Every project comes with risks. A risk is any event that can potentially affect your project’s cost, timeline, and quality. 

PMI defines risk as the possibility of “certain occurrences adversely affecting project objectives, the degree of exposure to negative events, and their probable consequences.” When these possibilities become realities, risks become issues and necessitate a response. 

If there is no plan to mitigate risk, the issues can quickly boil over and paralyze the project. Sometimes, risks may even lead to accidents and injuries. Whatever the case, every project manager must learn how to manage risks effectively for their projects to be successful.

What Is the Project Risk Management?

Several institutes have opined that as much as 70% of projects fail. While there is not much evidence to back this up, a 2017 survey by PMI revealed that only 28% of project managers used risk management practices regularly, suggesting that a project is likely to fail without proper risk management.

Project risk management involves identifying, analyzing, and responding to all risks that may occur over the life cycle of a project. A good risk management process is proactive rather than reactive. This means that risk management should be incorporated into the planning phase so that steps can be taken to control the risk before it ever occurs.

Employees and organizations that are proactive about managing risks are better equipped to do so and harness any opportunities that come with them.

Types of Project Risks

Different projects engender different levels and types of risks. These risks can be internal or external. When the risks are external to the organization, they cannot be controlled by the organization. Examples of these include political, economic, social, and natural risks.

Unlike external risks, internal risks can be mitigated and handled by the project manager and his team. The most common types of internal risks across all projects are:

Cost risk: Internal and external factors can push your project cost beyond budget estimates. Thus, the cost risk is the risk that a project will cost more than has been budgeted for its execution. Often, cost risk is due to poor budget planning., However, it can also be due to improper resource management, inaccurate cost estimates, and scope creep. 

Schedule risk: Most projects have their execution timeline. A scheduling risk is a probability that an activity or set of activities will take longer than anticipated. Schedule risk may also be due to poor planning and scope creep. It leads to missed deadlines and loss of competitive advantage.

Performance risk: A project can stay within budget and schedule and not achieve the expected results due to performance risk. Thus, performance risk is the probability of a project failing to bring the desired results in line with the project specification. 

Benefits of Project Risk Management

Project risk management ensures project success. When project teams and managers manage their risks effectively, you get the following direct benefits:

• Avoid disasters and accidents.
• Lowers cost and increases revenue
• Gives you a competitive advantage
• Helps you discover new possibilities
• Increases accountability and sense of responsibility

Steps to Managing Risk Effectively

Risk management prepares for uncertainties, allowing adequate time to solve possible problems. The following steps are recommended for managing risks effectively.

Identify the Risk

You cannot manage risk effectively as long as you are unaware of its existence. Thus identifying all possible risks is the first step of the risk management process. Different teams go about that in different ways. Some teams have brainstorming sessions. Others review similar projects that have been carried out to identify the risks. Yet another group may invite a consultant with vast experience in the project area to hear their thoughts. 

Whatever way you choose, you must note all identified risks in the risk register. A risk register can become very useful in improving future projects.

Analyze the Risk 

Risk analysis is the next stage of the risk management process. The idea is to identify any potential issues that could arise from the risks and negatively affect the project. At this stage, the probability of the risk occurring is noted, and its severity and any possible response are also itemized.

It is best to involve stakeholders in the risk analysis stage, as the magnitude and promptness of your response may depend on resources that are not in your purview. Whatever response plan the team maps out during the risk analysis process becomes the plan if the risk eventually becomes an issue. 

Prioritize the Risk 

Risks are not equal. Their occurrence will require different magnitudes of response and resources from project teams and will also affect projects differently. Project managers and teams must prioritize all analyzed risks depending on the available resources.

Risks can be categorized as low, medium, or high. They can also be classified as immediate risks or future risks. Such categorization can help you determine what needs immediate action and what can be delayed.

Assign a Risk Owner

Make someone responsible for each risk. As projects evolve, risks may also evolve. Assigning a risk owner puts someone in charge of reassessing the risk periodically and/or ensuring the team is ready to resolve any potential issue. Where the project team is small, individuals can be assigned multiple risks provided every potential threat is covered by someone.

Respond to the Risk 

This is the action phase. It is important to note that your approach will determine how you can respond to risks. For example, while traditional project management is predictive, agile is adaptive.

Nevertheless, your action will depend on if the risk is positive or negative. Not every potential event will threaten your project’s success. While some will, others may present previously unidentified opportunities for better deliverables or quicker and lower costs. These are called positive risks, and you should maximize them.

If it is a negative risk, you want to prevent it or implement a contingency plan to limit its effect. Communicate with the risk owner to determine the appropriate line of action. I

Monitor the Risk 

Track whatever plan you deploy to resolve the risk. Whenever the risk is assigned to is in charge of reporting how the resolution plan is panning out. This can be done through update meetings with the rest of the team or with the project manager.

When a lot is being done at once, attention residue can cause deficiencies. However, reporting the progress is necessary to ensure that everyone involved in the project knows what is going on and can pay attention to the risks on their end or help as necessary.

Project Risk Management Strategies

• Engage Stakeholders: Collaboration with stakeholders holds immense significance. Their diverse viewpoints and expertise can uncover risks that might otherwise escape notice. Regular communication ensures everyone remains updated on risk status and mitigation endeavors.
• Formulate a Risk Register: Maintain a comprehensive record of identified risks, their potential consequences, and planned responses. This repository serves as a centralized hub of risk-related information and facilitates tracking progress.
• Quantitative Analysis: Employ quantitative methodologies like Monte Carlo simulations to gauge potential risk impact on project timelines, budgets, and outcomes. This fosters more precise planning and resource allocation.
• Contingency Planning: Draft contingency plans for high-impact risks. These blueprints delineate predetermined actions to take if a risk materializes. Having a well-crafted response plan diminishes panic and assures a swift, efficient reaction.
• Routine Reviews: Conduct regular risk review meetings to gauge the efficacy of risk mitigation strategies and update the risk register. As the project advances, some risks might wane in relevance, while new ones could arise.
• Risk Ownership: Assign clear ownership of risks to accountable individuals. This ensures proactive risk management and establishes accountability for mitigation efforts.
• Nurture a Risk-Conscious Culture: Foster an organizational culture where team members feel empowered to flag and communicate risks without fear of reprisal. This open environment facilitates early risk detection and more effective mitigation.

Prime Practices for Successful Risk Management

• Timely Intervention: Tackle risks at the project’s outset. The latter a project risk surfaces, the more detrimental and disruptive its consequences can be.
• Effective Communication: Transparent and consistent communication among team members, stakeholders, and leadership is paramount. Effective communication guarantees alignment on the risk landscape and mitigation strategies.
• Learn from Experience: Post-project, conduct an exhaustive review of realized and unrealized risks. This retrospective analysis yields invaluable insights for future projects and hones risk management strategies.
• Flexibility: Acknowledge that risks can evolve due to shifting circumstances. Be prepared to adapt risk responses and mitigation plans accordingly.
• Continuous Enhancement: Integrate lessons gleaned from prior projects into the risk management process. The pursuit of ongoing improvement ensures that risk management practices remain pertinent and efficacious.

The Procept Africa Solution

Sometimes, it is best to outsource your risk management. To ensure compliance, cost-effectiveness, safety, and an independent review, Procept Africa can help handle all your risk management processes.