How to Manage Project Risk? The 5 Principles of Project Risk Management

In the business world, the term risk is always approached very seriously and carefully. Everyone understands the importance, but nobody wants to deal with it or take responsibility for it. However, the reality isn’t all that bad, and there are often two sides to the risk. You’ll see why as you read on below.

What is project risk and how to approach it?

The commonly accepted definition of project risk is a potential threat, unexpected event or occurrence that can hinder you from achieving project goals. The risk is present at every stage of the project, from initiation to planning, from execution to performance and beyond. It also affects the scope, time limits and budget. Therefore, it needs to be taken into account from start to finish. Eliminating risks in all stages may prove to be short of impossible. However, minimizing their impacts should be at the top of a project manager’s list.

It’s worth mentioning that project risk management is highly flexible and unique to each individual case. While there are some general rules about how to approach it (more on this below), in reality, it all comes down to the team, the process and you, the project manager. Furthermore, risk management can’t effectively be applied in all situations. Applying its principles to even a small extent will significantly improve a project’s timely and cost-effective delivery.

Finally, risk shouldn’t solely be associated with harmful outcomes. In many cases, taking a calculated risk may result in achieving your objectives ahead of time or even at a lower cost. This has a lot to do with the Agile methodology of project management, where each aspect of the project is subject to change at almost any given moment.

When an opportunity presents itself to accelerate or improve the project, being able to assess the potential risks and benefits that come with it may become the strongest skill in your arsenal.

The 5 phases of managing project risk

Here are the general principle guidelines that will help you approach a project’s risk from the correct angles and stay on top of your risk game.

1. Identification

The first and probably most important step in project risk management is identification. In the early stages, most risks are significantly easier to mitigate since you are establishing the work process to deliver the project on time and on budget.

Start with gathering your team together for a brainstorming session on all kinds of possible issues that you can think could go well or go wrong. Involving the team in the discussion is a crucial step for two reasons:

• No matter how good or experienced you are, you simply can’t, and shouldn’t, try to do everything on your own.
• Team members will be able to share their experience as well, helping dig deeper into potential issues that may arise.

Once you have identified potential threats for all project phases, write down, organize and pin them somewhere you can see them. You can also make things simpler by using a project management software like EasyProjects or Wrike, and pin those notes directly to your dashboard to help stay more organized.

Finally, identification should be an ongoing process. Threats may arise as a result of an outcome that happens in the future during a certain phase. Again, identifying risks as early as possible should be your top priority.

2. Assessment

After identification, it’s time to analyze the (potential) threat. Which stage is the risk in? What is the nature of the risk? How can you mitigate it? What changes can you make to your plan to avoid confronting it?

You should also weigh the consequences of the risk. For example, what happens if you proceed with the initial plan with no changes? What are the chances of the risk materializing into something disturbing?

Calculate every potential outcome and weigh everything accordingly. This is also where you can consider taking a calculated risk. As we said before, a potential risk may also be an opportunity to significantly improve your plan or maximize efficiency.

3. Evaluation

Not all risks are created equal. Moreover, it’s often the case that it’s technically, financially and time-wise impossible to consider each and every threat. This is why you need to evaluate the potential outcomes: are they worth bothering with at all? Are they worth spending time and resources on? How severely will this effort affect the end results? What will you gain or lose in the best and worst case scenarios?

Questions like these will help you prioritize and filter all the potential threats, allowing you to focus on the most important ones while giving you a chance to identify potential opportunities.

4. Risk response actions

After evaluation, the next step is to decide how to proceed with your list of threats. You should always start with the highest priority risks to minimize their impacts and develop preventative plans and contingency plans. Keeping things simple is generally the best way to go.

It’s important to remember that while small, insignificant risks may not be worth spending too much time and resources on, ignoring them completely isn’t a wise decision. As mentioned before, taking even small measures against a potential threat may significantly improve your end results.

5. Monitoring

The final step is monitoring. Even after you have taken measures to reduce or eliminate potential threats, it’s essential to keep a close eye on your project to make sure nothing goes wrong. We can’t emphasize enough the importance of monitoring. Although it may be time-consuming to perform, it’s the second most important step in the risk management process, after risk assessment.

Monitoring is critical in order to reduce the time, resources and human capital spent on mitigating any given threat (which may return if left unchecked). Unchecked risks may force you to face the same risk again in the project or may render useless your previous work, so be sure to give this last step proper attention.

Project management software and risk management

All of the above-mentioned steps can be taken without the help of any kind of technology. However, project management software can save loads of time on monitoring and evaluation of certain threats. Tools like Monday, Glip and Freshdesk can be used to construct a project risk log, which will help you keep everything organized and assign each threat a deadline for any particular team member.

One example of how a project management software can streamline your projects is with the project risk log. It’s a custom-made scheme that compiles all the actions, countermeasures and contingencies that you have decided to implement to take care of each potential threat, and it’s in a neat, easy to follow table inside your project management tool.

Conclusion

Risk management is tricky, but it really isn’t as scary as people think it is. Moreover, it can and should be mastered by every top-notch project manager. As the team leader, it’s your job to take care of the project as if it’s a newborn baby and try to mitigate any threat that can potentially distort the success of your project.

At the end of the day, you will never be able to defend against every single threat nor mitigate each and every risk 100%. But what you can and should do is take every measure to minimize their impacts together with your team. Finally, keep in mind that risks are often double-sided. Be sure to look for opportunities to turn the tables in your favor by taking a calculated risk whenever it’s justified.