Assessing and managing risks is the best weapon you have against project catastrophes. By evaluating your plan for potential problems and developing strategies to address them, you’ll improve your chances of a successful project.
What Is Risk Management?
Risk management is the process of identifying, analyzing and responding to risk factors throughout the life of a project and in the best interests of its objectives. Proper risk management implies control of possible future events and is proactive rather than reactive. Proper risk management will reduce, not only the likelihood of an event occurring, but also the magnitude of its impact.
An activity in a network requires the development of a new technology. The schedule indicates six months for this activity, but the technical employees think that nine months is a more realistic timeframe. If the project manager is proactive, the project team will immediately develop a contingency plan for the longer timeframe and develop solutions to the problem in advance of the project’s due date. However, if the project manager chooses to be reactive, then the team will do nothing until the problem actually occurs. The outcome will be that when the project approaches its six month deadline, many tasks will remain uncompleted and the project manager will react rapidly to the crisis, causing the team to lose valuable time and experience project delays.
Risk Management Systems
Risk Management Systems are designed to do more than just identify the risk. The system must also quantify the risk and predict the impact of the risk on the outcome of the project and make a determination as to whether the risk is either acceptable or unacceptable. The acceptance or non-acceptance of a risk is usually dependent on the project manager’s tolerance level for risk.
If risk management is set up as a continuous, disciplined process of problem identification and resolution, then the system will easily supplement other systems. This includes: organization, planning and budgeting, and cost control. Surprises will diminish because emphasis will now be on proactive rather than reactive management.
Risk Management…A Continuous Process
Project Teams identify all of the possible risks that might jeopardize the success of their project. Then they identify the risks which are the most likely to occur. They may base their decisions on past experiences, lessons learned and research. This helps quantify the likelihood of occurrence and the impact on the project.
The significance is that opportunity and risk generally remain relatively high during project planning (beginning of the project life cycle) but because of the relatively low level of investment to this point, the amount at stake remains low. In contrast, during project execution, risk progressively falls to lower levels as remaining unknowns are translated into knowns. At the same time, the amount at stake steadily rises as the necessary resources are progressively invested to complete the project.
My critical point is that Risk Management is a continuous process and as such should be an ongoing activity throughout the life of the project. For example, if a project’s total duration has an estimate of 3 months, undertake a risk assessment at least at the end of month 1 and month 2. At each stage of the project’s life, there will be new risks to identify, quantify and manage.
What a Project Team will want to achieve is an ability to deal with blockages and barriers to their successful completion of the project on time and/or on budget. Mitigation plans will help to reduce risk likelihood and have contingency plans in place to manage any risks as they arise.
Why do Risk Management?
Assessing and managing risks is the best weapon you have against project catastrophes. By evaluating your plan for potential problems and developing strategies to address them, you’ll improve your chances of a successful, if not perfect, project. Additionally, continuous risk management will:
- Ensure that you aggressively manage high priority risks and are able to stay in control of costs throughout the project.
- Provide management at all levels of the organization with the information necessary to make informed decisions on issues critical to the project’s success.
If you don’t actively attack risks, they will actively attack you!
Risk Management Process
Start by looking at various sources of risks. There are many sources as you’ll see from this brief list. The project team should reference this list and other sources of risks to help brainstorm and identify all possible sources of risk.
Various sources of risk can include:
- Project Management
- Top management not recognizing this activity as a project
- Too many projects going on at one time
- Impossible schedule commitments
- No functional input into the planning phase
- No one person responsible for the total project
- Poor control of design changes
- Problems with team members
- Poor control of customer changes
- Poor understanding of the project manager’s job
- Wrong person assigned as project manager
- No integrated planning and control
- Organization’s resources are over-committed
- Unrealistic planning and scheduling
- No project cost accounting ability
- Conflicting project priorities
- Poorly organized project office
- External Unpredictable
- Unforeseen regulatory requirements
- Natural disasters
- Vandalism, sabotage or unpredicted side effects
- External Predictable
- Market or operational risk
- Currency rate fluctuations
- Technology changes
- Risks stemming from design process
- Violating trademarks and licenses
- Sued for breach of contract
- Labour or workplace problem
- Litigation due to tort law
Follow a Risk Analysis Process
The Risk Analysis Process is essentially a quality problem solving process. People use quality and assessment tools to determine possible risks, prioritize risks, assess risks and manage risks. A good quality risk analysis process will include these elements:
Identify the Risk
The project team will brainstorm all of the possible risks, events, occurrences, and other things that might take place, which might prevent either all, or a part of the project, from being completed on schedule, budget, and so on. It is important to note that the project going over schedule and/or budget are not risks. They are the result of a risk.
Assess the Risk
The project team will group similar related risks into categories. For example, all risks associated with product innovation will be grouped together, all risks associate with team resources will be group together and so on. Then they will prioritize these risk groups by identifying the likelihood of each group of risks and their impact on the project, should they occur.
Develop Responses to the Risk
The project team will conduct a cause and effect analysis of the high ranked risk groups and their related risks. They’ll ask, “What will cause each risk to occur?” and “How will each risk, in the group, impact the project, team, stakeholders, customers, leadership and so on?” Then the team will assess these risks to determine what to do to reduce the likelihood of the risks and what can to do to manage the risks, should they occur?
Develop Mitigation and Contingency Plans
The project team will create mitigation plans to reduce risk likelihood and contingency plans to manage risks, should they occur.
Your Call to Action
The outcome of project failure is wasted dollars that steal investor profits and have a negative impact on the organization’s bottom-line. Undertaking a Risk Assessment on your project is critical for project success and to achieve a proper return on investment. Complete your risk assessment early on in the project’s execution and continuously (i.e.; every 2 to 3 months), throughout the project’s lifecycle. This will increase your project’s likelihood of success.