- What is Risk Management in Project Management?
- The Importance of Risk Management for Project
- What are The Types of Project Risk?
- 7 Key Guidelines for Risk Management Process
- 1. Identify The Risk
- 2. Analyze The Risk
- 3. Risk Response Planning
- 4. Risk Ownership
- 5. Respond to the Risk
- 6. Risk Monitoring and Control
- 7. Risk Evaluation
- 8 Tips to Effectively Reduce and Manage Risk
- 1. Creating a risk management plan is a must!
- 2. Do not be afraid to take longer time on project planning phase
- 3. Understand the risk triggers
- 4. Risk register should always be up to date
- 5. Differentiate the risk event and the impact
- 6. Be proactive!
- 7. Monitor the process and set friendly deadline
- 8. Make an evaluation or audit
- Managing Risk with FoxPlan
Businesses must be ready to deal with the uncertainty and risk that comes along with ever-evolving initiatives. Risk-management skills are in high demand among job seekers aiming to break into or develop in the project management field. As a risk expert, you must first understand the nature of risk and the project risk management process.
We’ve broken down the 7 easy steps of risk management and provided 8 tips for reducing and managing risk for your company in this article. Let’s start, shall we?
What is Risk Management in Project Management? #
Risk management in project management is the process of detecting, evaluating, and preventing or minimizing project risks (hazards) with the potential to affect the desired outcomes. Typically, project managers are accountable for directing the risk management process throughout the course of a given project. And to properly manage risk, project managers must understand their objectives so they can identify potential barriers to the project team‘s success.
Risk management should be incorporated into the project planning phase in order to identify potential project risks and determine how to mitigate them.
The Importance of Risk Management for Project #
A risk is everything that could potentially affect the timeline, performance, or budget of your project. Risks are possibilities, and in the context of project management, if they become actualities, they are categorized as “problems” that must be resolved.
So, to answer, “Why risk management is important for a project?” It’s simply because without the proper risk management planning and process, you will have many problems on your project and will take longer time to actually solve them.
The greatest method for mitigating project risks is to confront them head-on. If you have never produced a risk management plan beforehand, you may have experienced the negative effects of unanticipated risks on previous projects.
What are The Types of Project Risk? #
Beyond the basic definition of “risk,” project managers should also be familiar with the various sorts of hazards and risks they may experience. Depending on the sort of project, different considerations must be made. Regardless of the project’s specifics, there are various sorts of risks that arise frequently. These prevalent categories of danger include:
1. Cost #
The risk of occurrences that affect the budget, particularly those that lead the project to be finished at a higher cost than anticipated. In addition to external causes, cost estimation errors frequently generate risk. This is why creating a project budget and adopting the budget management tool is necessary.
2. Schedule #
The possibility of unanticipated schedule issues, such as incidents that postpone the project. Scope expansion is a common cause of schedule conflicts and project delays.
3. Performance #
Performance risk is the possibility that the project will provide results that are inconsistent with its requirements.
7 Key Guidelines for Risk Management Process #
Managing project risk requires the identification, planning, and monitoring of possible risk. It’s possible that nothing goes wrong at all. However, a proactive risk assessment and risk management planning can help you quickly correct course in the event of an emergency. This ensures that all project objectives are met on schedule and within budget.
If you are new to project risk management, the following seven steps will assist you in creating a project risk management plan. FoxPlan’s project risk plan will demonstrate what a risk management plan for your next project could look like for each step;
1. Identify The Risk #
Early in the project, risks should be identified and addressed. Risk identification occurs all throughout the project life cycle, with a focus on milestones. The identification of risks is one of the primary topics discussed during routine project status and reporting meetings. Some risks may be easily evident to the project team; these are referred to as “known risks.” Others will require more effort to discover, but are still foreseeable.
How to identify risk sources? #
But when you are a beginner, you might wonder how to identify risk for your project? Identifying project risk can be done using risk repository, checklist analysis, expert judgment and through the project status when the project is already running.
- Risk repository: The risk repository contains the list of identified risks for completed projects. The risk repository can be utilized to generate a list of probable project risks. Additionally, the risk repository can be filtered by risk source, risk category, and project.
- Checklist analysis: The risk identification checklist is a questionnaire that assists in identifying gaps and potential risks. It is created depending on experience and the type of project.
- Consult with experts: Experts, an experienced project team, and project stakeholders also participate in brainstorming sessions to identify risks. Essentially, you must consult subject matter experts regarding the potential risks that could develop during the execution of your project.
- Project status: Occasionally, some of the risk cannot be identified during the planning phase, but only through project status once the project is well underway. Meeting reports, status reports, progress reports, and (in some cases) quality reports comprise the project status. These reports detail the current project status, challenges encountered, and threshold violations. These provide insight into the project’s current state and any potential new risks.
The risk management plan, which is maintained on the central project platform, is used to document all recognized risks throughout the duration of the project.
