The Risk Element
Ask any project manager what they think is the most important part of managing a project, and you’ll get a bunch of different responses. Some might say that it’s creating a proper scope statement, while others might talk about the importance of setting and sticking to deadlines. An overwhelming number of seasoned managers may scream the house down about the importance of sticking to the budget. Of course, no organization wants to realize that they’re still in the middle of a project, but they’ve already exceeded the budget allocated for it. However, amidst the clamor for properly-defined timelines, budgets, and project tasks, even experienced project managers forget one key element of project management – planning for risk.
Every project has unexpected issues, and every project manager is just one unforeseen event away from getting a look of pure disdain from their reporting manager. When that happens, their first thought usually is, “There was no way I could’ve foreseen this”. Project risks, if not planned and prepared for, have the potential to throw your entire project off-track. Getting up to speed will take extra resources and time you don’t have. This blog talks about risk management in PMP and how to go about it.
What is Project Risk and Risk Management?
Project risk refers to any unexpected event that affects the various project components – this could be its resources, tasks, people, budget, or timelines.
Risk management in PMP refers to the activities you undertake to manage potential risks to a project. There are positive risks and negative risks. Positive risks are those events that end up having positive consequences on your project, and negative risks have negative outcomes. As a project manager, you should do everything you can to harness the former and minimize the latter’s effects on project deliverables.
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The Steps in Risk Management
Whether or not you pay attention to risk management within your projects, and the amount of time you give it also depends upon how big your project is. In large-scale projects, substantial time is spent coming up with risk mitigation strategies. In smaller projects, you should at least come up with a list that ranks each potential risk according to priority. This way, even if there aren’t any elaborate plans in place, you’re at least aware of all potential risks that can befall your project.
If you’re a project manager, it’s your responsibility to ensure that the consequences of negative risks don’t impact project deliverables. The risk management steps in PMP are as follows:
- Identifying risks
- Analyzing risks
- Planning risk responses
- Implementing risk responses
- Monitoring and controlling risks.
Even the best PMP courses available online will show you these steps as a part of formulating a plan for risk management in PMP. Now, let’s explore each step in further detail and find out what they’re all about.
Identifying Risks
The first step in formulating a risk management plan for your enterprise, obviously, is identifying risks. Here, based on the nature of your project, you can go about identifying risks in various ways. You can make a list of all the possible risks that can impact your project by brainstorming with your colleagues. It would be a great idea if they are from different departments. This will help you come up with risk minimization techniques that you wouldn’t have thought of earlier. Considering that there are several people thinking with you, you will also get to consider various perspectives and scenarios that may play out.
Another option is getting help from your own team members to dig up similar projects from the past (if any). You can go through these old project files, look for any risks that befell them, and gain information on how these risks were handled. Then, depending on how long ago these projects were, and the extent of automation that may have taken place in the interim, you need to decide which of the risks are still relevant in 2022. You can group risks into certain heads, like:
- Financial risks
- Legal risks
- Partner/Supplier/Vendor risks
- Risks to company strategy
- Risks to employee welfare
Once you have a list of all the potential risks that may occur, we move on to the next step.
Analyzing Risks
At this stage, you have a ready list of all the possible risks you’ve identified, and it’s time to analyze them. What do you measure? Two things – the severity of the risk’s consequences, and the probability that it will occur. Based on your findings, you then categorize each risk item on your list as ‘low’, ‘medium’, or ‘high’. For example, if an event will have a moderate impact on the project but the chances of it happening are frequent, then it’s a high-risk event. Similarly, if an event will have a moderate impact on the project but the chances of it happening are remote, then it's a low-risk event.
There are also two ways in which you can analyze risks: qualitative and quantitative.
Qualitative risk analysis: Easy to do and implement, this is for people who are weak at opportunity analysis and math. However, this is a subjective analysis and cannot be measured or explained.
Quantitative risk analysis: Difficult and time-consuming, this technique involves simulations and/or models, and most importantly, numbers. It focuses on numerical values of the risks. Therefore, the results are usually more accurate and reliable. You will be able to plan for risk management in PMP more effectively. Quantitative risk management looks at the risk impact in terms of numbers, thereby quantifying the risk.
