Are you constantly upskilling your project management and applying the best-tested strategies but still facing issues and related negative consequences in your projects? If yes, you’re probably lacking in the project risk management area.
Looking for Project Management Software? Check out SoftwareSuggest’s list of the best online project management tools.
But you’re not alone; 62% of businesses have faced a critical risk in past projects in the last three years.
Yes, all projects have potential project risks, regardless of your skills or strategies. The best solution is to plan for the uncertainties using risk management in project management so you’re prepared to get through every risk that springs up.
To empower you to face unforeseen potential project risks and better minimize their impact or completely eliminate risk, we have curated this comprehensive guide on risk management in project management.
Here we’ve unveiled how you must manage project risk, what is positive risk and how to manage it, and how to manage risk throughout the organization. Moving forward, you’ll find a step-by-step risk management process and tools to manage risks efficiently. Let’s dive in.
What is Project Risk Management?
Project risk management is the procedure of identification, analysis, and response to potential risks that might arise during a project’s lifecycle. Project risk is an event that deviates you from the pre-prepared plan and negatively impacts the project’s timeline, performance, and budget. Project risk management is adopted to avoid such consequences, stick to the project’s outlined roadmap, and meet its desired goal.
If a potential risk comes to life, briefly write them down and then take action toward resolving them for better clarity.
In addition, project management doesn’t just involve reacting when a risk has already taken its form. Rather, it extends to enlisting the potential risks and clearly stating the risk mitigation strategies as part of the risk response plan. This must be done for large-scale complex projects; in contrast, small-scale projects can be managed with a risk priority list.
How to Manage Project Risk?
Managing a project risk starts with a detailed project plan creation. This project plan includes project objectives, vision, scope, and desired outcome. Once you have a clear goal, it’s time to identify potential risks at each project stage.
For that, you must involve all the team members, point of contact of the client, and project managers involved in the given project to take their suggestions on the potential risks. After identifying all the possible risks, note them down in a risk-tracking template so you can set priorities.
Next, create a risk management plan and state your probable action to the risk occurrence. Lastly, regularly conduct meetings to manage the identified risk and identify and prepare for the new ones.
That was an overview of the risk management process in project management. To dive deeper into each step’s intricate details, refer to our step-by-step process section by scrolling further down.
What is Positive Risk in Project Management?
Positive risks are the ones that don’t negatively impact the project but positively affect the project. Like negative risks, positive risks are an equally important part of the project management plan and are managed to realize the highest advantage of their occurrence.
Positive risk helps businesses lower production and operational costs, utilize profits to skyrocket business growth and save on investments. Besides that, positive risks can enhance team productivity and create new opportunities for improvements if they happen during production or manufacturing processes. Not to forget, positive risks push businesses to develop new strategies to mitigate industry challenges.
How to Respond to Positive Risk?
Positive risks have numerous benefits for the business. So you must know the risk management techniques to enhance the chances of its occurrence and avail of its benefits. Here’s how you must ideally respond to positive risks:
- Exploit the risk and weave risk strategies to enhance the risk probability (occurrence).
- Share the risk with team member(s) or outsiders so you can yield its full advantage.
- Take steps to increase the individual risk events‘ positive impact on your company.
- Next comes the step of positive risk escalation. It means entrusting the company’s leaders to better monitor and manage the risk.
- Lastly, be on the lookout for the positive risk to occur. If it happens, you must take steps to avail yourself of its benefits.
Managing Risk Throughout The Organization
All the projects across the organization need risk management in project management. Here are a few risk management techniques you can use to manage your risks more quickly and efficiently:
- Adoption of tools and templates to create a consistent process for project management(risk) that can be used across the organization.
- Training the project team to use these tools and templates efficiently. Doing so will free them from tedious and operational tasks. This way, whenever a new project is to be worked on, you don’t have to start from scratch to create risk management strategies.
- Rely on your business’s records and results to extract valuable insights you can apply when managing the risks of your forthcoming projects.
- Invest time in understanding your business’s values and attitude to gauge the upcoming risks for better planning, strategy creation, policy building, and decision-making.
Interesting read: Project Management Process: Phases & Importance
6 Steps in the Risk Management Process
The best way of managing risk is to be prepared for uncertainties by relying on a robust risk management plan. It helps you identify risks based on past records, experience, and assumptions. Curious to learn about the next steps? Here are the 6 stages of the project risk management process:
Step 1- Identify the Risk
The foremost step of the risk management process is risk identification in project management. You must identify the risks and jot them down in a risk register. Here are a few best ways of efficient risk identification in project management:
- Ask top leaders, experts, or shareholders about how they’ve overcome the risks that hit their way while managing similar projects, and enquire about unmissable project risks to ensure you’re well prepared to handle them.
- Collaborate with your project team to brainstorm the significant probable risks.
- Jot down your assumptions about the project and ensure that these assumptions are based on relevant facts. Moving forward on your project without verification will open gateways to dangerous risks.
- Create a list of commonly identified risks to secure you for future projects.
- Once you have a list of risk events, consider categorizing them to know which risks are more catastrophic and need your attention first. Other categories include critical, marginal, and minor.
Step 2- Analyze the Risk
After risk identification comes risk analysis in project management–risk assessment. Now for all the risks on your list, you, with your team and project stakeholders, have to conduct quantitative risk analysis in project management to analyze the chances of occurrence of the risk event, level of impact, and a plan of action to overcome it.
To gauge the level of impact a certain risk event has, see how and what aspect (like, delay in meeting deadlines) of your project it is impacting. After that, you must plan on mitigating the risk or just find a way for quick risk acknowledgment.
