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Some days your productivity is at an all-time high. Your team is churning through their deliverables one-by-one, and your clients couldn’t be happier.
Other days you can’t seem to get past issue after issue, and all hell is breaking loose.
Your computer crashed and one of your top developers is out sick. Your project is going way over budget because who would’ve guessed that team happy hours could get so expensive?
“How could this happen?” you ask yourself, but you know the answer. You didn’t see any of this coming.
You weren’t prepared and now your project is falling way behind.
No one wants to be in this position, but in order to avoid this and other horrible scenarios, it’s important to manage the risks that create these problems.
Project risk management is the act of taking steps to mitigate or minimize any potential issues that threaten a project’s timetable or completion.
It’s important to note the difference between issues and risks since these terms are often conflated.
A risk is something that hasn’t happened yet, but that you can take steps to predict and avoid, while an issue is a risk that has already occurred.
If you’ve made it this far, congratulations! Learning how to manage project risks is the perfect follow up once you’ve graduated beyond the project management basics.
Be sure to incorporate everything you learn here into your project management plan before beginning the execution phase.
These risks could threaten to derail your project. Be on the lookout for some common project risks, which include:
There are many different types of project risks, and it’s up to you to identify and mitigate those risks if you want your project to succeed.
It’s one thing to know the risks, but it’s another to actually manage and mitigate them. That’s why I’ve boiled down the entire process to these five risk management steps.
A risk register is an itemized list of potential risks, many of which I listed above, that can derail a project.
This log is typically created in a spreadsheet with a list of risks, the impact of the risk, the likelihood of the risk, the contingency cost, and the response plan.
As mentioned before, this log or register will be created in a spreadsheet as a reference guide in case of an emergency. In fact, most, if not all, of your risk management will be conducted around this risk register.
These are the basic steps to create and fill out a risk register. I will elaborate on the process referencing the main list.
Now that you understand the wireframe of the risk register and the basic process for creating one for your project, it’s time to move into the first major step in creating this register: identifying the risks.
There are so many different ways to identify risks that I’ve narrowed down the focus to my top three methods:
While these are my three favorites, there are other ways to identify risks, such as reaching out to subject experts or conducting a SWOT analysis.
Not all risks are the same. Some are large, some are small. Some are likely to occur, while some are extremely rare.
This is why it’s up to you to find out which risks require the most effort and attention by conducting a risk analysis.
Standard risk analysis is score-based, typically measured on a scale of 1 to 10, which measures any type of value, such as money or scheduling delays.
This is done through estimations based on your conversations with your team, stakeholders, experts, or your research into past projects.
The value of the risk is calculated using the formula:
Risk Value = Probability of risk occurrence x Cost of risk
For example, let's say you estimate that there's a 50% chance of an internet outage during any given week (trust me, I’ve worked in an office where this was a reality, and it is frustrating).
That outage may cost you three days of productivity, you would write it out as so:
0.50 (probability) x 2 days (cost of risk) = 1 day (risk value)
This risk value is the amount of buffer you will want to add to your risk management plan in order to account for this potential issue.
These values will be crucial in helping you prioritize your focus in your risk register.
You’ve identified the risks and performed a risk analysis, so now it’s time to prepare your responses for each risk.
The risk values that you calculated in your risk analysis give you a decent starting point for developing your response plan, such as additional budgets to request or additional scheduled days for certain tasks.
Say the worst happens and the risk becomes a full-blown issue, what do you do?
There are four different ways to respond to risks when or if they become an issue:
Whatever response you settle on, be sure to record that response plan into your risk register for future reference.
Out of all the steps in this guide, this is the most straightforward step in the list.
You’ve identified the risks, analyzed their value, selected your response plans, and all you need now are warm bodies to help you mitigate or respond to those risks.
I could just say that you ought to select owners out of the people responsible for each task, but not everyone on your team is suited for risk ownership.
There are certain considerations when selecting a risk owner:
Also, it may sound obvious, but make sure you choose owners who respond quickly and show serious attention to detail. The last thing you want is a small risk to blow up into a major issue all due to a poor response.
Yes, it is possible to use project management software for risk management, however only in certain circumstances, such as:
If you must use a project management tool for risk management, I would recommend these options based on their customizability:
In all other circumstances, I would recommend using dedicated risk management tools, since these platforms will come with risk matrices, risk reporting templates, incident management, risk analysis templates, and more.
It’s important you choose the route that is right for you. Just remember, if you feel your project can get by on custom risk management features within a project tool, be sure to reach out to vendors that’ll help you build these functions.
Happy day! You understand the core fundamentals of risk management and to celebrate, why not take out your team on one of your pre-planned and budgeted happy hours?
It’s not a risk if you’ve already created a buffer for it.
Lastly, if you’re reading this piece, you’re probably at the beginning stages of planning everything out before your initial project presentation to the relevant stakeholders.
If that’s the case, why not try out a new project management methodology, like Agile or Waterfall? Check out our guide to the six most popular project management methodologies to learn more.
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