Uncover the basics of risk management and learn how to apply them to your next project.
Published 14 Mar 2023
Project risk management identifies, assesses, and controls potential risks. It's an ongoing practice that helps prevent surprise events or setbacks from damaging or derailing the project. The goal is to understand which risks could occur during different stages of a project and then work out how to counter them if they do happen. Good risk management techniques can help complete projects on time, reduce costs, and improve customer satisfaction by averting problems before they cause large-scale disruption.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Project management is no stranger to risk, and time or schedule uncertainty can be one of the most prevalent. When tasks take longer than anticipated, it significantly affects key elements such as budgeting, delivery times, and ultimate success.
Operational risk arises from ineffective management and associated issues such as procurement, production, and distribution. Ultimately, this type of project risk is a performance risk where the expected result is either not achieved or significantly different than initially planned by project managers.
The most crucial element of risk management is to ensure that you have identified all potential risks and developed a comprehensive mitigation plan. Your plan should include strategies for dealing with both expected and unexpected risks and a timeline for responding to any issues that may arise. Additionally, it’s essential to regularly review and update your risk management plan over time to ensure it remains effective.
The Quantitative Risk Assessment method is undeniably the best approach when analyzing numerous options for reducing potential risk. It involves making a comparison of risks before and after implementation, as well as conducting a cost-benefit analysis.
A risk-tracking template is undoubtedly a good tool for a start, but to take control of your project risks at every stage and gain more comprehensive insights into the process, using project management software can be beneficial in the long run.
SafetyCulture (formerly iAuditor) is a cloud-based platform that helps you identify, assess, and manage risks in real-time. It is an excellent project management tool because of its intuitive interface and many features. It provides project managers with the following benefits:
Rob Paredes is a content contributor for SafetyCulture. He is a content writer who also does copy for websites, sales pages, and landing pages. Rob worked as a financial advisor, a freelance copywriter, and a Network Engineer for more than a decade before joining SafetyCulture. He got interested in writing because of the influence of his friends; aside from writing, he has an interest in personal finance, dogs, and collecting Allen Iverson cards.
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