Careful risk analysis in project management minimizes the impact of the risk. Here are the benefits of risk management (risk analysis, in particular):
- Makes you proactive and helps you address various impacts in advance
- Empowers you to acknowledge regulatory issues
- Lets you adhere to new legislation
- Reduces the risk’s explosive impacts
- Gives you an overview of how each risk will impact your schedule and budget and let you prepare accordingly
For instance, it is noticed that 45% of large IT projects face budget overruns and deliver 56% less than estimated value. Such issues can be eliminated with proper risk analysis.
Step 3- Prioritize Risks & Issues
Now that you have a list of risk event(s) that you have analyzed well, it’s time to segregate them into high, low, or medium categories. This is done to first know which risks are alerting, assign a resolution strategy, and then prepare ourselves in advance with the resources that risk would take to get resolved.
While prioritizing the risks and issues, you will notice that some are more likely to happen, are more alarming than others, and require project managers‘ attention asap. Not catered to in time, these risks can hinder your project success. Then there will be ones that might not drastically impact your project’s schedule or budget or have near to no impact.
Step 4- Assign an Owner to the Risk
Having a list of risks, analyzing them, and prioritizing them is not enough for risk management. You also have to constantly monitor them, as not doing so will expose you to more hazardous risks by not anticipating risks and addressing them in time.
As it’s humanly impossible for you to prepare a risk mitigation plan for every probable risk event, consider assigning a risk owner (team members) for every risk. From identifying if and when a certain risk would occur to putting in efforts to resolve it, all of this falls under the risk owner’s scope of work.
But how do you know whom to assign a particular risk? Well, that is done on the basis of individual team member’s skills or experience relevant to a particular risk so they can easily find ways of resolution. Ensure all your enlisted risks are assigned to the risk owner or project manager.
Step 5- Respond to the Risk
Until now, you were just figuring out the course of action to take if and when a potential risk occurs. Now suppose the risk that you’ve been preparing for comes to life, and it’s time to implement the strategies you’ve made. What would be your reaction? Whatever you do will have a major impact on the success of your project.
The foremost thing is to decide if it’s a positive or negative risk so that project managers can choose one of the two paths. One is exploiting the risk in case of positive risk, and the second is adapting a risk mitigation strategy (the plan of action to reduce the negative impact of the project risk) if it’s a negative risk.
Once the risk category is determined, discuss it with the responsible team member (risk owner) and decide the plans to execute.
Step 6- Monitor the Risk
Managing risk is not a one-time affair and doesn’t end when you respond to the risk; rather, it starts from there. The next crucial step is risk monitoring. You must constantly monitor the risks to track how well it’s progressing toward a resolution to avoid any last-minute surprises. To have a more holistic view of the risk and determine and monitor new risks, stay updated even on its tiniest progresses.
Here are a few other ways to monitor risks efficiently:
- Discuss risk with your teammates and project manager to keep them updated about the project’s progress, probable risks, and resolution plans so they can give you some insights too.
- Follow up with different risk managers as they’re the ones who are updated on any risk events. This is done to ensure risk mitigation strategy is bringing results.
- Run through the risk registers for any new development related to the risk or a change in the risk plan.
- Ensure your risk managers/owners adhere to the pre-outlined project risk management plan.
Interesting read: 15 Best Project Management Techniques: A Beginner’s Guide to Success
The Goal Of Project Risk Management
No project exists without its share of risks. Now risks can have either a positive or negative impact on the project. It is important for project managers to assess the goal of project management so that they make informed decisions that lead to positive results. So, the goal of project risk management is one of them depending on the type of risk:
- Increase the chances of occurrence of risks with positive impacts
- Decrease the possibility of happening of negative risks or reduce its harmful impacts
Tools To Manage Project Risk
Risk management tools determine and produce useful data to analyze, segregate, prioritize, respond to, and monitor risks. Here are 2 of the best tools you can rely on:
1. Risk management plan
A project risk management plan is an essential tool that systemizes the project risk management process. It provides a clear roadmap for businesses to identify the probable risks, analyze them, and curate a response plan to minimize their impact on the project. It also helps all the organizational members be aware of the updates of an ongoing project, expected risks, and the next steps.
2. Risk register
A risk register is a platform that collects, logs, and monitors risks. It also gives you a space to describe the impact of the potential risk and briefly specify the pre-decided response if and when the risk occurs. From setting priorities for each risk and assigning an owner for all of them to adding extra insight about the risk in the form of notes, the risk register allows you to do it all. Remember, a risk register is a tool that aims to keep the project on track, help you proactively respond to all the risks, and check if it remains within budgetary limits.
By the way, exercising risk management with project management software is your best bet. This software helps you identify, track, and resolve project risk. From assigning a risk to setting a priority, the best project management software let you do it all and more.
Wrapping Up
Projects do not gain success overnight. They require a robust plan, good execution, and constant monitoring. But here’s the catch: every project has its share of risks that can significantly impact your project’s and business’s success.
The solution is to manage these risks by making a loophole-free risk management plan and creating strategies that do their job (mitigating negative project risks and encouraging positive project risks). For higher efficiency, turn to project management software. You can refer to our step-by-step process to create a strong plan. Don’t forget to log your project management risk plan for your teammates to refer to and proactively take relevant action.
Here are the 5 negative risk response strategies:
- Avoid
- Mitigate
- Transfer
- Escalate
- Accept
However, the positive risk response strategies are: Exploit, Share, Enhance, and Accept.
Here are the steps to develop a risk response plan:
- Determine probable risks
- Conduct a risk assessment
- Gauge risk impact on the project
- Decide which strategy to opt for to mitigate risks
Here are 5 ways of project risk identification:
- Brainstorming session with the project team
- Consult key stakeholders
- Prepare a common risk checklist
- Jot down the assumptions project managers have about a certain project
- Rely on cause and effect diagrams to know the facts that can give rise to risks
