However, the coronavirus pandemic has highlighted how such crises can no longer be considered once-in-a-lifetime occurrences. Despite their low-probability, these events must be a key consideration in risk management plans. So, what learnings can project managers take from this experience of dealing with low-probability, high-impact risks, in order to make positive changes for the future?
Consider impact over probability
In order to plan for events such as future pandemics and natural disasters, project managers should identify a range of risks and rank them according to the severity of their potential impact. When done at an early stage, this can help all parties to understand several possible risks and allow stakeholders to put plans in place for a number of situations.
Holding risk awareness workshops and conducting assumption analyses can help to promote informed decision-making. They also assist with educating staff on site about the importance of communicating with clients, if they become aware of any kind of risk.
For every project, there will be a point where investment in the management of low-probability risks becomes uneconomical. By utilising cost-benefit ratios, project managers can rationally assess when to invest in risk, and to what extent.
Read the small print
The pandemic has highlighted the importance of comprehensive insurance policies; including events that may seem unlikely to happen. It’s essential that project managers carefully consider the wording and terms of individual policies. Any exclusions or limitations could mean they’re not covered for business disruption.
After the pandemic, it’s likely that business interruption insurance premiums will increase significantly. Therefore, another key strategy is to determine risk allocation carefully when negotiating commercial contracts. This should involve considering which party in the supply chain is best positioned to manage risk and discussing potential mitigation strategies.
Any risk allocation should be clearly recorded in terms and conditions, to ensure businesses are willing to take responsibility and assume liability for managing a key risk.
Look for opportunities
For each risk identified during an assessment, project managers should use one of the five key principles of risk mitigation – eliminate, transfer, mitigate, accept or exploit – to manage it to a tolerable level. It’s important for managers to appreciate that risks can sometimes pose opportunities for project outcomes; these should be taken advantage of wherever possible.
The incidence of low-probability, high-impact risks is increasing. However, early planning and robust mitigation strategies can help secure adequate investment from stakeholders and ensure project managers are prepared for all eventualities.