No business owner starts a project without the hope of delivering it (and making the customer happy).
However, only 77% of organizations with high project management maturity meet their goals. The numbers drop lower when accounting for projects completed within budget (67%) and time (63%). Many businesses are yet to reach project management maturity.
So why do so many projects fail? There's no one answer. Many projects run into budget deficits, time constraints, and scope creep risks. These challenges make it hard to deliver project deliverables (resulting in unsatisfied clients or end-users).
But, as a mall business owner, you can improve your odds by establishing a risk management process to reduce the chances of project failure. It provides a framework for identifying, monitoring, and mitigating risks.
In this article, we'll cover:
- The process of risk management (and potential benefits)
- Steps for a proactive approach to risk management
- Common challenges of risk management
- Practical tips for establishing an effective risk management plan
What is a risk management process?
The risk management process entails a systematic way of identifying, evaluating, and mitigating risks that could alter a project's progress.
The goal is to be prepared (vs. a reactive approach to dealing with risks).
Project risks are tied directly to project objectives. You and the project team must understand these objectives clearly in order to gauge the risks that might impact them
A common misconception is that all project risks must undermine a project's outcomes, but risks can also be positive. The term 'risk' only means the unforeseen event may impact the project objectives somehow.
Suppose an international supplier wants to move daily operations to a different country. This is an operational risk as it may alter your project timelines and milestones. Now, suppose the new location is closer to your project site. The relocation may be a risk initially, but the impacts will likely be positive (considering the shorter turnaround times).
Benefits of project risk management
Businesses stand to benefit from adopting an efficient risk management process. Here are some important ones.
Many types of risks that can come up in projects are manageable. However, their unpredictability increases their impact on project objectives and outcomes. Having a risk management process provides a structured way of identifying potential risks. It also outlines how the team will address the identified risks should they happen.
Improved communication and information sharing
A good risk management process defines how risk information is communicated to the right people, including decision-makers.
For example, a company may require that all identified risks be documented and delivered as reports. The reports are updated regularly based on how the risks change.
A good risk management process should provide guidelines for collecting the important risk data. The data provides a basis for choosing the best way forward.
Decision-makers can then analyze the data and decide what risk management course to take.
Reliable budget estimation
Most risks need resources to avoid or mitigate their impact on project objectives.
For example, a company may need to contract a consultant to help it address technical risks.
Understanding your risks (and remedies) will help you estimate more accurate costs (and budgets).
Improved project results
Project risk management aims to identify (and mitigate or avoid) as many risks as possible.
Although this won't guarantee that a project will be successful, it'll give you better fighting odds.
Six essential steps of any project risk management process
Hopefully, most of the risks you identify won't materialize, but an effective risk management process will help you and your team prepare.
Below we cover six steps to a solid risk management process.
By the way, using a risk register will help you keep organized and make this process much easier for you.
Identify current risks
First, you need to identify relevant (potential) project risks. Some effective ways of identifying project risks include:
- Brainstorming with stakeholders
- Interviewing project team members
- Using pre-established checklists
- Deriving risks from past projects
Risk should be clearly defined in the risk register. You should also document the probability of the risk occurring and the impact of the risk on (given) project deliverables.
Analyze the risks
Next, you'll want to analyze the risks.
The risk management team should combine quantitative and qualitative risk assessment methods (which help quantify the risks' impact on the project).
Qualitative risk analysis uses subjective judgment. You estimate the likelihood, probability and impact of a risk happening.
Conversely, a quantitative risk analysis converts the results of the qualitative analysis into measurable quantities. Where the qualitative analysis estimates the risks, the quantitative analysis puts numbers against those risks.
Rank and prioritize the risks
Projects face many categories of risk, which vary based on urgency and impact. It's important to rank and prioritize the risks so that you focus on the most urgent ones.
For example, a materials supplier shutting down operations may be a small or huge risk, depending on context. It'll be a huge risk if they supply unique materials that may be difficult to source elsewhere. The implications may not be as pronounced when the materials are available from other suppliers.
Financial risks should be prioritized higher as they affect not only the project budget, but the bottom line of a business.
Assign owners to the risks
It is advisable to assign the identified risks to specific team members. It ensures there is a single point of reference on a specific risk. The selected person should track the risk and oversee the mitigation plan.
Usually, the project team does not respond immediately to risks. They take some time to track the risk and determine the probability of happening. They also take this time to prepare a mitigation plan. These tasks need clear and transparent communication.
