Managing project risk is a project manager’s responsibility. The project manager may first identify or recognize risks, but the project team working on them together should decide how to manage those risks and mitigate them as much as possible. In project management, the project risk management process is a project life cycle activity whose primary function is to identify project risks and evaluate the likelihood of their occurrence. It also attempts to quantify each project risk’s effect on both project objectives and constraints.
Many project managers make the project risk management process their strategic project planning and preparation for the project team. Team members will use it to determine if a project is feasible or not. This way, they would already know whether they need to proceed with the project or not.
How project risk management today is different from project risk management in the past. Past project risk management processes relied heavily on expert judgment, but current project managers rely more on available tools and resources for project risk identification and analysis. These project management tools and project manager and project team knowledge of those tasks that have risks can help manage project risks more effectively.
This project risk management article provides you with an opportunity to dig deeper into the management risk of projects and discover ways to manage project risks effectively.
1. Involve Project Team in the Risk Management Process
The project team needs to be involved in identifying, analyzing, and evaluating project risks. In this process, the Project Manager is responsible for delivering information to stakeholders for their collective review and acceptance. The project manager will need to evaluate risk identification and analyze risks while ensuring consideration of all perspectives.
The identification process should not be done in isolation as it will likely result in oversights of foreseeable problems. Risk identification should always involve input from project stakeholders such that they can provide feedback on suggestions. There is an involvement of all project teams, also knows as stakeholders, in identifying project risks.
If the project implementation team isn’t a part of project risk identification, project consensus will likely be issues regarding project milestones and associated risks. The team is an integral part of project risk identification. They’re the best people to identify and recommend actions that will reduce project risks.
The project implementation team is responsible for creating project deliverables as defined by the project manager. This project team is also responsible for ensuring project success. The project team should be involved in all project planning activities, including project risk management, affecting their performance and success.
Ensure all risks are clearly defined and communicated to all project stakeholders. A clear understanding of the project risks helps everyone on the implementation team carry out project responsibilities.
2. Clearly Define your Project’s Objectives
Before you start the project risk management process, you need to define your project’s objectives clearly. The project objectives should be realistic and attainable with the resources available. It is essential to identify your project’s primary goals and what risks the project needs to mitigate. A project plan specifies how you will achieve these objectives.
Setting project objectives before project risk management allows for a project plan based on realistic expectations. There are factors to consider when undertaking your next project. It fits with the company’s overall strategic plan is crucial, but equally significant is planning for any problems concerning confidentiality, security standards, stakeholder management, or even intellectual property infringement.
As the definition of risk in ISO 31000: 2018 defining risk as effects of uncertainty in objectives. Assess project objectives to determine any events that can affect the success of the project. While project objectives are easy to define, project success is more challenging to decide on, and it needs consideration of several factors, especially a risk assessment.
3. Identify Potential Risks that might Inhibit your ability to meet those Objectives
When preparing a project for the uncertainty involved in its success, the first step is to identify all potential risks. Identification is carried out by compiling them into a project risk register and then assessing whether or not they are likely with an appropriate probability rating and what would happen if those risks came true.
Before embarking on any project, the first thing you want to do is risk identification through your Project Risk Register. It would help if you considered natural disasters such as floods, earthquakes, storms, human error. It may result in equipment failure, financial setbacks due to lack of funding, inability to find suitable contractors or workers at certain times during construction phases, and many more situations arising out of uncertain events outside our control which might affect.
Identifying potential risks will ensure that projects are fully understood and measures put in place to mitigate the risk and allow for an overall smoother business process. Furthermore, it is essential as a leader or manager to understand your employees’ perspectives to create opportunities for them when they need help with their workload.
Identification of these risks isn’t just about mitigating what could happen. Identifying the many different issues at hand ensures that our company remains successful by understanding where we may be lacking and how this impacts others on various levels. It is essential before it becomes too costly- both financially and emotionally.
4. Assess Key Risks for Mitigation
It is necessary to assess risks to plan for contingencies and prevent “worst-case scenarios.” When identifying the risks of a project, there are three primary categories for risks. They are systematic, reputational, and technical. Systematic risks often arise from mistakes or flaws in the business processes that govern a specific industry or are widespread across sectors. Reputational risk can cause customers, partners, or regulators to refrain from doing business with you due to the negative press of your organization. Technical risk is the risk that changes in technology or adverse events will interrupt production while seeking out competitive advantage, causing a reduction in business viability.
First, you have to assess the risks inherent in each vital component of your project. Scope risk is how likely there’ll be a need for changes or additional work due to scope creep. Quality Risk has two features: quality issues and testing errors. The more time spent on these tasks will mean fewer opportunities available for bugs like this to crop up later during development stages which are much more complex (and take longer) than fixing them early on when they’re more accessible and less costly.
