Whether managing a project or simply living your daily life, risks always threaten to prevent you from reaching your goals as you originally envisioned. As a project manager, it’s your job to anticipate as many of these risks as possible and have a risk management plan to ensure that your project stays resilient in the face of uncertainty. Before effectively managing project risks, it is important to perform a risk assessment.
This article discusses the importance of risk management for project managers and provides best practices for creating an effective risk management strategy.
Table of Contents
What is risk management?
What is a risk assessment?
How to identify risk in project management?
How to manage risks?
How to help your team use project management to achieve business goals?
What is risk management? and why is it important?
Risk assessment is the process of identifying, evaluating, and prioritizing potential risks that could negatively impact a project’s success. Risk management is essential to project management as it helps project managers proactively identify and manage potential risks that could derail the project’s success. By identifying and managing risks, project managers can ensure that their project stays on track and meets their objectives.
What is a risk assessment?
A risk assessment identifies, evaluates, and prioritizes potential hazards or risks that could negatively impact an organization, project, or activity. It includes an analysis of the following:
- Risk Types
- Risk Attitudes
- Project Resiliency
Analyzing risk types
Risk assessment in project management requires identifying and classifying possible risks into known/unknown, event/non-event, and emergent categories.
To categorize the risks, project managers should ask questions such as:
- Has the risk been identified?
- Do you know how to respond to the risk?
Common risk categories include:
- Known risks with known responses
- Known risks with unknown responses
- Unknown risks with known responses
- Unknown risks with unknown responses
- Event or Non-event
Event risks are based on the occurrence of future events, such as a vendor going out of business. In contrast, non-event risks include variability risks (ex., productivity fluctuates due to team schedules) and ambiguity risks. A good example of an ambiguity risk is the company’s ability to produce more and more videos based on its server space. If your company grows extremely quickly, it’s unclear whether you can afford this.
Emergent risks are unexpected or unknown risks, such as major weather or political or economic events. Understanding these different types of risks and categorizing them correctly can help project managers make informed decisions and develop effective risk management strategies.
What are the three main categories of risk attitudes, and how can understanding them help project managers create a more effective risk management strategy?
Project managers must also consider risk attitudes when assessing and managing risks. They play a critical role in the risk management process, shaping how individuals and organizations approach and respond to potential risks.
Some project managers may be willing to take on more risk to achieve greater rewards, while others may prefer a more conservative approach. As a project manager, it’s important to consider the risk attitudes of all stakeholders involved in the project, as this will help you create and implement a risk management strategy that everyone feels comfortable with.
Three main categories of risk attitudes:
- Risk Averse: An individual or organization that is not comfortable with risk.
- Risk Neutral: An individual or organization that is neutral to risk and attempts to deal with it objectively.
- Risk Seeking: An individual or organization actively drawn to taking risks, viewing them as opportunities for growth and success.
By assessing the risk attitudes of stakeholders, project managers can tailor their risk management strategy to align with their preferences, leading to increased buy-in and support. This can help prevent conflicts and misunderstandings, foster a more effective strategy, and increase the chances of project success.
What strategies increase project resiliency?
Project resiliency refers to the capacity of a project to recover quickly from difficulties. The more uncertainty your project can absorb without breaking down, the stronger it will be in the face of unexpected risks.
To increase project resiliency, project managers can employ a variety of strategies such as:
- Adding a contingency to your project budget and schedule. This allows for unexpected events and changes to be absorbed without causing the project to fail.
- Employing flexible project processes. Flexible project processes can help a project adapt to changing circumstances and stay on track.
- Empowering your project team. By giving team members the tools and resources they need to make decisions and take action, you can help them respond quickly and effectively to unexpected risks.
- Holding frequent project reviews.
- Engaging your stakeholders.
How to identify risk in project management?
Risk identification is a crucial step in the risk management process for any project. To identify risks, project managers must analyze a variety of inputs and document risks.
We analyze inputs to understand what could occur on a project and the likelihood of the risk occurring. These inputs come in the form of documentation and knowledge from individuals.