The assigned member has an essential role in updating the risk register. This includes changes in the potential impacts and mitigation plans.
Respond to the risks (if needed)
Most project risks don't manifest. However, you and the team should be ready to respond when the risk becomes a reality. Usually, the risk register should outline the thresholds where potential risk is considered a reality.
Project team members should know their roles if a risk happens. The goal is to minimize the impact on project objectives. The sooner mitigations are implemented, the higher the likelihood that the risk won't turn into a major issue (and does irreversible damage).
Monitor the risks
Finally, you should continuously track your risks and reflect on the effectiveness of mitigating actions. Some project risks are dynamic and may change even during mitigation. Being aware (and flexible) is key.
The project team and stakeholders should also evaluate how risks may impact the project objectives.
Four risk management strategies
Project teams have limited control over whether risks occur or not. The best option is to have an effective strategy for responding to the risks. Below are four possible risk management strategies.
Mitigation requires taking deliberate action to reduce the impact of potential risks. Often, mitigation doesn't aim at avoiding the risk completely. Instead, the risk management team looks to reduce the impact of the risk.
Another option is to transfer risks to third parties. A good example of risk transfer is when companies take insurance coverage. The insurance company takes over the cost implications of identified risks.
Although transferring risks is the safest route, it's also the most expensive.
Suppose a risk cannot be mitigated, transferred, or avoided. The next best strategy is to acknowledge the risk without taking any action.
Even though you do not have actions planned for dealing with these risks should they occur, you should still add and track them in your risk register.
Risk avoidance means just that. You don't start (or halt) any activities that have risk exposure. Or you might reverse actions already taken for activities that have already started.
For example, businesses may pull out of planned investments if they become too risky to pursue.
Four challenges of project risk management
Project risk management can be a lot of work, and risk management plans alone won't protect you from unforeseen events.
Below are some common challenges of project risk management.
Project risks are ever-changing, which means that your risk evaluation may look different over time.
Maintaining an updated risk register is paramount, especially when the project timeline is long.
Lack of stakeholder buy-in
Some stakeholders, including senior management, may not value a risk management process. This can be dangerous, especially if they are decision-makers who influence resource allocation.
Aligning risk management objectives with organizational strategies
Some project risks won't affect the company's bottom line. The team may struggle to justify why the company should allocate resources to track and mitigate such risks.
An effective solution to this challenge is tying the risks to specific organizational objectives.
Not all risks are created equal. Some have interdependencies that increase (or nullify) their impacts, which makes it difficult to evaluate and respond to the risk.
For example, a risk may seem mild, but only because another risk neutralizes some of its effects. Addressing one risk may increase another risk's impact.
Five strategies for an effective risk management process
Risk management strategies should focus on collaboration, communication and transparency. Let's take a look at some strategies below.
Involve relevant stakeholders
Your risk management process won't be effective in isolation, no matter how detailed it is. It requires collaboration and input from relevant stakeholders. Important stakeholders include anyone whose buy-in is important.
Collaboration ensures the risk management process receives adequate support (and resources). Everyone should understand the importance of the risk management process.
Risk management is an ongoing process
A common mistake many companies make is treating the risk management process as a one-time event. Instead, project risk management is a perpetual process.
The team must continuously track the risks they've identified for possible changes and watch for new risks.
Maintain clear communication
Some risk management processes fail because of poor communication among relevant stakeholders.
For example, the person(s) assigned to track specific risks may fail to update the risk management team about changes in the risk profile.
Instead, project and risk management teams should establish clear communication channels. Doing so ensures that all changes and updates are communicated timely.
Have well-defined risk management goals
The risk management process should be clearly defined, including goals, team members, and roles. Furthermore, the team should clearly define what'll be considered a risk.
It’s also important to maintain a well-defined and updated risk register. It should include the identified goals and thresholds for risk.
Align contingency plan goals with organizational strategies
Risk management aims to reduce the consequences of an unexpected event (and the additional resource expenses). This is only possible when risk management goals align with organizational goals.
Improve how you identify and respond to project risks
Every small business that does project-based work should have a risk management process to help reduce the impact of unforeseen events stalling (or tanking) those projects.
A good risk management process provides a framework that covers everything from risk identification, assessment, prioritization, response, and monitoring.
And you can use Motion to increase the effectiveness of your risk management process.
For example, you can:
- Use Motion's calendar to schedule risk meetings and reviews.
- Share (and comment in) the risk register directly in Motion
- Foster collaboration between the project team and stakeholders
- Delegate tasks related to the risk management process