In this article we show you how to manage project risk. Risk management is not difficult yet it is often neglected. Project risk is treated a little like writing a will—everyone knows how important it is yet it’s a topic of conversation that’s avoided and subsequently treated inadequately. Maybe this is a result of the project manager concentrating on the mechanical aspects of activities and time in preference to people and risk?
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Table of Contents
How to Manage Project Risk
This post shows you how to manage project risk in 4 simple steps. Follow them and make this part of your weekly routine. But first, let’s define risk
Risk is any potential threat or occurrence that may prevent you from achieving your business objectives.
That is, risk affects the project balance—of time, cost, and scope—and needs to be managed from the start of the project through to completion. Moreover, your goal should be to reduce—dare I say eliminate—risk as the project progresses (see 4 Types of Project.)
Whilst you are unlikely to remove project risk altogether you should, with careful planning manage to avoid project risks in some instances and minimise disruption in others.
As ever, we recommend you keep things simple and make use of our four-stage approach to manage project risk.
Identifying Project Risk
There is real value in running a risk management workshop at the start of the project to discuss project risk. First, invite an appropriate group of stakeholders and brainstorm all the possible risks that may jeopardise project success.
As an aid, use a risk wheel, discuss each topic in turn, and record each risk on a Post-it note. Place the note on the risk wheel. Depending on the size and complexity of the project this may need to be done with different stakeholder groups and in more than one session.
Assess Project Risk
We now get into the nitty-gritty of risk management. Review each risk in turn and use a risk matrix to decide the risk category: very low, low, medium, high, and high* (using our risk matrix.) This step is crucial and will help you to prioritise project risk. Once you have decided on the likelihood and impact of each risk mark these and the risk category on each Post-It note.
Addressing Project Risk
Starting with the higher ranked risks consider ways of reducing their impact and prepare a contingency plan. How you go about this is largely a matter of choice.
My preference is to keep things simple and use what is essentially a tree diagram or contingency chart. Begin with the most significant risk and place your Post-it note at the top of a flip-chart.
Next consider what happens if the risk materialises and jot these down. When managing project risk you should consider both countermeasures and contingencies
- What can you do to tackle the risk?
- What can you do to reduce the level of risk?
- What will you do if things start to go wrong?
- How will you know if a risk materialises?
- How will you check and manage the risk?
Review and Report Project Risk
The last step is to document the risks in the project risk log and assign an owner—someone accountable—for each risk.
As you’ve probably gathered, managing project risk is an ongoing—cyclic—activity. It is essential that project managers continually manage project risk as part of the project control cycle. Therefore it is advisable to regularly
- Maintain and check the risk log with the project team and reassess proximity, likelihood and seriousness of impact.
- Log all new risks and categorise them using the process described.
- Report risks and the action being taken to deal with them using regular project progress reports.
If a risk does occur the risk log should be updated and an issue recorded in the issue log. Likewise. if a risk is eliminated or neutralised the risk log entry can be safely closed since it no longer requires your attention.
A project risk log template is available for FREE to Leadership Thoughts subscribers on request. Subscribe now!
Creative Commons image courtesy Rebecca Krebs.