Risk terms

Today we will discuss some common risk terms.

We always assume that “risk” means a threat. This assumption is not correct. Risk can be positive. In modern project management, both types of risks are considered while developing the project plans.

Many terms can confuse professionals in risk management, leading to mistakes on their PMP or PMI-RMP exams.

This blog post will discuss the most commonly used risk terms for your easy reference.

I recommend you read my post on types of risks also.

These terms will help you understand the risk management process and help you with your PMP and PMI-RMP exams.

Risk Terms

The following are the most commonly used risk management terms:

  • Risk Owner
  • Risk Action Owner
  • Contingency Reserve
  • Management Reserve
  • Contingency Plan
  • Fallback Plan

Risk Owner

This project team member is responsible for implementing risk responses and planning additional risk responses if required.

The risk owner and risk action owner are the same team member on a small or medium project. However, you can assign a separate risk action owner if the project is large.

The responsibility of the risk owner is to manage risks assigned and update the project manager regularly.

Depending on the situation, requirements, and capabilities, you can assign a single risk to one owner or many risks to one owner.

Risk Action Owner

Usually, you assign a risk action owner if you have a large project where it is difficult for the risk owner to manage the risk independently.

The risk action owner helps the risk owner manage the risk. The responsibility of the former is to ensure that the agreed-upon risk responses are carried out.

Contingency Reserve

A contingency reserve is a calculated reserve used to manage identified risks. This is included in the cost baseline, and a project manager does not need the approval to use this reserve.

Management Reserve

A management reserve is created by expert judgment based on the project’s complexity, risk, and uncertainty. Usually, it is a percentage of the cost baseline, like 5% or 10%.

The management reserve is part of the project budget, and a project manager needs management’s approval to use this reserve.

This reserve is used for unidentified risks.

Contingency Plan

A contingency plan is for managing identified risks. It uses the contingency reserve.

Fallback Plan

A fallback plan is also used to manage identified risks. You will use it when your contingency plan proves ineffective or fails.

The fallback plan uses the contingency reserve.

Summary

I have tried to cover a few commonly used risk-related terms in this blog post. I believe it helps you manage your project and will help you with the PMP and PMI-RMP exams. 

Did I miss any key risk management terms? Please let me know through the comments section, and I will update the blog post.

Fahad Usmani, PMP

I am Mohammad Fahad Usmani, B.E. PMP, PMI-RMP. I have been blogging on project management topics since 2011. To date, thousands of professionals have passed the PMP exam using my resources.