FoxPlan facilitates risk analysis by monitoring the project. Our technology goes one step further by displaying live data in real-time dashboards. It is prepared to provide an overview of your project from the outset. We compute the live date and then provide it to you in graphs and charts that are simple to interpret. As you track time, expenses, and more, you can detect problems more quickly.
Categorize the project risk #
After recognizing a risk, the following step is to classify it into a specific category. You should define common categories to utilize when identifying risks, and you can later expand the risk category based on the type of project. Typically, there are only a few risk categories in a project, such as:
- Technical risk (requirements, interface, performance, quality, technology/tools/software, etc).
- Organizational / Internal risk (project dependencies, logistic issue, resource management, budget management, etc).
- Project management risk (planning, schedule, estimation, controlling, communication and collaboration, etc).
- External risk (contract, market, supplier, customer, vendor, client, etc).
2. Analyze The Risk #
Analyzing risk is tricky. You can never get too much information. Obviously, most of this data is difficult, but the majority of sectors have best practices that can aid in your research. You may be shocked to learn that your organization already has a framework for this procedure ( as usually big companies or big organizations already have a framework for this).
Analyze each risk to comprehend its underlying causes and potential effects. At this point in the process, it is important to ensure that you evaluate the severity of each risk in the context of the entire project by taking into account the scope and depth of each risk.
When you analyze the risk, you need to consider few points, such as:
- The probability of risk occurrence: Most project management software can help you figure out how likely a risk is to happen by letting you set up some probability metrics (High probability, Medium-high probability, medium-low probability, and low probability).
- The impact of the risk: In addition to risk probability, you may also classify risk impact (High, Medium, Low) and apply risk scoring. The scoring represents minimum risk classification thresholds.
- The risk exposure: Risk exposure is calculated by multiplying the risk impact score by the risk probability.
3. Risk Response Planning #
There may be no simple ways to lessen or remove all of a project’s risks. Some risks may require deliberate management and reduction over extended time periods. Therefore, action plans should be developed to mitigate these dangers. These action plans must contain:
- Risk assessment and risk description
- Description of the risk-reduction strategy
- Ownership of the risk
- Risk action deadline
The individual who has been designated to carry out the risk action plan ought to be given responsibility for all of the risk action plans.
How does a risk response plan work? #
In accordance with the stakeholders, the risk register must have a risk response for each risk. This is the responsibility of the project manager. Risk response plans strive towards the following objectives:
- Elimination or taking away all of the possible risks before it arises.
- Reducing the probability of the risk occurrence
- Reducing the risk’s impact when risk is inevitable.
Typically, risk response plans affect both time and money. Therefore, it is required that the time and cost associated with the established reaction plan are calculated as exactly as feasible. This also aids in picking a response plan from the options and determining if the response plan is more expensive or has a greater impact on a project objective than the risk itself.
After effectively implementing a set of reaction strategies, the score risk could be reduced in consultation with the relevant parties.
4. Risk Ownership #
All of your effort in identifying and assessing risk will be in vain if you do not assign someone to monitor the risk. You should do so when listing risks. Who is accountable for managing this risk, detecting it if and when it occurs, and then leading the effort to resolve it?
There may be a team member with greater knowledge or experience about the risk. Then, that person should take the initiative to settle the issue. Or the decision could be arbitrary. Obviously, it is preferable to allocate the task to the appropriate individual, but it is equally necessary to assign responsibility for each risk, which we will discuss in the next step.
5. Respond to the Risk #
Now the real work begins. You’ve discovered a risk. The entirety of your preparations will be utilized. You must first determine whether this is a positive or negative risk. Is it something that could be utilized to advance the project?
Negative Risk VS Positive Risk #
Not all risks are made the same. Risks can be either negative or positive, however the majority of individuals believe they are necessarily negative. Positive risks are opportunities that have the ability to have a positive impact on a project, whilst negative risks have the potential to cause irreparable harm.
Positive and negative risks should both be included in your risk management plan, with a difference in approach. You manage negative risks to reduce their impact, but you can also manage positive risks to profit from them.
Create a plan to mitigate each key risk. You devise a strategy, such as a precautionary or contingency plan. You respond based on the risk’s priority. You communicate with the risk owner and decide together which of the plans you developed to mitigate the risk will be implemented.
Gantt Chart, Kanban, Scrum or Scrumban View for Risk Management Plan #
As you probably understand that you should only respond based on the risk’s priority. And with FoxPlan, you and your team have the visibility of the risk management customized project dashboard. You and your team can view the risk management plan with different views, such as Gantt chart, Kanban, Scrum or even Scrumban. This is great if you are already working in an agile environment for your project.
6. Risk Monitoring and Control #
You can’t fight risk without monitoring its progress. This is where project monitoring comes into play. The risk owner is accountable for following its resolution. To detect and manage emerging risks, you will need a current, accurate snapshot of the project’s overall development.
