Project Risk Management

Just like managing organizations, projects have become increasingly dynamic and project managers need the ability to manage the uncertainty or risk that come along with the dynamism. The ability to manage projects risk is an essential skill and project managers need to become experts in preventing and responding to risk. This got to start by first understanding what risk is and the process by which it is managed. Below, we look at the risk management process and provide tips for success as you begin to take steps toward reducing and managing risk for your organization.

What is risk management?

In project management, risk management is the practice of identifying, evaluating, and preventing or mitigating risks to a project that have the potential to impact the desired outcomes. Project managers are responsible for overseeing the risk management process throughout the project life.

For a project manager to effectively manage risk, s/he must have a clear understanding of the project objectives to be able to identify any possible barriers that could impact the ability to produce results. Risk management is about looking at the project objectives and figuring out what the threats to those objectives are, and what can be done to address the threats from the start.

The types of events or scenarios that can be regarded to be risks can be broad and sometimes misinterpreted. While project managers or those tasked with overseeing a project may be inclined to view risks exclusively as threats, this is not always the case. It’s important to clarify, at this point that, a project risk is ‘a future event that may or may not happen which, if it does happen, will have some impact on the objectives of the project, either positive (opportunity), or negative (threat).’

Types of Project Risk

Project managers need to know the different types of risks they may encounter, because, depending on the project type, the factors that should be considered will differ. There are several types of risks that occur frequently, regardless of the specifics of the project which we can categorise under there impact aspects or areas on the project as under:

  • Cost: Events that impact the budget, causing project budget overruns. The most common one is errors in cost estimation which generate cost/budget risk in addition to external factors.
  • Schedule: Events that cause the project to be delayed, most common being scope creep as a result of scheduling issues and project delays.
  • Performance: Events that cause the project to produce results that are inconsistent with the project specifications.

Of course, there are many other types of risks that can occur depending on project details e.g., risks pertaining to implementation, training, testing, and so on. Once project managers identify the categories of risk they should be concerned with, they can begin to understand how these risks might impact the project outcomes and what can be done to reduce their effects. To do so, project managers need to consider the breadth and depth of each type of risk in the context of the overall project.

Risk Management Process

Project risk management follows a process that helps identify, understand, and respond to threats and opportunities. Before beginning this process, it’s important first to understand fully the organization’s practices in conducting risk work for projects. That understanding will guide planning on how to drive the following steps:

  • Identifying risks that could potentially impact your project.
  • Assigning ownershipfor each risk identified to a team member who will be charged with overseeing that threat or opportunity. Although some project managers prefer to assign ownership after the risks have been analysed and prioritized, taking this step early can be beneficial because you’ll want the person assigned to drive the analysis of the risk. 
  • Analysing each risk to fully understand the driving factors involved and potential impacts. Be sure to consider the breadth and depth of each threat at this stage in order to evaluate the severity of each risk in the context of the overall project.
  • Prioritizing project risks according to urgency and severity of impact they could cause. 
  • Respondingto identified risks in accordance with the risk management approach, i.e.  either by taking steps to prevent the risk event from occurring or by minimizing the impact if the event does occur. This step involves building the response as well as taking action.
  • Monitoring the risk management strategy and making changes as needed.

Although there are clear steps in the risk management process, this should ideally be an ongoing effort. After all, the nature of risk is inherently unpredictable, and project managers need to have the agility and discipline to continuously adapt to changes throughout a given project.

Tips on how to Reduce and Manage Risk

While it is impossible to completely eliminate risk, there are steps that project managers can take to effectively manage projects while reducing the amount of risk. Here are some of the tips to get you started:

1. Create a risk management plan.

Having a strong project plan is essential for success. Remember project plans have many ancillary plans that are often encompassed in this plan, and one of them is the risk management plan. The risk management plan should define the methodology for identifying and prioritizing risk, the risk tolerance, response strategy and how to communicate the risk. Developing such a plan takes time and effort, but investing in the planning phase often pays off by creating a roadmap that will guide your team throughout the execution phase of your project.

2. Keep the risk register up to date.

The risk register, which can either be separate or combined with the risk management plan, is a list of all possible risk events that have the potential to impact the project. Having this document helps you to stay on top of potential issues, and its important to keep it current so that you always have an accurate snapshot to refer to.

Use the risk register to keep track of what risk events occurred, how you responded, and which new risks have surfaced which you were unable to detect initially. By keeping this document up to date and ensuring that it is integrative with other planning deliverables, you, your team members, and other key stakeholders will always have a clear picture of the state of the project.

3. Understand the risk event.

A common mistake in risk management is the tendency for people to think about risk in terms of the possible outcomes rather than the risk event itself. For example, people sometimes identify “missing the deadline” as a risk to their project. While missing the deadline is certainly a threat to the project, this isn’t actually the risk, but rather the impact. Instead, consider risk in the following format: Due to X, Y may occur, causing Z impact. Doing so will help you understand the root of the risk, the risk event, and how you should address it.

4. Be proactive instead of reactive.

Project managers sometimes make the mistake of taking a reactive approach to risk management rather than a proactive approach. It will always be necessary to have the agility to react when an unplanned event occurs, but it is also important to take a step back and view your project through a proactive lens.

By investing time in the early stages of the risk management process and fully analyzing each risk, you can prepare yourself to take preventative steps that reduce the probability of the risk event occurring, rather than trying to respond once it has already happened.

5. Developproject management skills.

To effectively manage projects and their risks requires a strong foundation of project management skills. Also in addition to practicing, staying up to date with industry trends, and attending conferences and workshops, helps refine project risk management skills.