When dealing with a project, risks are always on the agenda. Even the most carefully planned project can encounter problems and unexpected events.
Team members may fall ill or resign, other resources may be unavailable or insufficient, the budget may fail to cover an expense, etc.
Does this mean that we must give up when faced with unexpected problems? Absolutely not!
TABLE OF CONTENT
- Definition of project risk
- 6 key steps in the risk management process
- 1. Risk identification
- 2. Risk analysis
- 3. Risk prioritization
- 4. Assign an owner to the risk
- 5. Respond to the risk
- 6. Risk monitoring
- Risk mitigation
- 1. Risk avoidance
- 2. Risk acceptance and sharing
- 3. Risk mitigation
- 4. Risk transfer
This is where planning and risk response strategies come into play. We need to identify potential problems that could negatively affect the project, analyze the likelihood of them occurring, take action in order to prevent the risks that can be eliminated and minimize those that are impossible to avoid.
Definition of project risk
A risk is any uncertain event or condition that could affect the project.
However, not all risks are negative. Some events, such as finding an easier process to perform a certain activity for example, or the decrease of prices for certain materials, can also help the project.
This situation is called “opportunity”, but is managed just like a risk.
There are no absolute guarantees on any project, even the simplest activity can face unexpected problems.
A risk can be an event or a condition, in any case, it is something that can happen and if it does, it will force to change the way the project manager and the team work on the project.
When planning a project, the risks are still uncertain and have not yet happened, but it is likely that one or more identified risks will actually happen, and this is where a project manager needs to be able to deal with them.
The risk management plan tells precisely how the risks of the project will be managed if these occur.
6 key steps in the risk management process
1. Risk identification
It is not possible to solve a risk if you do not know it. There are many ways to identify risk.
One way is through brainstorming, a methodology which allows a group to examine a problem.
Another method is that of individual interviews. It consists of finding people with relevant experience, so that it is possible to gather information that will help the project manager identify the risk and find a possible solution.
Imagining the current project and thinking about the many factors that can go wrong is another technique. What can you do if a key team member is sick? What can you do if the material does not arrive within the defined deadline? Etc.
2. Risk analysis
The next step is to determine the likelihood that each of these risks will occur. This information should also be included in the risk register.
When evaluating the risks of a project, it is possible to proactively address the situation. For example, potential discussions can be avoided, regulatory problems can be solved, new legislation must be known, etc.
Analyzing the risks is certainly difficult. There is never a limit to the information that can be collected in this sense.
Moreover, risks must be analyzed based on qualitative and quantitative analyzes. This means, that you determine the risk factor based on how it will potentially affect the project through a variety of metrics.
3. Risk prioritization
Not all risks have the same level of severity. It is therefore necessary to assess each risk in order to know which resources will be gathered to resolve it, when and if it occurs.
Some risks will be more acceptable, others may even risk to completely stop the project, making the situation quite serious.
Having a long list of risks can be daunting, but the project manager can manage them simply by classifying the risks as high, medium or low.
With this perspective, the project manager can then start planning how and when these risks will be addressed.
Some risks require immediate attention; these are the risks that can derail the project.
Other risks are important, they probably won’t threaten the success of the project, but will delay it.
Then, there are those risks that have little or no impact on the program and the overall project budget.
4. Assign an owner to the risk
All the hard work of identifying and assessing risks is useless unless the project manager assigns someone to oversee the risk.
Who is the person responsible for that risk that, if this were to happen, would take charge of its resolution?
This decision, in general, is up to the project manager who knows the level of experience and training of each team member and is therefore able to assess the most suitable person to face a particular risk.
5. Respond to the risk
Now comes the moment, when all that has been planned must be put into practice.
For each identified risk, based on priority, a mitigation plan or strategy is created.
6. Risk monitoring
Obviously, every strategy to respond to the risk is useless if it is not monitored in its success – or failure.
The risk owner is also responsible for monitoring the progress towards resolution.
But also the project manager needs to stay updated in order to get an accurate picture of the overall progress and to identify and monitor potential new risks that may arise from the new situation.
It is better to ensure that dedicated communication channels for risk management are organized, so that important elements and information are not lost.
It is possible to have face-to-face meetings, but some updates could be better provided via e-mail or text or through a project management software tool.
How a software can help
Risk identification is so much about project knowledge and expertise. It is something project managers learn in time and with their experience. This is way it is so important to have a project management software that keep all your project history archived for learning and future analysis.
A software like Twproject can help you with that, managing risk on going but also creating a knowledge base for you to analyse risk for future projects.
After the risk has been identified and assessed, the project team develops a risk mitigation plan, ie a plan to reduce the impact of an unexpected event.
Here are the four ways to manage or mitigate a risk:
- Risk avoidance
- Risk acceptance and sharing
- Risk mitigation
- Risk transfer
Each of these mitigation techniques can be an effective tool to reduce individual risks and the risk profile of the project.
1. Risk avoidance
This technique usually involves developing an alternative strategy that is more likely to succeed, but is usually linked to a higher cost.
A very common risk elimination technique is to use proven and existing technologies rather than adopting new technologies, although they could lead to better performance or lower costs.
A project team can choose a supplier with a proven track record instead of a new supplier that offers significant price incentives; this, in order to avoid the risk of working with a new supplier that is not known whether it is reliable or not.
2. Risk acceptance and sharing
This technique involves accepting the risk and collaborating with others in order to share responsibility for risky activities.
Many organizations working on international projects will reduce the political, legal, and employment risks associated with international projects by developing a joint venture with a company based in a particular country, for example.
Partnering with another company to share the risk associated with a part of the project is advantageous when the other company has experience that the project team does not have. If a risk event occurs, the partner company absorbs all or part of the negative impact of the event.
3. Risk mitigation
Risk mitigation represents an investment in order to reduce the risk on a project.
On international projects, for example, companies will often buy a guaranteed exchange rate in order to reduce the risk associated with exchange rate fluctuations.
A project manager can hire an expert to review technical plans or cost estimates on a project in order to increase confidence in that plan.
Assigning high-risk management activities to highly qualified project personnel is another risk reduction method.
4. Risk transfer
Risk transfer is a risk reduction method that shifts risk from the project to another party.
A classic example of risk transfer is the purchase of an insurance. The risk is transferred from the project to the insurance company.
Purchasing an insurance is usually in areas beyond the control of the project team. Weather, political unrest, and strikes are examples of events that can have a significant impact on the project and that are beyond the control of the project team.
Simply put, it is simply a matter of paying someone else to accept the risk.
Risk management may seem superfluous at the beginning of the project. When a project manager is starting a new project, it is indeed difficult to think about things that could go wrong, especially if he is caught up in the initial enthusiasm.
It is essential to remember, however, that the development of a management plan will – most likely – be useful later during the development of the project.
This is why risk management must be considered an absolute priority from the start.
Get a complete support on managing your project’s risk using a project management software like Twproject.