Project Risk Management: Overview, Steps, and Tips to Follow

How invested is your organization in project risk management? According to a study, risk management is the second most critical process to ensure project success. In an ideal world, no project you undertake would encounter risks. Unfortunately, a real project environment is complex and laden with challenges of varying degrees. This is why project risk management is of supreme importance. 

Project risk management is the process in which you identify potential problems in your project and develop strategies to mitigate them. Your risk management policy can make or break your project success, as unmanaged risks can prevent your project from achieving its objectives. 

Here is an overview of project risk management, its significance, steps, and some crucial tips to follow. 

What is Project Risk Management?

Project risk management is an important process carried out by project managers to minimize the impact of potential risks. A risk is an unprecedented event or challenge that affects the resources, personnel, technology, or processes involved in a project. 

The significance of project risk management stems from the fact that there is a high degree of uncertainty involved in every project. The risks are identified, analyzed, and dealt with as they arise. The idea is to prepare in advance, not react to an aggravating circumstance. This calls for an in-depth, calculated approach. 

The following are the common types of project risks:

• Schedule: A project’s lifecycle is divided into several phases, meaning each constitutes different processes. Poor scheduling will derail the project from its desired trajectory and cause delays. 
• Performance: Any deviation from the optimal performance will cause the project team to deliver inconsistent results.
• Cost: An error in your cost estimation can cause your project to spin-off from its trajectory and invite unwanted expenditures. This will keep you from delivering your project within budget constraints. 

Project Risk Management Process 

The truth is, even the most well-planned projects will encounter risks. The only way to tackle risks is by preparing for the worst-case scenario. As a project manager, you can steer your team away from disasters by proactively planning your risk management process.

Here are 6 tried and tested steps in the process of project risk management:

1) Identify: This is the first and most important step in your risk management process. In this step, you identify and create a list of potential risks and events that might affect your project. You can do this by interviewing your stakeholders, brainstorming with your team members, and using your own analytical skills.  

2) Assign Ownership: This is a highly recommended step in the risk management process. Even if the probability of a risk materializing is low, it is good to have someone on the team who will take ownership and tackle a risk when it occurs. The assigned team member can then create a mitigation plan and monitor the risk.

Source: MBP

3) Analyze: Here is where you analyze the severity of every single risk you have identified. Estimate a risk's likelihood and create a response plan. Depending on the severity of the risk, hold brainstorming sessions with your stakeholders and team members to understand the impact. 

4) Prioritize: Carefully evaluate your list of risks; prioritize the risks based on their impact and severity. Yes, you need to address all the risks in the risk register. However, the most significant risk needs to be addressed first.

5) Respond: At some point in the project lifecycle, some of the risks you anticipated might actualize. When they do, be quick to take action. Act on your contingency plan, and minimize the impact of the risk on your project. 

6) Monitor: The risk management process is continuous and lasts through the project’s lifecycle. You certainly do not want any nasty surprises along the way. This is why you have to closely monitor the risks. Collaborate with your team members, keep everyone in the loop, and conduct consistent health checks. 

5 Tips for Managing Project Risks in 2021

1) Develop a Risk Log.

A risk log is a compilation of all the potential risks you may encounter during the project’s lifecycle. The risk log could be merged either with your risk management plan or as a stand-alone document. It will be your go-to reference during your status checks. Make sure the document is consistently updated and aligns with the objectives of your project.

2) Adopt a Proactive Approach.

As projects involve a lot of money and resources as well as the efforts of your team, it is always important to stay on top of potential risks and create a contingency plan. Yes, a project should be agile enough to fight risks that come unannounced. However, keep tabs on the ones you can anticipate. By analyzing your risks and developing preventive measures, you can be proactive at tackling risks. 

3) Create a Risk Management Plan.

A project usually involves several cross-functional processes and multiple stakeholders. By incorporating an effective risk management process into the early stages of your project planning, you can make sure that the project stays within the scope, budget, and time constraints. The greater the strength of your risk management plan, the higher the chances of your project success. 

4) Address Risks with Impacts.

While you might be tempted to think of a risk in terms of its impact and not the event itself, it is always important to deconstruct each risk. One way to do this is by looking at the cause, event, and effect. This will help you get to the root of the problem and come up with holistic solutions.

5) Polish Your Project Management Skills.

Managing risks is all about identifying, analyzing, and monitoring. This cannot be achieved without good project management skills. By gaining formal education in project management skills, you can develop the agility to be reactive as well as create effective preventive measures to keep potential risks away. 

If you are looking to perfect your project risk management by gaining formal project management training, GreyCampus is the right place to get started. Greycampus is a leading PMP-certification training provider, which partners with industry leaders. Its PMP bootcamps offer live lessons, simulated exams, mentorships, continuous assessments, and hands-on projects. 

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