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Budgeting for risk management

A project needs to allocate the appropriate budget, time and resources to risk management. The risk process must be embedded in the project environment, rather than being tacked on as an afterthought.

The cost of carrying out risk management and the level of commitment and time, such as contingency plans, risk avoidance or reduction, needs to be recognised and agreed.

While the budget may be allocated to actions relating to risk treatment, there is often a failure to provide sufficient budget to the earlier parts of the process, such as risk assessment that can require a diverse range of skills, tools and techniques.

Experience has shown that allocating the correct budget to the risk management process early on will pay dividends later.


Project Interdependencies

Risks may have additional factors relating to them that increase the complexity of assessing your overall exposure to risk. These include interdependencies.

It is essential to understand the interdependencies of risks and how they can compound each other. For example, a skills shortage combined with serious technical problems and a requirement to bring the delivery date forward arecommon examples of riskcompounding. Interdependencies can occur at all levels and across different levels.

A project may have interdependencies with other projects. A project maybe dependent upon a supplier delivering products or services that have a further interdependency upon another internal project delivering its objectives and so on in the supply chain. These need to be explicitly identified and assessed as part of the process of risk management.

Interdependencies often cross different boundaries, such as ownership, funding, decision making, organisational or geographical boundaries. You must be able to assess risk and communicate across these boundaries.

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