Introduction to Project Risk Management

“Everything that can go wrong, will go wrong”, says Murphy’s Law. This is not a negative outlook on life but a call for people to prepare for contingencies. It goes along with the popular idiom “Hope for the best, prepare for the worst”.

This is the kind of approach that is needed in Project Management. Project risk management is an integral part of the project process and a key responsibility of a project manager.

The Japanese have been using this philosophy of project risk management for decades and are credited as being the reason behind the highly reputable delivery and success of Japanese corporates.

In this article, we look at the project risk management process and learn what are the different Project risk management steps.

You can learn more about other essential domains in Project Management from our article on Project Management Knowledge Areas.

What is risk in project management?

Project Management Risk can be described as unexpected events not part of the ideal project process which can have an effect on the desired outcome of the project for better or worse.

A Project management risk could arise out of anything, sometimes completely unrelated to the project. An example of this would be the pandemic, where work across industries was affected due to a global event in no one’s hands.

A project management risk can also affect any of the project's particular facets. This includes personnel, resources, technology, networks, and communication.

There is a distinction between project management risks and project management issues that one needs to remember. Issues are foreseeable and expected events that can affect the project. This includes any leaves by project members, a spike in demand during a certain time of the year, scarcity of certain resources, etc.

The clear distinction is that issues are events you foresee and actively plan for in the project process while project management risks are unforeseen and passively planned for with backup plans.

Although the word risk carries a negative connotation, it is not always bad in the domain of project management. A risk can be both positive and negative, it just needs to be an unforeseeable event that affects the desired outcome of the project.

Some examples of positive project management risks are an increase in product demand size, hiring of new project members, upgradation of technology, etc.

What is risk management in project management?

Project Risk Management is the practice of analyzing processes to identify potential risks and having a risk mitigation plan ready for these risks.

Project managers are typically expected to take charge of the project risk management plan in a company. The project risk management plan needs to be robust and needs to be constantly optimized and updated after every project, even if the process remains the same.

Project Risk management is not one process, but rather a philosophy that guides a series of steps that are a part of the Project Risk Management Plan.

This Project Risk Management plan typically involves steps like identifying, classifying, analyzing, and preparing a risk mitigation plan.

For effective Project Risk Management, the project manager needs to have absolute clarity regarding the product and the process they are expected to deliver. This lays the basis for a strong Project Risk Management plan.

Every project management risk encountered tends to make the team better and the project risk management plan more robust.

This is because by tackling the risk the team learns how to overcome a certain hurdle which makes it way easier when the same risk is encountered again.

This can again be demonstrated by the case of the pandemic which has made organizations around the world capable of working remotely.

This is why companies invest time and money into having effective project risk management strategies in place.

How do identify risk in project management?

One of the key points to remember in the project risk management process is that every risk needs to be identified and dealt with at the earliest possible time.

The longer risk is left unchecked, the more chance it has of disrupting the desired outcome of the project. Left unchecked long enough, the risk might sabotage the entire project.

This is why the process of risk identification in project risk management is very important. Risks identification is to be done at regular intervals all through the project, especially at the point of key milestones.

As a part of the Project risk management plan, the project manager has to prioritize the identification of risks. This is why risk identification is one of the pivotal topics in regular project report meetings.

In risk identification, risks are segregated by source and category.

The risk identification process is carried out from source to source to verify whether a given source is free of risks. Any source that is prone to risks is identified and monitored.

Risk Identification is also done per category of risk to see where the effect is likely to happen. They are broadly categorized and depend on the project type.

This helps form the Risk registry which is a crucial tool used in the project risk management plan.

What is a risk register in project management?

A project risk register, also known as a risk register log, or risk register document, is an important tool in the Project risk management plan that helps etch out the project risk mitigation strategies.

The risk register is crucial to risk mitigation strategies and hence is maintained without fail within any given project.

First, the identified risks are categorized based on various factors like the likelihood of the risk, the impact the risk can have, the process affected by the risk, the source or category the risks occur, etc. The parameters for classification might differ from project to project.

