As reported, 40% of the project managers point out risk management as a critical process for project success.
With projects getting increasingly complex, businesses need to be more prepared to deal with all the potential risks.
🛑 Are you going to deliver the project on time, even if a project team member resigns or falls sick?
🛑 Would you be able to accommodate the small changes suggested by the client without affecting the scope?
🛑 Is your project vulnerable to operational risks, and if yes, what can you do?
These and many other such thoughts are stuff some of the project managers' nightmares are made of!
However, ensuring risk management in project management activities can be just the right solution you need.
With risk management strategies in place, you can lead your projects to success, regardless of all the challenges you encounter.
Let us explore how!
What is Risk Management in Project Management?
By definition, a risk is the uncertainty of the outcome of any activity. Risk management, thus, regards the following factors that can impact the desired outcomes of any ongoing project:
- risk identification
- risk analysis
- risk prevention
- risk containment.
So, the risk management process in project management is an integrated set of activities that are done to ensure that any uncertainties arising in the future can be mitigated or contained well in time and with little or zero impact on the entire project.
If there are any changes or updates in the client requirements, you can map them into the scope and check whether they are going to spawn any issues or unwanted situations, such as an increase in cost.
While it might seem an interesting thing at first, identifying, analyzing, and mitigating risks in project management is a daunting task!
Why? You might ask.
The answer is - the events or scenarios leading to risks might or might not happen or can be misinterpreted.
Also, risk management professionals are more inclined to think that every risk is a threat. However, this might not always be the case!
Now, before we discuss how to remedy the dilemma and how to ensure impeccable risk management in project management activities, let us talk about the various types of project risks.
Types of Risk in Project Management
There are many risks that a project is vulnerable to. While some risks materialize when the key activities such as requirements gathering and scoping are not done properly, many risks arise because of any new demands a client has.
Risks can also creep into the development process when there is a lack of proper communication among the team members, and it signals impending doom when you fail at timeline management and analysis of various project tasks.
Below, we are sharing some common yet crucial types of risks in project management.
The technological aspect of running and managing a project is a complex activity, as the technology is evolving at an unprecedented pace.
Apart from rendering your pool software professionals obsolete in terms of their skills, industry disruptions can bring a number of other problems, such as:
- Data security threats
- Compliance and regulations
- Threats to organizational services
- Information security
This can lead to mindless hiring of fresh software personnel or consistent employee training leading to learning fatigue and even impatient software acquisition that brings many other challenges with it.
Every software project gets conceived with a detailed discussion with the client. However, once the requirement specification document is finalized, you might falter in your communications, leading to confusion and misinterpretations.
Communication risk can lead to re-iterations because of changes suggested by the client or just because the client wasn’t sure about the functionality of a module.
Sometimes, even with the availability of proper communication channels and collaboration tools, team members tend to neglect critical communication, leading to misinformation and project disruption.
It means an unauthorized and uncontrolled change to the initially intended project scope that leads to the extra cost of additional features, functions, or products.
What makes this risk a critical one is the fact that it can cause irreversible changes to the project, leading to delayed deliveries, exceeding the budget, and a major re-do of the core modules.
A scope creep can happen because of many reasons, such as:
🛑 Project length: If a project is very big and complex, it is normal for the development process to be lengthy. Over the course of this time, the client's expectations and requirements can evolve and can spur a number of small or big changes in the project, leading to scope creep.
🛑 Unrefined project scope: An unclear understanding and scoping leaves multiple entry points for the scope creep and can amount to delayed deliveries, over-the-top costs, and improper development.
🛑 Lack of formal scoping and requirement management: Many SMEs and start-ups lack the proper scoping and formal requirements management system. The limited budget and manpower are some of the major reasons for not having a formal system for scoping and project requirement management.
🛑 Inconsistent requirement gathering: Requirement gathering is extremely critical for all the phases of an SDLC (System Development Life Cycle) that lie ahead, such as planning, designing, development, testing, and delivery.
If your requirement gathering is poor and inconsistent, the scope creep is surely going to disrupt all the phases of the project lifecycle, as no team member will have a clear view of "what needs to be done and how it must be done to align with the client requirements".
🛑 Lack of stakeholder involvement and ownership: While the management and all the project stakeholders might not have the time to get involved with every single task of the project development, their supervision and timely reporting to them is essential.