You will need to organize a series of meetings in order to handle the risks. Ensure you have already chosen the mode of communication for this task. It is optimal to designate multiple channels to communication.
Regardless of your actions, remember to always be transparent. It’s better if everyone involved in the project knows what’s going on so they know what to look out for and can assist with management.
7. Risk Evaluation #
The last step that most project managers might skip is the risk evaluation or the risk efficiency measurement. To do this, you need the risk metrics to do measurement before doing the whole audit.
Risk Metrics #
During project closing, the following metrics are used to evaluate the effectiveness of risk analysis and management. Lessons learnt are derived from the findings of the analysis and entered into a database maintained by the company. There are few key points to be answered, such as:
- How many risks were encountered or discovered during the risk planning and monitoring?
- How serious were the impacts of the risks initially expected to be?
- How many risks recurred during the course of the project?
- What are the differences between the actual problems and issues encountered in a project and the risks that were expected?
This is not a process compliance audit, but rather a tool to improve the quality of risk identification and risk analysis. Additionally, this is utilized to benchmark and establish best practices in risk management across the organization’s many different initiatives. Usually, there would be a committee of impartial domain or technical specialists conducting the risk audit via documentation analysis and interviews.
8 Tips to Effectively Reduce and Manage Risk #
Risk management process for a project might be challenging and we can’t always forecast the future with confidence. However, we can use a simple risk management technique to minimize project uncertainties.
Risk management helps people not only avoid crises but also remember and learn from their mistakes. This increases the probability that the project will be completed successfully and decreases the impact of the risks.
Effective risk management is unquestionably not a destination for us at this point. To continually raise the efficiency of our processes, we must engage in a process of continuous learning to enhance our methods. And we can share 8 Successful tips to effectively manage your risk!
1. Creating a risk management plan is a must! #
Successful project managers are aware of the importance of a solid project plan to the accomplishment of the undertaking. This strategy frequently incorporates numerous auxiliary plans, including the risk management plan.
2. Do not be afraid to take longer time on project planning phase #
Most of the rookie mistake for anyone managing the project is they are rushing to start the project as soon as possible. Like mentioned in the first tip, a risk management plan is essential and it should be discussed and planned during the project planning phase. Do not be afraid to take your time to consider all the possibilities of risk occurrence, impact and solution to mitigate the risk.
3. Understand the risk triggers #
In the risk register, a trigger must be specified for each risk. The trigger identifies the warning signals or risk symptoms. It signifies that a threat has occurred or is imminent. By understanding the risk trigger, it will help you to indicate when a particular risk is anticipated to arise.
4. Risk register should always be up to date #
The risk register document will help you remain on top of any concerns, but you must keep it up-to-date so that you can always refer to an accurate picture. Make use of your risk register to keep a record of what risk events took place, how your team responded, and any new risks that have emerged that you were unable to identify at the outset. By maintaining this document up-to-date and integrating it with other planning deliverables, everyone will always know the project’s status.
5. Differentiate the risk event and the impact #
It’s better to assess risk in the format below:
“The occurrence of A as a result of B may have an effect on C”.
This will help you comprehend the source of the risk, the risk occurrence, and the appropriate response. In risk management, people often focus on prospective consequences rather than the risk event. People may identify “exceeding the deadline” as a threat to their project. Although this actually poses a threat to the project, this is not the true risk as this is actually the consequence.
6. Be proactive! #
It will always be important to have the flexibility to respond to unanticipated events, but it is also essential to take a step back and assess your project with a proactive mindset. By investing time in the early stages of risk management and fully assessing each risk, you can prepare to take preventative activities that lower the possibility of the risk event occurring.
7. Monitor the process and set friendly deadline #
When you assign the risk ownership, once they respond to the risk to limit the risk, to reduce, or to minimize the impact, you need to always check up and monitor the progress. One of the good practices is to follow up with the team and set friendly reminders and deadlines to solve or mitigate them.
8. Make an evaluation or audit #
To improve the organization’s level of risk management maturity or effectiveness, this is an impartial expert study of risks. Risk evaluation should check on few things, such as:
- How effective are we at detecting potential threats?
- Risks that have been analyzed thoroughly and in great detail.
- Effectiveness of mitigating or backup plans
- Establishing a connection between project risks and business risks
Managing Risk with FoxPlan #
You can use FoxPlan software to keep track of possible issues and risks. When you identify a positive risk in your project, use FoxPlan to categorize each risk with a list view. The list view functions as a to-do list, but in contrast to other apps, you are not limited to simply collecting items using this view.
Assign risks to specific team members (risk ownership), add documents, set priorities, and more. Keep an eye on their progress toward a solution once they’ve begun working on it. Sharing and real-time data are two of the advantages of our list view. If you decide to take advantage of FoxPlan free trial, there is absolutely no risk!