Input Documentation includes:
- The Project Management Plan
- Project documentation includes cost and time estimates, resource requirements, stakeholder register, etc.
- Environmental factors include industry studies, academic reports, federal regulations, etc.
- Organizational Process Assets, such as documentation from similar projects, can also provide valuable insights into potential risks.
Risk Identification Participants
Another essential input to consider is the individuals involved in risk identification. These may include project team members, stakeholders, risk specialists, customers or end users, and subject matter experts (SMEs). Each of these individuals brings a unique perspective and expertise to the risk identification process, which can help identify a wide range of potential risks.
By analyzing these inputs, project managers can understand the potential risks that could occur on their project and take the necessary steps to mitigate or prevent them.
Documenting risks is an essential step in the risk management process for any project. All identified risks should be recorded in a Risk Register. This document clearly describes the risks identified, the root causes of the risks, the likelihood of the risks occurring, the potential impact on the project, and a plan for responding to each risk if it arises.
The Risk Register should include several key components:
- Risk Description – Which event could affect the project?
- Risk Cause – What would be the root cause of this type of risk?
- Risk Category – Where does this risk fit in the categories established in the risk management plan?
- Risk Owner – Who will deal with this risk if it happens?
- Risk Likelihood – How probable is it that this risk will occur?
- Risk Impact – How severely will the risk impact the project?
- Risk Response – What are we going to do if this risk happens?
By documenting risks in a Risk Register, project managers can have a clear and comprehensive understanding of their project’s risks and be prepared to respond effectively if they occur.
How do I learn to identify risks?
Learning how to identify project risks is crucial for effective project management. By identifying potential risks and planning for contingencies, project managers can ensure that their projects stay on track and recover quickly.
The Asana Project Management Certificate program is an excellent option for those seeking this knowledge and expertise. Led by industry experts, this program is designed to give you the skills and knowledge you need to succeed in project management in as little as six months.
How to manage risks?
Managing risks in a project is an ongoing process that requires constant monitoring and adaptation. To effectively manage risks, it’s important to prioritize them by analyzing their likelihood of occurrence and potential impact on the project.
The most common risk analysis method is qualitative risk analysis. It uses a data analysis technique known as probability and impact assessment to calculate a score for each risk. The score is determined by rating the probability of the risk occurring on a scale of 1-5 and rating the impact of the risk on the project on the same scale. The risk score is then calculated by multiplying the probability by the impact.
Another risk analysis method is quantitative risk analysis, which uses statistical, mathematical, or computational methods such as simulation, sensitivity analysis, decision tree analysis, and influence diagrams. This approach is less common.
Planning and implementing risk responses
Risk management is an iterative process and an essential aspect of effective project management. As part of managing risks, it’s necessary to plan and implement risk responses. This involves identifying and prioritizing risks and determining the best strategy to deal with them.
Planning a risk response
When planning a risk response, it’s essential to establish a trigger condition that indicates when a risk is about to occur and to decide on a strategy to respond to the risk.
Common strategies for risk response include:
Implementing risk responses
Once a risk response plan is in place, it’s critical that the project team takes action and executes the response plan when the defined trigger condition occurs. The following should be in place to ensure the implementation is successful:
- Risk owner is assigned.
- Clear expectations of what is expected (tasks assigned).
- Deadline to complete the tasks.
Monitoring project risks
Managing project risks is an ongoing process that requires continuous monitoring and updating. The following steps should occur on a regular cadence throughout the project lifecycle:
- One of the key components of effective risk management is regularly tracking and updating the risks identified and documented in the risk register. This includes identifying new risks that may arise throughout the project.
- Monitoring the implementation of risk plans.
- Evaluating the effectiveness of the risk management process throughout the project is crucial for ensuring the project stays on track and potential issues are addressed promptly.
- Based on what is learned through monitoring, corrective or preventive actions may be necessary to correct any aspects of the project that have gone off course or prevent growing risks from becoming serious issues in the future.
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