The risk register is initially formed from the findings of the risks identification process. However, the risk register does not stop with the identification of the risks.

Once the risks are categorized, the risk register helps keep track of the preparation to face the identified risks as well.

The categorized risks are analyzed to understand factors like likelihood and impact. The analysis seeks to identify the extent of the effect that the risk can have.

Once the analysis is done and the findings are added to the risk register, the risk mitigation plan can be drawn up. Risk mitigation is the end point of the project risk management plan.

The risk mitigation plan is also added to the risk register. Now the risk register contains identified risks, findings of the analysis of the said risk, and a mitigation plan to deal with the risk.

Now the risk register is continuously monitored and the risks are constantly tracked so that the mitigation plan stays updated as per any developments.

This makes it clear why the risk register is such a pivotal tool in the process of project risk management.

What is risk analysis in project management?

Project risk analysis is an integral part of the project risk management plan. The project risk analysis process is carried out after the risk has been identified and entered into the risk register.

It is important to analyze the identified risks for the impact they can have on the project. Specific analysis is done to see how the outcome of the project can change due to the risk.

This analysis is crucial because the risk mitigation plans are created based on the findings of this analysis.

Some of the data that project risk analysis tries to ascertain is –

* Probability of risk – The project risk analysis seeks to understand the mathematical chance of the risk event occurring.

* Exposure due to risk – The project risk analysis process tries to find what parts of the project process will get affected by the risk.

* Timeframe of risk – Project risk analysis tries to find the window in which the risk is likely to occur to get the project risk management strategies ready in time.

* Impact – Project risk analysis tries to calculate the projected impact on the outcome that the risk can have.

What is risk mitigation in project management?

Risk mitigation planning is the practice of having a plan in place to deal with an identified potential risk in a way that the desired outcome is not affected by the risk.

Risk mitigation is the final step in the project risk management plan. It is important to note that not every risk requires mitigation as they are events that may or may not occur.

The risk mitigation strategies are drawn based on the findings of the risk analysis. The mitigation plan is charted by the project manager by referring to the data entered on the risk register.

The project risk analysis process provides all the necessary data that is required to prepare a mitigation plan. All this data is available from the risk register.

Once the mitigation plan is prepared, it is entered into the risk register alongside the data from the project risk analysis.

All the risks in the register are monitored periodically to ensure risk is detected as soon as it occurs. The risk analysis report is constantly updated based on the findings of this monitoring.

In case the risk occurs, the mitigation plan is executed to ensure that the project outcome is not affected.

The execution of a mitigation plan to safeguard the desired outcome of the project is the main purpose of Project risk management.

Project Risk Management steps

1) Risks identification – The first of the Project risk management steps is the identification of risks.

2) Preparing risk register – A log is made to categorize the identified risks to further plan project risk management.

3) Risk analysis – The risks entered in the risk log are analyzed to find data that can further help the project risk management plan.

4) Updating the register – In this step of project risk management, the data from project risk analysis is updated on the risk log.

5) Preparation of risk mitigation plan – The purpose of project risk management is to have a risk mitigation plan ready before the risk event occurs.

6) Updating the register – The risk mitigation plan is updated on the risk log to have the project risk management plan in place.

7) Monitoring of risks – To ensure timely implementation of the risk mitigation strategies, the risks are monitored periodically by the project risk management plan.

8) Prioritizing risks – The next step in project risk management is the prioritization of risks based on the findings of monitoring.

9) Execution of risk mitigation plan (If the risk occurs) – If the dreaded risk event occurs, as per the project risk management plan, the risk mitigation strategies in place are executed to control the risk and safeguard the desired result of the project.

Why is risk management important in project management?

The aim when undertaking any given project is to deliver the desired outcome to clients. This is done by planning the project in the most efficient way possible using various optimization techniques.

The problem with highly efficient systems is that they are highly vulnerable to unforeseen events and tend to crash easily.

An example of this would be the supply chain crisis during the pandemic which led to unusually high prices of the otherwise easily available commodities.

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