Project risk management: 6-step strategy for sure-shot success

Introduction 

Unreasonable expenses, cost overruns, poor communication, and missed deadlines – can all emerge to plague your project’s progress. But, with project risk management, you can keep the ship sailing smoothly.

Risk management is a more realistic term than safety. It implies that hazards are ever-present and must be identified, analyzed, evaluated, and controlled or rationally accepted. – Jerome F. Lederer

It is a skill project managers need to excel in to prevent projects from going off the rails.

In this article, we’ll uncover everything about project risk management and why getting ready for uncertain events is key to not being blindsided. I’ll also walk you through some actionable steps to manage project risks.

Let’s get into the nitty-gritty.

What is project risk? 

Project risk is any uncertain issue or event derailing your project’s success. Contrary to common belief, its effect on project objectives is not always inherently negative but positive, too. It’s possible but not guaranteed to happen during a project. 

According to the Project Management Institute (PMI), “Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective. A risk has a cause and, if it occurs, an impact.”

Like negative risks, even positive risks form the core of project management – but you should approach them differently. Where you try to mitigate negative risks, you must capitalize on positive risks to gain potential benefits. These risks can quickly turn negative and vice versa if not appropriately managed.

What are the types of project risk? 

Project risks manifest in various forms. However, the basic classification splits risks into two categories- risks due to internal factors and external factors. 

Internal project risks (within your control)

• Resource issues include budget constraints, resource unavailability, equipment unavailability, outdated technology, etc. 
• Team dynamics include conflicts, low morale, lack of communication, ineffective communication, or skill gaps within the team.
• Organizational changes such as shifts in company structure, strategy, or management styles.
• Strategic risks include inaccurate scheduling, poor time management, employee satisfaction and retention, project dependencies, and scope creep.
• Performance risks include undefined KPIs, unclear expectations, unrealistic deadlines, poor project plans, etc.
• Financial risks include inaccurate budget estimates, unexpected expenses, rising costs, lower sales, higher employee requirements, etc. 

External project risks (beyond your direct control) 

• Market fluctuations include industry trends, customer preferences, regulatory changes, economic downturns, or competitor actions.
• Technological advancements such as advancements in technology, cybersecurity threats, etc. 
• Environmental factors include natural disasters, weather conditions, power outages, and pandemics. 
• Legal and regulatory changes such as new laws, standards, and regulations.  
• Socioeconomic factors like social unrest, political events, political instability, economic downturns, or changes in trade policies and public perception.

What is project risk management?

Project risk management is a proactive approach to anticipating and tackling potential threat factors – that have surfaced, or might surface later – before or as they become troublesome to your project execution.

Project Management Institute (PMI) defines it as – 

“Risk management, in the project context, is the art and science of identifying, analyzing and responding to risk factors throughout the life of a project and in the best interests of its objectives.”

Consider this forward-thinking approach as a preparation strategy that looks ahead into the future. These potential threats don’t take much time to turn into real issues. 

It is a critical skill a project manager is expected to have. They need to keep an eye on these volatile factors. Also, creating risk response plans is a part of their job to minimize the risk impact on projects, if not avoid them altogether.

Why is risk management important in project management?

An effective project risk management strategy ensures the project’s resilience in the face of uncertainties. Gary Cohn, the vice chairman of IBM, once said, “If you don’t invest in risk management, it doesn’t matter what business you’re in; it’s a risky business.”

Some areas where developing a risk management strategy can help you are – 

1. Proactive problem solving

Risk management empowers you to anticipate, identify, and address issues at the project’s beginning. You can even quantify the likelihood of creating predefined response strategies and action plans, minimizing downtime, cost, and confusion.

By adopting this approach, you can switch your approach from reactive to proactive, ultimately saving yourself the effort that goes into dealing with the problem later. Utilizing this information, you can tame down potential threats before they become full-blown problems.

