Today we will discuss some common risk terms.
We tend to think that “risk” means a threat. This assumption is not always correct. Risk can sometimes be positive. In modern project management, risks are actively taken into planning consideration.
There are many terms that can confuse professionals in risk management, leading to mistakes on their PMP or PMI-RMP exams.
In this blog post, we 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.
The following are the most commonly used risk management terms:
- Risk Owner
- Risk Action Owner
- Contingency Reserve
- Management Reserve
- Contingency Plan
- Fallback Plan
This project team member is responsible for effective risk responses and for planning additional risk responses if required.
Generally, on a small or medium project, the risk owner and risk action owner are the same team member. However, if the project is large, you can assign a separate risk action owner.
The responsibility of the risk owner is to manage risks assigned and update the project manager regularly.
You can assign a single risk to one owner or many risks to one owner depending on the situation, requirements, and their capabilities.
Risk Action Owner
Usually, you will 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.
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 any approval.
A management reserve is created by expert judgment based on the project’s complexity 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.
A contingency plan is for managing identified risks. It uses the contingency reserve.
This is also used to manage identified risks. You will use it when your contingency plan proves ineffective or fails; it’s a fallback.
You will use the contingency reserve.
In this blog post, I have tried to cover a few commonly used risk-related terms. 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.