No one ever did anything extraordinary without taking a little risk. But as a project manager, identifying and mitigating potential risks is one of your most critical responsibilities.
There are a lot of different things that can upend a project’s success, and managing risk throughout the project lifecycle is a major key to avoiding project failure. To help you develop an optimized project risk management process, let’s take an in-depth look at what project risk is and how to create an effective risk management plan.
Defining project risk
Gary Cohn, the vice chairman of IBM, once said, “If you don’t invest in risk management, it doesn’t matter what business you’re in, it’s a risky business.” But what does risk mitigation mean when it comes to project management, and what exactly are project risks?
A project risk is an uncertain event that may or may not occur during a project. Contrary to our everyday idea of what “risk” means, a project risk could have either a negative effect or a positive effect on progress toward project objectives.
Imagine next summer turns out to be very warm and sunny. For a team working on a project to launch a new ice cream treat, this would likely be a positive risk. For a team organizing the inaugural Summer Ice Sculpting Championships, the opposite would probably apply.
Either way, someone has to identify and prepare for these unforeseen events ahead of time so that project teams aren’t caught off guard. If planning for the unforeseen sounds a little contradictory, welcome to the life of a project manager!
Thankfully, there are plenty of risk analysis and risk identification methods that project managers can use to both identify possible risks and mitigate their potential impact.
Examples of project risk
There are many things that can impact project outcomes, and project risks come in a wide variety of flavors. That said, there are a few common project risks that PMs need to be aware of. This includes internal and external risks such as:
1. Scope creep
Keeping projects on schedule and on budget are two of the biggest factors in project success. However, when the amount of work and resources that a project requires starts to expand unexpectedly, it can become difficult to adhere to project schedules and budgets.
PMs have to carefully manage changes to prevent project scope creep, as even small changes to the project’s timeline and budget can snowball over time.
2. Client dependency risks
Some projects are heavily dependent on client input. While listening to what your clients want is never a bad thing, a project that depends heavily on the involvement and input of a third party comes with risks.
If the client doesn’t deliver the feedback you need on time, or they end up changing their instructions, it can create some major obstacles.
To mitigate client dependency, project managers should establish clear communication channels with clients and key stakeholders. Setting realistic expectations from the start will also help clients understand what the agency needs from them to ensure that the team meets project milestones.
3. Budget overruns
Budget overruns are a type of cost risk that can quickly sink even the most promising projects. Scope creep is one common cause of budget overrun in a project, but misestimating costs during the project planning phase can also lead to projects going over budget.
To prevent budget overruns, project managers need to perform thorough cost estimations and regularly monitor expenses. But they also need to have contingency plans in place to address any financial challenges that may come up.
Clearly communicating budget constraints to clients, project stakeholders, and project team members is also key to managing both spending and expectations.
4. Tight deadlines
Operating under tight deadlines is nothing new for most agencies. However, if PMs don’t properly manage these deadlines, they can easily lead to rushed work and compromised quality of deliverables.
Project managers have to set realistic schedules, prioritize tasks, and allocate resources efficiently in order to meet deadlines without sacrificing the quality of the overall project. Regularly assessing project progress against expected timelines can also help identify potential schedule risks while there is still time to adjust.
5. Technology risks
Probably thanks to movies like The Terminator and Tron, a lot of people have a healthy fear of technology. For project managers, technology presents a much different risk. When your project relies on a specific software or technology, you open yourself up to a lot more risk for potential failures and malfunctions.
This is why procurement of project tools and resources is such an important step to get right. However, even when PMs choose the project’s technology carefully, there are still some steps they need to take to minimize risks.
Thorough risk assessments can stop problems before they start. And putting contingencies and backup plans in place and regularly updating and maintaining the technology that the project relies on will help ensure project success.
6. Market changes
Now more than ever, the market changes fast. Just when you think you’ve developed the perfect new product or solution, changes in customer behavior or the new technologies can pull the rug out from under you.
To prepare for the impact of market changes, project managers need to conduct thorough market research and stay agile enough to adapt to changes as they happen.
7. Legal and regulatory risk
Running afoul of legal and regulatory requirements is a major risk for project managers. In fact, one survey of risk executives finds that compliance and regulatory risk is their top concern.
The good news is that ensuring compliance with legal and regulatory standards can also help mitigate other types of project risk as well. After all, preventing disasters is the reason these requirements exist in the first place!
Strategies for managing project risk
From the moment they begin, projects face a lot of different risks. Like a mother bear defending her cubs, it’s up to the project manager to develop strategies for managing project risk and ensuring that the project makes it to maturity.
If you want to develop a better risk mitigation process, here are a few strategies for managing project risk that you should consider.
Risk identification
In any battle, it’s important to know your enemy. So the first step in risk management is to identify potential risks by brainstorming and listing out all the possible risks that could affect the project.
Tools like SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) and PESTLE analysis (Political, Economic, Social, Technological, Legal, Environmental) can be useful here. Creating a risk register to systematically document identified risks is another helpful strategy.
Risk assessment and analysis
Once you identify potential risks, you’ll want to assess and analyze them to understand their potential impact and likelihood. You can then prioritize risks based on a combination of their probability and effect on the project.
PMs can use techniques like qualitative risk analysis (judgment-based) and quantitative risk analysis (numerical-based) to assess and prioritize potential risks. By using these techniques, you can take a standardized, data-based approach to deciding which risks deserve the most attention.
Risk mitigation planning
It’s important to develop mitigation plans for the most critical risks that you identify. What these plans look like will heavily depend on your specific project and the individual risks you’re addressing, but common mitigation strategies might include:
Avoidance: Changing the project plan to eliminate the risk or condition
Reduction: Taking steps to reduce the impact or likelihood of the risk
Transfer: Shifting the impact of a risk to a third party, like insurance
Acceptance: Acknowledging the risk and deciding to deal with it if it occurs
Risk allocation
Managing project risk is the responsibility of the project manager, but that doesn’t mean they have to do it alone. The ability to delegate effectively is one of the most important marks of a good leader, and this holds true when it comes to leading risk mitigation efforts as well.
Allocate the responsibility of managing specific risks to team members based on their expertise and roles. This will help you effectively divide up the work involved while also ensuring that you bring a diverse set of skills and experience into solving each problem.
Communication and documentation
Risk mitigation goes a lot more smoothly when expectations are transparent, you share information freely, and everyone understands their role. So be sure to maintain clear and continuous communication about risks with your team and stakeholders.
It’s also helpful to document all identified risks, assessments, and mitigation plans in a risk register or similar tool. That way, anyone who needs it can easily access the information.
Contingency planning
You should develop contingency plans for any risk that is high-impact or has a high probability of occurring. These are backup plans that you can quickly implement if the risk materializes.
What these contingency plans look like will depend on the specific risk you’re addressing. But they can include things like making changes to the project plan, building in buffers to prepare for potential delays, and acquiring backup technologies that you can pivot to if necessary.
Reduce project risk with Teamwork.com
Effective communication and project transparency are two of the biggest keys to managing project risks. When your team members are working alone and in the dark, it’s a lot easier for unforeseen risks to creep up on the project.
Thankfully, Teamwork.com’s industry-leading project management platform provides the communication tools and complete project transparency that teams need. With Teamwork.com, your agency can take a coordinated, informed approach to managing project risks.
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