not identify the potential risks to the project, they cannot possibly plan how to prevent them occurring or mitigate their consequences. In addition, it is no use producing a plan of every conceivable risk that might affect the project and seeking to manage all risks equally. Some prioritisation needs to be achieved so that greater effort can be spent in planning the prevention and mitigation of those risks considered more serious (in terms of the likelihood of their occurrence and their impact on the project if they do occur). |
6.3 |
The preparation of the risk register should be carried out as soon as practicable in the life of a project. The client may start with the preparation of its own version of an initial risk register. Alternatively (and this may be part of a competitive tender situation) the client may request that potential suppliers prepare their own draft risk registers. Whether the client or suppliers are responsible for the preparation of the first draft of a risk register, a risk register will benefit enormously from the joint input of both the client and main suppliers together with any other key specialists. Consideration of the risks affecting the project may take place at a joint workshop and, depending in part on the size of the project, it may assist if one of the parties or an external appointee acts as a facilitator to encourage the contributions of all attendees. |
6.4 |
It is suggested that any form of risk register should consider the following issues in relation to any identified risk:- |
6.4.1 |
The likelihood of the occurrence of the risk (this can be on a scale of 1 to 10 where 1 is "unlikely" and 10 is "very likely"); |
6.4.2 |
The likely impact of the occurrence of the risk (again, this can be assessed on a scale of 1 to 10 where 1 represents "very little impact" and 10 represents "potentially, very serious (or even catastrophic) impact"); |
6.4.3 |
the weighting of the potential impact may be assessed in monetary terms: for example a risk to be categorised as having very little impact ("1" on the scale) might be estimated to have cost consequences of less than £1,000 and the next gradation of risks ("2" on the scale) might be assessed as being more than £1,000 but less than £2,500, and so on; |
6.4.4 |
Based on the addition or multiplication of the scores for likelihood of occurrence and likely impact (see above), a priority rating for each risk should be established. (For example, a risk considered very likely to occur with potentially very serious consequences might have a combined score of 16 or above (8 + 8 or alternative combinations) if adding scores, or 70 or above (7 x 10 or alternative combinations) if multiplying scores. Either method can be used as long as they are applied consistently. All risks would be prioritised according to their score); |
6.4.5 |
In relation to each serious risk (agreement would need to be reached as to what score will constitute a serious risk) there should be set out a simple action plan for the prevention/mitigation of the relevant risk; |
6.4.6 |
Any action plan should be drawn up applying the principles of "SMART", ie actions should be Specific, Measurable, Agreed, Realistic and Time-bounded. An action plan that provides for "keeping an eye on" certain risks is not sufficient. A more acceptable alternative might be "x will carry out a check on matters y and z every Friday morning and report on his findings to a and b"; |
6.4.7 |
In addition, responsibility for the management of each serious risk should be allocated to a particular party or organisation (and preferably, to a named individual within that organisation) – the party/organisation should be the one best able to manage the relevant risk; |
6.4.8 |
There should also be a date for the carrying out of the relevant action; and |
6.4.9 |
A statement of the objective of the relevant action (this will enable subsequent reviews of the risk register to consider whether any further action is necessary to achieve the objective. For example, the risk of the delay in the obtaining of necessary planning permissions may have been identified as relevant risk. It is unlikely to be possible to completely eradicate that risk at the outset of the project, therefore, the objective might be to achieve planning permission within 8 weeks of submitting the application for planning permission. Progress against this target could then be meanfully reviewed; |
6.4.10 |
Linked to the above category, there may be a separate consideration of the likely outcome of the relevant action to be taken; |
6.4.11 |
Finally, consideration may need to be given to feedback/further action to be taken as a result of the regular review of the risk register. |
6.5 |
An example of a risk register is set out in Appendix 3. |
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