Understanding Project Risk Management

Who Conducts Project Risk Management?

Project risk management is consistent across all projects yet can change depending on the size and type of project, as different strategies are needed. But, project managers regularly monitor risk management during a project to ensure its successful completion.

It is essential to devote extra attention to managing and minimizing risks for large projects. Conversely, developing an ordered list of the high, medium, and low-risk priorities is sufficient for smaller projects.

How Do You Identify Project Risks?

Risks can be identified using a variety of techniques. For instance, project managers could use a combination of such methods, like reviewing a checklist in one of their regular meetings and going over assumptions in another meeting. Below are some of the common risk identification techniques:

• Interviews
• Brainstorming
• Checklists
• Assumption analysis
• Cause and effect diagrams
• Nominal Group Technique (NGT)
• Affinity diagram

Common Types of Project Risks

To minimize possible risks in your project, you must start by correctly identifying what could go wrong. Having an understanding of the details makes this process much more manageable. Hence, every risk management plan should consider these factors.

Environment, Safety, and Health Risks

Examples include current weather conditions, stock markets, and more. Given the risk of more frequent extreme weather due to global warming, it’s essential to have this risk assessment when planning large-scale building projects. Considering the potential impacts on your supply chain and factories is also necessary.

Strategic or Competitive Risks

Any big business decision has the potential for strategic risk and could result in an unfavorable outcome. Though you may have made the right decision based on all the information available, things can still turn out badly. For example, a competitor could launch a similar product before your project has even made progress after deciding to develop a new product.

Scheduling and Cost Risks

If you have pre-arranged services or rental equipment, costs can skyrocket if your project doesn’t go as planned. You certainly don’t want to be in an empty parking lot full of expensive equipment you must pay for daily.

Third-Party Risks

Working with partners such as Software-as-a-Service (SaaS) companies, suppliers, or fulfillment companies carries certain risks. For instance, the credit card data of a payment processor’s clients may be compromised through a hack. A hosting company’s data center failure, such as due to a power outage, could also mean your website being offline for hours.

Loss of Support

Projects and organizations primarily funded by a few external sources can be prone to losing backing. If your main sponsor or VIP customer suddenly stops funding, it could leave your project lacking the necessary financial support to move forward.

To ensure continuity for important undertakings that seriously impact your company’s future success, seek out other potential funders just in case you experience an unexpected breakdown in relations with existing sponsors.

Tips to Reduce and Manage Risks

Create a Risk Management Plan

Your risk management plan should define your method for assessing and organizing risks, along with your team’s risk tolerance, response plans, communication strategies, etc. It takes dedication and hard work to create a plan like this, but the time spent in the planning phase can be well worth it since it provides a framework that will help direct the project during execution.

Keep Risk Register up to Date

Risk management involves maintaining a risk register or also called a risk matrix. It can be a standalone or incorporated into the risk management plan.

Keeping this document up-to-date is vital to ensure you always have an accurate snapshot of potential issues that can arise. As this information is continuously updated and accessible to stakeholders, everyone can understand the project’s current state.

Understand the Risk Event

Too often, people miscalculate viewing risk solely by its possible results instead of the actual risk event. For example, “missing a deadline” is seen as a project risk without understanding that it’s not the risk; instead, it’s just one consequence.

To properly assess and handle risks associated with your projects or tasks, consider using this format: Should X happen, Y may be triggered, which will cause Z impact. Utilizing this method helps you recognize where the danger lies and how best to address it effectively.

Be Proactive Instead of Reactive

Anticipating risks and taking proactive steps to mitigate them is essential for any project. A project’s initial risk management stage will allow you to better prepare for unexpected events. By thoroughly analyzing each potential risk, you can implement preventative measures that reduce your chances of being surprised and having to react in haste.

Develop Your Project Management Skills

Risk management is about managing people and resources. You should always strive to master your project management skills to help you handle your projects and tasks more effectively.

Take the time to learn best practices, create effective communication strategies, and develop soft skills like leadership and problem-solving. Doing so will provide you with the tools necessary to assess better, manage, and resolve risks within your projects.