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Planning Risk Responses
Now that you know which risk items are the most severe (and thereby the ones to address first), the next step is to define your response to these items. As a project manager, you have four options to consider while planning for risk management in PMP. They are as follows:
- Reducing Risk: In this scenario, you do everything you can to reduce the probability of the risks taking place. This means making sure that the chance of it happening is as minute as possible. This may involve putting new processes in place, changing existing ones, or taking new decisions you wouldn’t have considered otherwise.
- Limiting impact: Here, you do whatever you can to mitigate the risk, i.e., make sure the impact of the risk incident is as minimal as possible. This is different from the previous point, where you try and limit the chance of the risk incident happening in the first place.
- Transferring risk: What if the responsibility of dealing with risk consequences wasn’t yours? What if the ball was in a completely different court? Sounds good, right? Well, this is what transferring risk means.
- Accepting risk: If you can’t mitigate the risk incident, stop it from happening, or transfer it to another individual / department, what other option do you have? To accept it and be aware of the consequences of its impact.
Implementing Risk Responses
The next step is to implement the risk response that you’ve got planned. There is also a set of reserves to cover the risks that are not planned for – the known unknowns and the unknown unknowns. These responses are called contingency reserve and management reserve. While doing so, as a part of risk management, you must ensure that the responsibility of each risk response is allocated to a particular individual. So, in case you’ve planned five risk responses, a team of five individuals must be set up to carry them out. Everyone will manage their particular risk response. This may look like:
- Making sure the budget for a particular risk response is well-utilized.
- Implementing new processes as a part of the risk response
- Collecting and documenting the risk response; treating it like a subproject.
Monitoring and Controlling Risk
The last step in the chain of events when it comes to risk management in PMP is all about monitoring the impact of the risk response and change control. You must do everything to ensure that it’s fast, efficient, and that its effects far-reaching. Whether or not anyone asks, you must always know what the status of the risk response is. Most importantly, you must also document the status of the project before and after you implemented the risk response.
This is so that you have a clear and concrete answer in case project stakeholders start doubting the efficacy or need for the risk response later.
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Why is Proactive Risk Management Critical?
As is the case with most organizations, their stakeholders can’t stop talking about the benefits and importance of proactive risk management. However, all their risk responses are reactive in nature. That’s why proactive risk management is a discipline that should be inculcated across the company, from high-level executives to management t trainees. As a practice, it cannot be formed in isolation or when project teams work in silos.
Call it what you want – critical, essential, or important, proactive risk management has several benefits. Of these benefits, the two most important ones are as follows:
- It strengthens an organization’s ability to spot existing risk and avoid/mange emerging risk.
- It makes the organization more flexible in a crisis, when there are unwanted events, nobody says coming.
If you think you need more information on risk management, signing up for KnowledgeHut’s best PMP course is a good idea. Module 3 of their comprehensive course curriculum talks about assessing and managing risk, which has been designed by expert project managers.
Fair Warning
As you might’ve understood by now, risk is an unavoidable part of the project management process, but not one that is particularly well-understood (even by seasoned managers). We hope that you found this article on project management risk useful.
Frequently Asked Questions (FAQs)
1. Why Risk management is important?
All businesses work with some degree of risk. Risk can lead to rewards as well as roadblocks. Being aware of risks and knowing how to manage them sets you up for success in any project. When implemented properly, risk management can lead to immensely favorable outcomes for enterprises.
2. What are steps in Project Risk management?
As we discussed in detail in the blog, the steps involved in risk management in PMP are as follows:
- Identifying risks
- Analyzing risks
- Planning risk responses
- Implementing risk responses
- Monitoring and controlling risks.
3. Why it is important to do continual Risk management?
Business risks management is not a one-time activity as the world we live in is changing continually. Business environments and business risks are also impacted by the changing world. If businesses only respond to risks reactively, a lot of their time and resources will be dedicated to firefighting measures, whereas proactive risk management leads to diligence in response.
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