Managing project risks – Learning project risk definition and undertaking risk management process

Project risk definition

If you start reading project management literature, you may find there various definitions of project risk. The variety of project risk definitions is caused by the fact that each kind of project (e.g. IT projects and construction projects) may have specific sorts of risks that affect project results. However, the nature of project risks is the same for every kind of project, so there should be common definition of risks.

In this article the following project risk definition is used: Project Risk refers to a combination of probabilities that cause an event’s appearance and the outcomes that the event produces. Project risks can be identified, estimated, assessed and controlled within project risk management activities.

Risk management process

Project risk management activities can be described as a process of planning, identifying, analyzing, evaluating and controlling project risks. Usually organization of the risk management process is one of the major responsibilities of the project manager. The process consists of several sub-processes, such as the following below:

• Project risk planning includes a number of tasks devoted to building of the project risk management plan. The project risk manager in conjunction with project team members develops the plan to ensure identification, analysis and control of risks, as well as development of risk strategies for treating threats and utilizing opportunities.
• Project risk identification is a subsidiary process that involves implementation of risk management planning approaches to define the risks that affect a project and to describe risk characteristics. The sub process allows identifying which types of project risk have an impact on the project. There are several project risk types, including Strategic risks, Operational risks, Compliance risks, Financial risks and Knowledge risks.
• Project risk analysis is a sub process aimed at analyzing the influence the identified risks cause to the project. During the sub process, the risk manager estimates threats and conducts risk analysis to find ways for removing or mitigating the identified risks in the context of time, cost, and performance objectives.
• Project risk assessing is a sub process that allows creating risk profiles. A risk profile is a signature that rates all the risks and provides a foundation for setting risk priorities and identifying risk treatment policies. Risk profiles are used for reporting project risk management activities.
• Project risk controlling involves implementation of project risk mitigation agendas and risk assurance action plans developed during project management meetings. The sub process allow ensuring that appropriate controls and procedures for risk treatment and mitigation have been clearly understood and strictly followed by the risk management team.

During the risk management planning process, several important documents are created and used. The documents are the risk register and project risk logs. The process usually results in submitting project change requests by the project risk manager.

Risk management software is used to manage the process. It allows creating project risk checklists and project risk templates that simplify organization of the project documents flow as well as contribute to better recognition of key project risk factors that influence project outcomes.

This article gives a brief review of project risk management and risk treatment activities. To know more about risk management, you can read Project Risk Management Guidelines.