Project managers are always on their toes when assessing and mitigating risk for an upcoming project. They need to look at all times about what could go wrong with a project. They have learned lessons from previous projects and know the importance of being prepared for any eventuality.
5. Document any Identified Risks
The best way to identify, document, and manage risks is by using a risk register. The risk register will be in the form of excel or word documents to assist the risk population. A risk register is a tool used in risk management. Project risks need management buy to identify risk owners for potential threats. New risks identified need management action
A trade-off needs between the predictive accuracy of a management plan and the level of implementation required in the organization to support it. Risk planning and identification are most effective when they focus on the probability that something will happen rather than only identifying what might go wrong if it did (Issue Register). The project’s risk register outlines the various types of risks in a project.
Documenting risks is a crucial part of any project for many reasons. One reason to establish your risk management plan is to have an accurate account if something does go wrong. However, it also helps identify factors and variables in the planning process which may need attention or change.
It’s important to review all identified risks carefully. There are no assurances on what will occur when we take action on our goals, be they personal ones such as fitness goals or professional ones like client acquisition. Documenting potential pitfalls allows us time now (or at least forewarning) instead of scrambling later with nothing prepared should tragedy strike unexpectedly–which sadly happens more often than not!
6. Evaluate the Probability and Impact for each Identified Risk
To determine how to best combat a project’s risks, one should first evaluate the risk before deciding whether it can be reduced or eliminated. Assessing the probability and impact of each of these identified risks can keep your projects safe from harm. Consider what you can do to lower or eliminate those specific threats before moving on.
It’s crucial when analyzing all potential threats that we consider both the likelihood of occurrence and severity if they do occur because different factors will have varying effects depending upon which category. For example, low probability but high-impact fallout warrants immediate intervention; conversely, the probability is higher than impacts so long as actions to reduce those chances further down.
Evaluating the probability and impact for each identified risk is essential in determining how to best combat a project’s risks by understanding how risk affects your project as well as its likelihood of happening.
7. Prioritize Risks
Risks have three levels of impact on a project: high, medium, and low. High risks are prioritized first, with budgets and resources to mitigate their effects given priority. A risk is ranked high if it has a catastrophic impact on the project objectives. An example of such a risk event is building an app dependent on social media platforms like Twitter and Facebook. If anything is happening at these companies, this could be classified under high-level risks. Similarly, security vulnerabilities also constitute a “high” ranking because they create substantial threats against our digital assets that need protection through mitigation techniques before any damage occurs.
The mitigations chosen to improve controls needs monitoring, and we’ll use the data gathered from these actions to determine what level of risk is acceptable for our company.
There are a few things you can do to manage risks. Firstly, it is essential to understand the level of risk for the project and other factors such as timeline, budget, and impact of different failures that ultimately will influence how you should manage the risks. Secondly, identify all potential threats using a risk matrix that organizes them into probable events with high severity (for example, IT failure or natural disaster) and less likely events with low severity (project design). Thirdly they need to be ranked from the utmost priority risks significants risk – no matter what plan is in place. For those significant risks, there would have to be strategies in the form of risk response put in place by staff members so that if one of these specific events occurs, action is taken quickly. In general, it’s critical to understand that even the slightest problem will impact your timeline. If this event becomes a reality, you should always think of ways to implement a less likely high severity risk into one of your plans.
9. Monitor& Track Key Project Risks
The crucial step in dealing with project risks is to monitor and track them continuously. Without a clear awareness of the state and trends of these risks, the risk management strategy becomes opaque and irrelevant- neither valuable nor helpful. Benefits of proactive attitude, it’s necessary to figure out how to regularly identify, assess, prioritize and communicate project risks while still at an early phase.
Risks occur when an event can create negative impacts on our business objectives or results in possible losses. Risks are classified into four categories; strategic risk, financial risk, operational risk, and compliance risk .
Through each phase of a project come different types of risks – environmental, cost escalation due to delivery delays from suppliers. It’s easier to manage these risks as soon as we know what we’re trying to control – whether it’s process monitoring or tracking specific goals. It ensures that adjustments happen on time and that coverage
It monitors and tracks key project risks; it’s essential to analyze them thoroughly. For example, if a threat was “vendor falls through,” what could it cause? Defects in your product. So you might want to have contingency plans in place for that scenario. One of these steps would be re-pricing your products with different vendors who may need less time or work than others.
The critical point to remember is that managing risks is not about being perfect- it’s about doing your best. As long as you identify and monitor them, the proper steps are taken when necessary. It’s also worth mentioning that if any of these strategies seem too overwhelming for you or your team, we’re always here to help! We’ll work to ensure to create a system that minimizes risk and maximizes results.
Chris Ekai is a Risk Management expert with over 10 years of experience in the field. He has a Master’s degree in Risk Management from University of Portsmouth and is a CPA and Finance professional. He currently works as a Content Manager at Risk Publishing, writing about Enterprise Risk Management, Business Continuity Management and Project Management.