2. Minimizes project failures

When you start a project, numerous threat factors may arise. But does each disruption require your and your team’s attention? No. Instead, you should evaluate potential impacts and prioritize them accordingly. 

“No matter how good the team or how efficient the methodology, if we’re not solving the right problem, the project fails.” — Woody Williams

Therefore, with this, you can ensure that no critical issue goes unnoticed and the proper attention goes to risk with severe consequences. Also, when every risk is considered and managed systematically, you prevent problems from ruining project outcomes. 

3. Increases efficiency 

With effective risk management practices, your team knows what to do and how to do it. It eliminates confusion and ambiguity from the picture, preventing inefficient ad-hoc decision-making.

It optimizes your resource usage by preplanning. You can allocate resources efficiently to avoid the last-minute scramble. Also, your team doesn’t waste time looking for solutions; instead, refer to a predefined action plan to implement measures swiftly. 

Read more: Embrace proactive risk management to obtain a striking balance of the three components of the project management triangle

4. Enhances communication and collaboration 

Risk assessment creates a communication protocol by developing a shared understanding among your team and stakeholders. It keeps everyone informed of their role and responsibilities, people to reach out to, and the steps to take, eventually bringing everyone on the same page.

These efforts lead to better collaboration while leveraging diverse perspectives and expertise. Everyone doesn’t hesitate to contact others for effective communication, brainstorming sessions, and discussions to discuss potential issues, share updates, and collaborate effectively.

Mitigate project risks with seamless team communication using the 11 best employee communication software

5. Improves decision making

During the project lifecycle assessment, a thorough investment goes into evaluating the risk matrix and impact. Everyone clearly understands potential threats, predefined mitigation strategies, and action plans. 

According to PwC’s 2023 US Risk Perspectives Survey, 57% of respondents witnessed better decision-making due to enhanced insights into project risks.

With different risk scenarios explored, project managers can quickly weigh down the options and choose the best course of action. This removes the probability of making intuition-based decisions but promotes a data-driven approach to rapid decision-making.

6. Maintained project scope and quality

When creating a project management plan for your business, you bring clarity by defining project scope and performance indicators from the beginning. When you adhere to these parameters, you can anticipate the risks that lead to scope creep and compromise the quality.

Considering these factors, you set up a framework to monitor all quality checkpoints and milestones to adhere to quality standards. Similarly, to control scope, you define clear boundaries to maintain control over the project’s objectives.

7. Continuity and resilience 

Risk management contributes to the project’s continuous improvement and resilience by conducting effects analysis throughout the project lifecycle. Continuous risk monitoring lets you stay on top of rising risks and make real-time adjustments.

Also, periodically reassessing risks allows you to stay flexible and adaptable as new risks emerge or existing risks are revoked. By preparing for potential risks, projects progress consistently despite the overwhelming challenges.

How to manage risk in project management? 

Wellingtone’s The state of project management 2020 report states that poor risk management is amongst the top 10 challenges that projects experience.

So, the need to manage risks becomes even more crucial. How will you do that? Through project risk management planning. 

Here is a breakdown of a 6-step strategy to stop these potential threat factors from derailing your project.

1. Identify project risks

That is obvious. When choosing to fight a battle, you must know who you are fighting against. Otherwise, it’s a losing game. Therefore, get into research mode to uncover potential risks.  

The best way to do that is through brainstorming and transparent communication. Bring all your team members, stakeholders, strategists, and client representatives to one table to form a collective understanding session. You can even host 1:1 meetings or workshops to conduct root cause analysis.   

Create a risk register. Note down all the difficulties and challenges you expect to encounter. Check past projects’ risk data. Also, scenario planning should be conducted to anticipate unlikely scenarios. Let your intuition lead you to find risks that do not look so obvious.

Tip: Make sure to have a project charter for better risk identification at every possible stage. It documents your project vision, objectives, scope, budget, resources, and deliverables. 

