Using the Risk Management Process In Project Management
According to data from 2019, interruptions in critical business processes and cyber threats are the two most significant risks to global business. All businesses, whether large or small, face risks daily. Some of these risks threaten the survival of the organization.
Arguably, it is by navigating these risks that your company will be able to cement its position in the industry while other businesses fail. As such, your company must have the right personnel and mechanisms to identify and manage risks effectively.
Before a company delivers a product or offers a service to the market, many things happen in the buildup. To ensure that everything goes as planned and can be managed effectively, different aspects of the process are broken down into various projects.
Depending on the type, size, and urgency, some projects can last for months or even longer. Projects are assigned to different teams under a project manager. It is their responsibility to ensure that the project is completed well and on time. Each company project is critical to the bottom line.
This is why it is vital for teams to identify any potential risks to their projects. As defined by the Project Management Institution (PMI), Project risks are uncertain events or conditions that may affect a project’s objectives positively or negatively. Risks can impact individuals, resources, technology, and processes.
What Is Project Risk Management?
The process of identifying risks, determining precautionary measures, and responding to any risks that arise during a project’s lifecycle is referred to as project risk management. It ensures that objectives are met, and projects are completed on time.
The key to effective project risk management is taking a proactive approach. Ensure that your teams assess all potential risks to a project and come up with ways to mitigate them during the planning phase. With this approach, it will be easier to manage risks and reduce their impact on the project when they occur.
For your team to manage risk effectively, you must answer the following questions:
- What are the potential threats to your project?
- At which stages are the risks likely to occur?
- What’s the probability of risks occurring?
- How will the risks affect the project?
- What factors can trigger the risks?
- What are the signs you can look for to identify looming risks?
How to Manage Risks
For your team to be able to manage project risks, you must first define the project and its objectives clearly. The first step should be creating a project charter that will highlight the purpose of the project, milestones, and timeline for completion.
With clear goals in mind, you can now move to the risk management phase. Ensure that all members of your team are present during this phase. It is essential that each member participates and understands the potential threats that may arise during the life cycle of the project. Plus, they may identify potential risks or opportunities that you may miss.
The risk assessment process involves:
1. Identifying Potential Risks
Begin by setting aside some time for your team to brainstorm on potential threats. Though the session is primarily for identifying threats, it will also help your organization realize other opportunities. Do not deliberate too much on the risks at this stage. Your goal should be to identify as many as possible.
Use all the resources within your organization that can help you identify potential threats. Go through records of previous projects and consult other colleagues who are not necessarily on your team about the risks they faced while handling similar projects.
2. Determine the Odds of Each Risk Occurring
After listing down all possible project risks, assess each separately, and determine how likely it is to occur. Have a risk ranking system and place each risk in the appropriate categories.
3. Figure out How Much Each Risk Can Affect the Project
Different risks have varying effects on a project. Determine how each threat will impact your resources or completion date. Rate them based on their potential impact. This will show you which risks you should prioritize.
Though there are risks that have a high chance of occurring, they may be negligible. Some may have minimal chances of arising but would have serious implications if they do. Come up with measures to prevent or address each risk beginning with the ones that will have the most significant impact.
4. Have a Person to Monitor the Risk
Once you have identified the priority risks, assign each to an individual or group to monitor. Their role will be checking for potential triggers to avert the risk and taking the lead in managing the risk if it occurs. The person you assign the risk to must be well equipped to handle the challenges that may arise.
Assigning a risk to the wrong individual is a risk in itself. This is because, without the necessary skills to tackle that threat, they will not be able to identify and manage it even if they are willing. For instance, a technology-based threat is best assigned to someone in the IT department rather than one in finance.
5. Determine Risk Response Protocols
Even if you have individuals or teams responsible for each major risk, set up some guidelines on how risks are handled. Come up with preventive steps and measures to help mitigate the risk as well as a contingency plan.
Determine the first steps they should take and at what stage they should involve the team or project manager.
6. Monitor Risks
As the project manager, you also play an active role in monitoring risk. However, yours is more of oversight and ensuring no risks are out of control. As such, you should set predetermined timelines for risk managers to provide updates.
This will help you manage the collective risks of the project. This is because each risk manager may deem the threat minor and manageable, but the small impact caused by each can affect the project considerably if they occur together. If you have a clear picture of all the risks, you will be able to determine how much they will affect the project and determine the best course of action.
In this regard, you should always welcome updates and inquiries from risk managers. Establish clear channels of communication and always be approachable. Rather than try and solve issues on their own, encourage them to come forward. This will prevent potential disasters from happening without your knowledge.
Benefits of Structured Risk Management Protocols
It is important to have a structured method of dealing with risks to ensure the risk management process is effective. Some of the benefits to expect are:
- Communication within teams and with other stakeholders will be timely and effective
- Projects will experience minimal setbacks ensuring timely completion
- With the right framework, each member will have the necessary motivation to see the project succeed
Without a structured method for managing risk, individuals and teams will not be able to coordinate well, which will affect both project and organizational success.
Not all risks threaten your project. Positive risks are risks that give you opportunities and can benefit the project. Just as you plan for negative risks, it is crucial to determine and plan for positive risks. However, with positive risks, your goal is to try and make them happen so that your team can capitalize on them.
Positive project risks include early project completion or surpassing your targets. However, with a positive outlook, you can use negative risks to create positive risks. Let’s say you are running a marketing campaign for a new product and there’s a delay in product delivery. This will affect your sales targets for the day.
However, instead of waiting for the delivery to arrive, you can mobilize your marketing team to engage with clients who have already tested the product. Their feedback will let you know how the market is responding to the product and which selling points to use when marketing.
Responding to Positive Risk
If there’s something that can benefit your project positively, you’ll want to be prepared to take advantage of it. You should first determine all the risks that you can exploit and how to do so. Proceed by identifying ways you can cause the risk to occur or at least increase the likelihood.
At this stage, you should asses your capability to fully exploiting the opportunity that may arise. Bring others on board if your team is not capable of drawing the most value from the risk.
Organizational Risk Management
Risk management should not only be left for one-off projects but incorporated into the daily routines and processes. Identifying and mitigating risks is a skill that improves with time. Therefore, you should ensure that your organization has a thriving risk management culture on all levels.
To achieve this, you must set up a standardized method of dealing with daily risks. You can also come up with ways of recognizing team members who successfully mitigate negative risk and those that help the team capitalize on positive risk.
Always Learn From Each Project
Even though projects may vary, you will face similar risks in multiple projects. Rather than start from scratch every time, you should have a record of all project management lessons you pick up from each project.
This process should be continuous and best done immediately. You pick up something important. Encourage your team members to do the same too. For your records to be beneficial in the future, make them as detailed as possible. Highlight the risk that you faced, why it occurred, how you managed it, and other ideas of how it could have been handled better.
To create an in-depth management lesson record, have your team discuss and agree on the lessons learned from each project. Ensure that your findings are accessible to everyone in the group. This will put them in a better position to control negative risk and capitalize on positive risk.