In case they leave the fate of the entire development in the hands of the team members, they lack the sense of ownership, and it becomes easier to get lost while working alongside the scope.
Cost Risk or Budget Creep💰💥
Mismanagement and shortage of funds, misunderstanding of project requirements, and lack of proper financial management system can lead to an inflated budget. It can also spawn other critical constraints, such as employees leaving the organization because of poor remuneration.
Cost risk becomes an impending doom for the project’s success if you fail to capture and map the client requirements properly.
When your organization suffers from poor implementation of core processes that are critical to the project, such as procurement and production, you are facing operational risks head-on!
Operational risks can lead to a direct or indirect loss in various forms, such as:
- Failed qualitative and quantitative assessments
- Failed project development strategies
- Inadequacy to deliver the project on time
The key risk drivers of operational risks in project development are:
- Number of providers or investors or managers in a supervision role
- The technical complexity of the project
- Level of reliability of the team members working on the project, such as technological reliability, loyalty, and motivation to work
- Number of links between the future and existing systems in the vendor organization
Apart from having a direct impact on the budget of software development, the operational risks can also bring failure to the vendor organization in various ways, such as failed policies, business processes, or events leading to critical decisions, such as firing or hiring employees.
Skill or Talent Resource Risk 🧙🏻♂️💥
Talent resource risk is associated with the organizational talent, that is your staff.
Some common ways your staff can be a risk to project development are:
- Staff incompetence
- Lack of the right talent for a particular project
- Having the limited professional talent to rely upon
This happens the most if you have a limited team with only one or two people handling all the major activities of your projects.
However, this doesn't mean that enterprises cannot face this risk. There, the skill risks can assume other forms, such as managing the dispersed team units without any gaps and finding the right balance between outsourcing and hiring.
There, the skill risks can assume other forms, such as managing the dispersed team units without any gaps and finding the right balance between outsourcing and hiring.
It is highly likely for your project to crash down when deployed in the actual market. It might also fail to deliver the desired results, causing your competitors to take you in stride and cripple your business!
Also, your project might be vulnerable to a foreign market or commodity risks, such as credit, fluctuation of interest rates, liquidity, etc., leading to issues with product sales.
Now that we have had an overview of the various types of risk in project management, let us find out how to manage these risks.
Tips to Mitigate Project Risks to Avoid Failure
Before we find out how to mitigate project risks, it is important to understand one thing - it is impossible to eliminate risk!
Yes, even if you stick to the best risk management process in project management, the uncertainties can always find ways to creep in, and unpredictable human behavior can always lead to unprecedented complexities.
Some other tips to mitigate risks and avoid failures are as follows:
Have a Reliable and Robust Risk Management Plan
While every other organization has a risk management plan, the majority of them crumble while facing the challenges in reality. This is because the risk managers fail to create reliable and robust risk management strategies and update them with every risk encountered.
Always remember, your current plan is good until the emergence of a new risk. And, once the risk has occurred, you have to accept and work towards mitigating or containing it.
There are lots of examples of an organizational risk management plan.
Having a thorough and robust risk management plan that doesn’t have a denial element and can accommodate any changes done for containing emerging risks keeps your projects safe and soundly running!
Understand the Risk
Before you categorize any risk event into the pre-existing risk categories in project management, it is important to "identify and understand" the same.
Let us try to understand this with the help of an example.
Suppose Leslie is a risk manager in a software firm and just got notified of an employee, Susan, resigning from the designer post. She checks the risk categories in project management software and puts the risk under talent risk. She conveys the same to Matt, who is the human resources manager, and asks for new hiring because Susan was working on four projects. She gives him a window of 15 days to hire a new candidate until she keeps the activities running with the existing sources.
Now, Matt initiates hiring and hires a new employee.
So, what is wrong in this entire situation, you might ask!
Both Matt and Leslie didn’t consult the project manager to see whether the situation could be remedied without having new hiring. There might be some designer who is on the verge of completing a project and could take on the projects Susan left.
This is how communication risk can creep in and spur other risks. Further, proper assessment and understanding are also crucial apart from risk identification in project management.
Proactive vs. Reactive
Reactive risk management in project management means responding once a risk has occurred. While the situation can still be salvaged with this approach in some cases, it is not a smart approach, especially once the risk has significantly affected some of the core processes.
Proactive risk management, on the other hand, is a closed-loop and adaptive risk management process that employs a feedback control strategy. The feedback control strategy is based on observation and measurement of the current safety levels and planned target safety levels with an intellectual sentiment.