2. Analyze and evaluate risks

Once you identify risks, hop on to the next step, probabilistic risk assessment or risk analysis. When doing so, focus on three key factors:

• Risk probability (likelihood)
• Risk impact (consequences)
• Risk vulnerability (severity). 

Jot down all this information on the risk register. Focus on quantitative (numerical) and qualitative (non-numerical) risk analysis. This will help you identify the critical risks requiring your immediate attention. 

With every risk you define, come up with a response action. By doing this, you understand the overall project risk level and form the basis for your risk mitigation plan. 

Tip: You can use statistical models like Monte Carlo simulations to predict and quantify risks accurately.

3. Prioritize

No matter the risks on your risk register, not every risk deserves equal attention. Based on your risk identification and assessment, you must evaluate the potential damage a risk can impose on your project’s success. 

That being said, do not underestimate other risks. It’s just the fact that they are less prone to threaten your project outcome. These low-priority risks are minor issues that can bear minimal impact.

Only when you clearly understand these risks can you assemble the resources required for risk resolution. For obvious reasons, your priority should be the risk with high probability, high impact, and high severity. 

4. Assign 

While you might be thinking, why assign risk tasks before they surface? Well, it’s better to be prepared if they show off abruptly at any stage. 

Defining who is responsible for overseeing the risk increases accountability in your team. With this clarity, the risk owner knows his responsibilities and immediately works on resolving the issues if and in case they occur. 

Tip: While you may skip this step, I highly recommend you make people responsible for tackling risks.

5. Respond

Now that you are done creating a risk log and prioritizing risks, the next step is to respond to these risks. And for that, you need to make an excellent contingency plan to mitigate risks. While doing so, ensure the plan is actionable, practical, and achievable. 

Here are the four different approaches to responding to risks:

• Avoidance: If possible, take steps to avoid the risk from happening in the first place. This might require some basic adjustments and changes in your project scope. 
• Mitigation: Develop a risk mitigation plan for risks that can’t be avoided at any cost.  
• Acceptance: Choose to accept the risks that are simply unavoidable. Develop contingency plans to deal with it if it arises.
• Transfer: In certain situations, like when you lack the bandwidth, transfer the risk to another party.

6. Monitor

As soon as your project is set up, stay in sync with your project’s progress. That’s where the primary task begins. This practice also helps uncover emerging red flags. 

You can inform your team of project progress and updates by sending regular updates. To do so, you should establish communication channels for seamless communication and collaboration among team members.

Also, there might be instances when your risk register or risk mitigation plan will require some modifications. So, be prepared to bring real-time adjustments depending on changing circumstances. 

Tip: Use project management software like ProofHub with a real-time monitoring feature to get insights into project progression.

Manage project risks with ProofHub

ProofHub is a feature-rich, all-in-one project management software with powerful features to safeguard your projects against risks. ProofHub brings real-time efficiency to every project step, from constructive planning to developing risk attenuation plans.

Some of its features and functionalities that aid in project risk management are: 

• Centralized interface: ProofHub creates a shared sense of truth for everyone by bringing all project-related information like files, communication, tasks, and updates under one roof.
• Task management: Create, manage, and assign risk mitigation tasks within ProofHub in just a few clicks. Also, you can add deadlines and labels to define the urgency and priority of tasks.
• Notes: Create a document similar to a risk register to both document and categorize project risks and their likelihood of occurrence. This helps you keep a log of identified risks.
• Discussions: Utilize ProofHub’s discussion feature to have brainstorming sessions regarding potential issues and solutions. 
• Reporting: Using real-time tracking, you can get insights into task progress, uncover bottlenecks, and identify project deviations to ensure timely course correction. 
• Built-in chat: Using in–house chat, you can communicate 1:1 or have group discussions with stakeholders and team members on risk mitigation. 
• Customization: Tailor your workflow to your requirements and view your project risks across different views. 
• Custom roles: Assign roles and define the responsibilities of individuals in managing risks. Also, restrict the access to protect confidential information from unauthorized eyes. 

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