Risk Management in Projects: What is Risk, Types of Risk in Projects, Risk Management Process, Risk Analysis & Identification

Risk management is the practice of identifying, evaluating, and preventing or mitigating risks to a project that have the potential to impact the desired outcomes. Project managers are typically responsible for overseeing the risk management process throughout the duration of a given project.

Project risk management is the process of identifying, analyzing and responding to any risk that arises over the life cycle of a project to help the project remain on track and meet its goal. Risk management isn’t reactive only; it should be part of the planning process to figure out risk that might happen in the project and how to control that risk if it in fact occurs.

A risk is anything that could potentially impact your project’s timeline, performance or budget. Risks are potentialities, and in a project management context, if they become realities, they then become classified as “issues” that must be addressed. So risk management, then, is the process of identifying, categorizing, prioritizing and planning for risks before they become issues.

Risk management can mean different things on different types of projects. On large-scale projects, risk management strategies might include extensive detailed planning for each risk to ensure mitigation strategies are in place if issues arise. For smaller projects, risk management might mean a simple, prioritized list of high, medium and low priority risks.

To effectively manage risk, project managers must have a clear understanding of their objectives so they can identify any possible barriers that could impact the team’s ability to produce results.

Types of Project Risk

Beyond the basics of what “risk” means, project managers should also know the different types of risks they may encounter. Depending on the project type, the factors that should be considered will differ.

There are several types of risks that occur frequently, regardless of the specifics of the project. These common types of risk include:

• Cost: The risk of events that impact the budget, especially those that cause the project to be completed over budget. Errors in cost estimation commonly generate risk in addition to external factors.
• Schedule: The risk of unplanned scheduling conflicts, such as events that cause the project to be delayed. Scope creep is a common reason for scheduling issues and project delays.
• Performance: The risk of events that cause the project to produce results that are inconsistent with the project specifications.

Risk Management Process

Risk owners require several skills to manage project risk well, which include:

• Communication: Having the ability to communicate well with stakeholders, so that everyone understands the role they play in reducing the impact of risk.
• Strategic thinking: Being strategic and having the ability to problem solve and come up with solutions for the project risks identified.
• An understanding of the organisation: Knowing the businesses’ strategic direction, goals and risk appetite.
• Planning: Ensuring that the risk management plan is being actioned throughout the project lifecycle.
• Resourcefulness: Being quick to act under pressure to ensure that the project risks are addressed as soon as possible.

Risk Analysis & Identification

Identify and assess the potential risks

When it comes to identifying and assessing the potential risks related to the project, consider how a risk could occur, what the impact would be and what you can do to reduce the probability and impact (if you can) of the project risk. Understanding how much control you have over the risk is key. For some risks, you may have very little control over them. Keep in mind that along with identifying risk events, as mentioned above you should also list any project risks that can be identified as opportunities or uncertainty related to the project. Risk events and opportunities are often easier to identify as they have clear impacts, whereas uncertainty can be harder to measure as the result of a risk is unknown and is difficult to measure.

Assign a risk owner

Whether it is a dedicated risk manager, or a member of the project team, every project will need a risk owner assigned to keep track of risks throughout the project lifecycle. The risk owner is the key person who manages the risk management strategy. This doesn’t mean that the risk owner must address every risk that could impact the project, however, instead they have the responsibility of assigning ownership to team members and stakeholders, as well as updating and keeping track of the risk management plan. If you’re the risk owner, it’s key to make sure that every member of the team is aware of their role in reducing and mitigating project risk.

Draw on subject matter experts

As part of your risk management strategy in project management it is essential to touch base with subject matter experts, such as contractors and senior stakeholders. Receiving input from others will help ensure you have crossed off all the potential project risks, as you may find that others have insights into risks you may not have discovered on your own. They can also provide advice on effective strategies they have implemented in previous projects, that you could integrate into your risk management plan. Also see if your organisation has risk registers from past projects completed available to review and any lessons learned reports.

Determine the probability of a project risk occurring

Once you have a list of the possible risks, the next step in your project risk assessment is ranking the risks by assigning probability. That way you will know which risks are more likely to occur and which would have the largest impact on your project. The risks that you measure that will have the highest impact, should be addressed first. There are many different formulas for measuring risk, however one of the popular ways is assigning a number to the risk.

Consider the action you will take

Once you have all the project risks ranked according to the probability of the risk occurring, the next step will be planning out the actions you will take. With some risks you may be able to eliminate them entirely, however others may need to follow a mitigation strategy.

Include risk Management in your post project review

Just as one project comes to an end, you may find yourself handed your next project, leaving little time for a post project review. However, the greatest learnings can come from analyzing how your project went, including the risk management. So, when the project comes to an end, take the time to evaluate what went well on the project, what could have been handled better and the learnings you can you take with you to your next project.

Managing Risk throughout the Organization

Building a risk management protocol into your organization’s culture by creating a consistent set of standard tools and templates, with training, can reduce overhead over time. That way, each time you start a new project, it won’t be like having to reinvent the wheel.

Things such as your organization’s records and history are an archive of knowledge that can help you learn from that experience when approaching risk in a new project. Also, by adopting the attitudes and values of your organization to become more aware of risk, your organization can develop a better sense of the nature of uncertainty as a core business issue. With improved governance comes better planning, strategy, policy and decisions.