With template samples of risk analysis in project management, you will be able to take a proactive approach to risk management which is more reliable, robust, and less prone to failure even when risks occur suddenly.
Most importantly, proactive risk analysis in project management performs accidental risk analysis activities to ensure that the project safety levels are well-matched with the target values at all times.
Enhance Your Project Management Skills
Tim Lister, a distinguished software professional, famously quoted - "Risk management is project management for adults,” and the statement fits right in every aspect.
Having robust, highly intuitive, well-planned, and impeccable project management skillset allows you to be alert, precise, and well-informed at all times. You can have a clear vision of the various project activities down to the granular level and rich insights into events or situations that can evolve into risks or threats.
Now, you might ask - "Well, if my project manager can do the risk management as well, then why do I need a risk manager at all?"
The answer is - "Risk management is a subset of project management and is an entire world of its own that needs explicit management.”
To have this level of project management, you will require smart, feature-rich, and highly comprehensive project management software that facilitates efficient risk mitigation.
Steps to Manage Project Risk
Create a Risk Register
Start with registering your risks and other related things, such as:
- Date of risk identification
- Description of risk
- Risk owner
- Risk response
Recording this information will not only empower you with data-rich insights into the risk history of your organization but will also create a reliable risk directory to create more advanced risk strategies.
Start with brainstorming over the current risks your projects might be facing. Make this step even more fulfilling and exhaustive by discussing risk events and concerns with your project teams, management, and stakeholders.
Identify the potential, existing, and accidental risks for the projects and file them.
Risks sometimes can become opportunities by spurring organizational actions that boost your project management activities. Many times, risks have spawned opportunities for brands and businesses across the globe.
One of the best risk management in project management examples in this regard is the "Wrong name spelling" campaign of Starbucks that fueled their brand popularity and boosted their conversions.
So, identify how positive risks can create opportunities for you.
Analyze the Likelihood of Risk and Its Impact
Once you have compiled the list of various risks and the opportunities they might create, you are ready to move on to the next step.
Now, you have to analyze the “likelihood of occurring and impact” for every risk on your list. The historical data of organizational risks that have already happened can help you determine how likely it is for a risk to occur again. Likewise, you have to determine the various impacts that risk might have on the ongoing project as well as the organization.
You must create an impact scale to determine and record the severity of a risk’s impact. The higher score an impact has, the more severe damage it does to the project development.
Apart from ranking and measuring the risks and their impacts, you have to determine whether the risk has positive or negative impacts and create a thorough record.
Plan the Response
Now that you have all the risks ranked and analyzed at your fingertips, you can plan the best responses for each one of them. Such planning allows you some extra time to spend on brainstorming over the best courses of action and drilling down to the root cause of some risks.
The next step is to create the estimates for the resources that you will need to combat or contain the risks, such as human resources, money, time, and skills. If the risk containment requires more staff or a major investment (software purchase or upgrades, etc.), you have to discuss the same with your management.
Completing these actions well ahead of time will allow you to perform a better analysis of your risk posture and be prepared well before the risk occurs.
Choosing risk owners that can monitor and deal with a particular risk allows you to delegate your duties and ensure that the stakeholders are also involved in the risk management process.
You can allot each risk to a specific team member, and they are responsible not only for planning the risk response but also for implementing it. This will make risk management a shared responsibility where each stakeholder is clear about their actions and goals in case a risk occurs.
Risk Review and Reporting
Every risk strategy needs regular reviewing and updating. Weekly or bi-weekly revisits and reviews of risks and risk strategies ensure proactive risk management in project management.
Finally, you must create or leverage the risk management tools to create data-centric risk reports that show valuable insights such as:
- Money saved with timely risk management
- Business processes needing improvement for better risk posture
- Organizational actions that are necessary to avoid such risks from happening in future
By creating such thorough and action-driven proactive risk management processes, you can minimize your risk exposure and losses incurred because of the same.
Integrated Risk Management and Analysis: The Futuristic Risk-Proof Approach
The inability of risk managers to make risk management and analysis an integrated part of project management makes most of the risk management strategies a failure. Hence, avoid having a standalone risk management and analysis approach. Opt for a thorough risk examination and management strategy that is bound with every project phase.
This would make your risk management better, more proactive, thorough, and fool-proof in the wake of future trends and industry disruptions.