In addition, while some would say that it is better to prepare for the worst and think of every possible problem, this in itself can be a waste of resources and can reduce the amount of focus on the most important potential problems. The next important issue is how to manage identified risk. This process is one that requires careful balance. Most importantly, the resources put into a project need to be balanced effectively. For example, consider a project where a potential major risk is identified, but it only has a 1% chance of occurring. Is it beneficial to invest a large amount of resources to reduce the impact of this risk? In most cases, the answer will be no. If something is not likely to happen, it is often not justified to spend large amounts of time and money to reduce its impact. A better approach would be to develop a plan that will recognize the problem early and take effective action early. This is generally referred to as the contingency plan. The Department of Information Resources (2003) notes that the work in a contingency plan is only completed if the contingency condition indicates it is needed. To put it more simply, the actions of the contingency plan are only carried out if the problems occurs and the plan is needed. This is an effective way to prepare for risk possibilities effectively, but without investing a large amount of resources into responding to problems that might never happen. In other cases where risks are more likely, or where they are reasonably likely and have significant effects, it can be justified to invest resources into preventing the problem. The actual solution for each potential risk will always differ and will depend on how likely the problem is, how significant its impact is likely to be, how difficult the problem is to prevent, how...

For example, if a problem will cost $1,000 to prevent, but would cost $20,000 to manage once it occurs, it will probably be justified to invest the $1,000 and prevent the problem. Each case though will differ and each decision can only be made by considering all of the factors involved. Risk management is certainly not a process where there is a clear and definite solution. Instead, it is a complicated process that involves balancing many factors and making the best decisions possible at the time.
It has now been seen that effective risk management is a crucial part of project management. In fact, project management can be seen as a process of risk management, where a project manager needs to measure, evaluate, and manage risk and uncertainty to make it most likely that the project will succeed and reach it defined goal.

Bibliography

Daft, R.L. (1997). Management. Fort Worth, TX: The Dryden Press.

Department of Information Resources (2003). Process for analyzing and managing project risk. Retrieved April 28, 2005, from Department of Information Resources (Texas). Web site: http://www.dir.state.tx.us/eod/qa/risk/

Focused Performance. (2005). Critical chain and risk management: Protecting project value from uncertainty (part 1). Retrieved April 28, 2005, from Focused Performance. Web site: http://www.focusedperformance.com/articles/ccrisk.html

Robbins, S.P., Bergman, R., & Stagg, I. (1997). Management. New York: Prentice Hall.

Slack, N., Chambers, S., Harland, C., Harrison, a., & Johnston, R. (1998). Operations management. San Francisco, CA: Pitman Publishing.