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Masooma Memon

Project Risk Management: A Guide to Mitigating Risks in 5 Steps

In an increasingly unpredictable global business environment, is your project risk management strategy up to scratch? Let's take a look at how you can improve project risk management in 2023.

Between the risk of data security breaches, economic uncertainty, and competitors head-hunting your organizational talent, your projects’ success is at risk. 

Fortunately, project risk management can save the day. 

In fact, by investing time in evaluating project risks and making a risk management plan, you can multiply your success rate. 

Not sure where to start?  

Let’s take you through the nitty-gritty of project risk management including a 5-step risk management process. Here’s what we’ll cover: 

What is project risk management?

Project risk management involves identifying and preparing for potential risks to a project’s success. These risks vary from project to project and can surface at any stage of the project lifecycle. 

The impact:

  • Delays to the defined project timeline
  • Negative impact on project performance and outcome
  • Reduced team productivity and unsatisfied stakeholders 

As much as we'd like though, it’s not possible to completely eliminate risk. However, by proactively identifying risks and devising strategies to mitigate them, you can minimize potential risks and save projects from completely derailing. 

Types of common project risks to watch out for

Each project comes with its challenges — bringing a unique set of risks. However, there are certain categories of risk that you need to consider for any project:

1. Resource risk

Resources significantly impact a project's performance and pace. But projects can encounter any of the following resources-related risks: 

  • Staff shortages
  • Incomplete or incompatible staff skills
  • Equipment unavailability
  • Cost overruns
  • Schedule delays

When making your resource risk mitigation plan, consider all the potential resource constraints that can disrupt the continued supply of staff and materials for the project.

2. Cost risk

There’s no guarantee of a project’s financial success without a reliable budget estimate. 

Even so, cost overruns that threaten success commonly occur due to: 

  • Inadequate data on project scope and resources
  • Inaccurate estimation of supply costs and resource allocations 
  • Outdated procurement procedures

As you create your project cost plan, make sure you allow for contingency costs. Contingency costs show up when unexpected but high-impact events impede a project’s progress. 

Ensure you’ve a plan to reserve funds to cover contingency costs and keep the project moving to completion.

3. Scope changes

Deviations from a project's original scope and layout often lead to major delays and additional costs. 

Factors that typically lead to scope changes include: 

  • A lack of consensus among project team members regarding the scope
  • And unclear change management processes

4. Operational risks

Risks threatening business operations or workflow can impact all project outcomes. These threats can be related to internal operating processes or external factors.

For example, you could see operational risks like: 

  • Data loss
  • Financial losses
  • Major safety threats
  • Shortages of critical staff
  • Disruptions to services at a company level

5. Market risks

Market risks are often unpredictable and pose a major challenge when devising a risk management plan. 

Risks in this category stem from:

  • Credit risks
  • Competitor risks
  • Investment planning
  • Fluctuations in the market pricing of commodities

Certain market risks are unavoidable you can mitigate them during the risk management process. 

On the flip side, several market risks are more easily evaded. For instance, those caused by inaccurate assessment of market conditions such as demand, pricing, and availability.

6. Project performance risk

Performance risk is centered around the project outcome and a failure to deliver the anticipated results lowers performance. 

Performance risks result from:

  • Poor oversight
  • Underuse of tracking tools
  • Poor coordination between project teams
  • A failure to identify risks and adjust course as needed

You can easily foresee performance risks but a failure to account for them can impact your company in the long run — giving competitors an edge in the market.

7. Technological risks

Cyberthreats plague the security of businesses large and small alike and undermine their success. Associated risks in this category include: 

  • Malware
  • Ransomware
  • Phishing attacks
  • Password thefts

Other potential technological risks include a lack of timely infrastructure installations, compliant and updated software systems, equipment monitoring, and a shortage of reliable support systems.

8. Adverse events

The current climate change crisis poses an ominous threat to businesses and livelihoods. In fact, no risk registry is complete without a climate risk and disaster management process.

Sudden extreme weather changes such as floods, hurricanes, and droughts can:

  • Cause massive destruction to infrastructure
  • Impact supply chain management
  • Impact resource availability
  • Disrupt cyber services

A resilient project risk management plan includes backup and recovery planning to handle adverse events and ensure business continuity. 

For example, data centers may backup data at multiple geographical locations, so that services can continue uninterrupted even if one of the centers is offline.

How to manage project risk in 5 steps

A comprehensive risk management process focuses on identifying and assessing risks and then taking steps to control and mitigate them. 

Use these five steps to set up a project risk management process in your organization: 

1. Identify risks and create a project risk register

A project risk register is a tool that lists the risks you've identified, logs their incidence, and tracks the response plan. 

Think of it as a centralized repository that lets you track risks across multiple levels of a project as it evolves and develops.

Once you identify a risk as a risk owner or project manager, immediately update the project risk register to reflect the risk assessment. This way, the risk can be monitored adequately.

Keep in mind: the risk register categorizes each risk, rates its impact, and evaluates its likelihood. 

2. Complete a risk analysis

Risk analysis includes prioritizing and ranking risks, which helps you hone in and facilitate immediate course corrections necessary to ensure the smooth running of a project. 

You can evaluate the impact of a potential risk in either quantitative or qualitative terms.

For example, recurrent and prolonged downtimes in data recovery may impact a project and its delivery deadlines. In this case, you can measure the negative impact of a breakdown in services quantitatively — using model simulations — to understand the far-reaching consequences of the event.

On the other, a qualitative risk analysis maps the risk and its impact in words. 

For example, the immediate risk of climate change and its impact is difficult to quantify but needs to be considered on the risk register.

3. Develop a risk response plan

Once you've identified and evaluated project risks, develop a plan to mitigate the risk.

Remember: a response plan is the first step in controlling the risk. It often involves multiple stakeholders including senior team leaders, upper management, and sometimes even the client.

For example, as a response to potential resource risk, project managers can work out resource allocation strategies to ensure resources are available at the right place and at the right time at each stage of project performance. 

4. Monitor risks as the project progresses

Not all risks can be avoided or mitigated as well as we'd like, so project risk owners need to monitor risks as the project progresses. 

Monitoring and reporting risks in real-time risk tells different teams what is happening across the project board.

Project risk monitoring also helps managers evaluate future risk potentials and their impact on business performance. 

This is often done using key risk indicators (KRIs), which are tangible metrics for evaluating the impact of potential risks encountered during a project.

5. Schedule regular reviews to adapt your plans if needed

Finally, a risk management plan needs regular reviews and updates to fortify the risk management process.

A risk review involves the project manager and members across different teams who meet to:

  • Evaluate and improve the risk response plan
  • Identify any bottlenecks in its implementation
  • And, make sure rigorous risk control processes are in place

A risk review process recognizes the changing scope of a project and identifies areas of shifts so that project implementations can be protected from risk scenarios.

Bottom line on handling risks in project management

Project risk management planning is complex. It involves multiple stakeholders and includes complex internal and external variables.

While the process of developing a resilient risk management strategy is time-consuming, the reality is that it's just not worth avoiding it. 

If something goes wrong, having the right risk management in place can be key to ensuring that the project can get completed regardless.

So do future you a favor and get your risk management plan in place.

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