Risk Management in Project Management: 6 Ways to Mitigate Risk

These days risk management is one of the most relevant and widely searched project management terms on the web. With today’s ever-increasing level of computing power, we are now in a better position to evaluate risk than ever before. As such, risk management has experienced greater prevalence in recent years, with more organizations and project managers incorporating risk management in project management.

So what does risk management actually entail?

What is risk management?

Project risk management is a process to identify, analyze, and minimize potential problems that could negatively affect the progress of a project. The main objective of risk management in project management is to take care of anything that might deflect the project from reaching its ultimate goal. If project risks aren’t identified, avoided or rectified, your project may end up over budget, delayed, or even brought to a complete standstill.

How to manage risks on projects (in advance)

The ability to foresee risks that might creep up any time in the future is a crucial skill of an effective project manager. A definite risk management plan helps you to be prepared to deal with uncertainties and minimize extra costs by saving valuable resources such as time, income, assets, and people.

Here is a six-step plan that can help you identify and manage risk before things get out of hand.

1. Include risk management in your projects

The first and the foremost thing you can do to improve your project management is to embed risk management in your projects. Nowadays, many companies and organizations are introducing project risk management to train their staff to detect risks before things get worse. To identify risks, one must possess expertise and experience to be able to focus on future scenarios.

Besides having experienced project managers and members, you can arrange ‘risk brainstorming sessions’ to discover various risks that could show up in the future. It’s good to have different risk identification methods and experiment with them to identify unexpected risks that might take place. For example, you might identify loss of data as a risk, and research the best backup software for your business.

A survey by the Project Management Institute (PMI) found that 83% of high performing organizations in project management regularly practice risk management, compared with only 49% of low performing organizations who do so. These high performers meet their goals 2.5 times more often and waste 13 times less money than low performers.

2. Communicate risks to others

Isn’t it great when someone in your team predicts and points out a potential risk in a team meeting and when that risk actually appears, you already had a backup in mind? This is where risk communication comes into the picture.

Often major failures could have been easily tackled with consistent communication. The most realistic method would be to communicate risks while working on individual tasks so that you can have a Plan B ready, just in case if things don’t go per the plan.

When communicating risk, explain how it will impact your project, how likely it is to happen, and what steps you can take to mitigate it occurring. If you are the project manager, be sure to create an environment where people are comfortable to clearly communicate risk at meetings or one on one sessions without feeling they will be penalized for bearing bad news.

3. Prioritize risks

There are two types of risks: low-degree risks and high-degree risks. As the name suggests, low-degree risks are the ones that could affect the outcome but are still manageable. Whereas high-degree risks could significantly affect the outcome and halt progress in a big way. Thus, it is noteworthy that some risks have a higher impact than others.

Spend a good chunk of time on prioritizing risks and weighing their impact on the project. You can either have a set of criteria or prioritize risks entirely on your gut feeling. It’s advisable to opt for a rather realistic method that lets you make a decision on the likelihood and effects of a risk.

When prioritizing risks, ask yourself questions like:

• Will the risk impact the project, or the product, or both?

• Is the project of critical importance to your company?

• Is the project of critical importance to the customer?

• Will the risk affect the relationship with a customer? How important is that customer?

• Is the customer already aware of the risk? Are the stakeholders already aware?

4. Analyze risks

Risk analysis is an important part of risk management that can actually help you take serious steps for the benefit of a project. That’s why it is crucial to understand the nature of a risk and the effects associated with it. Always keep in mind that risk analysis isn’t just one-dimensional but occurs at different levels.

Sometimes, the risks that seem small and harmless could snowball into something big and have serious repercussions. This is when the real effectiveness of a project manager comes into the picture. Such analysis can help you discover the magnitude of impact on budget, deadlines, and product quality of a project. A useful method is to:

1. Score the risk probability on a scale from low to high or 1-5

2. Score the impact of the risk occurring on a scale from low to high or 1-5

3. Prioritize the risk on a scale from low to high or 1-5

4. Estimate when the risk could impact the project

5. Implement risk responses as early as possible

The above points enable you to understand and prioritize risks, whereas implementing risk responses is going to make the actual difference to a project. It includes three options: risk acceptance, risk avoidance, and risk minimization.

If the effects on a project are minimal or too difficult to influence, it’s best to accept the risk. While avoiding a risk, you can plan or manipulate the project in such a way that there is the least possibility to come across a specific risk. To minimize a risk, you must try to influence the causes or strengthen the favorable factors to compensate for the effect of risks.  

According to a 2018 survey conducted by PMI, 29% of respondents indicated that opportunities and risks not being defined was one of the primary causes of project failure.

6. Track them down regularly

It’s important to track risks on a regular basis as it helps you and the team to figure out the common risks and their impact on projects. The easiest method would be to make a report after the project has completed and identify risk tasks, their causes, effects, and analyze them so that you know how to tackle them just in case you encounter them on another project.

Summary

The above-mentioned points will definitely help you to effectively implement risk management in your upcoming projects. However, don’t shy away from experimenting or trying different approaches or project management tools in your management style to minimize risks.  

Want to improve your project management skills? Learn how to manage risks and more with the Project Management for Business Professionals course.

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