Risk management is a vital project management practice that validates the project standards that are fit for execution as well as takes care of the potential risks during execution that weren’t visible during the planning phase. Also, addressing the risks works in two ways i.e. resolving the risk when it occurs suddenly or preparing a contingency plan for the probable risk AI in project management.
Risk management is a vital exercise that validates the reliability of the project plan. It lets you determine the risks involved in the project lifecycle and decide on an appropriate course of action.
A multidisciplinary project can go wrong in a number of ways, proving that Murphy’s law of, “Whatever can go wrong, will go wrong”, can strike anytime, anywhere. Risk management helps focus on all these possibilities where things can go wrong, and to set them right.
Risk analysis and management help you identify and act upon the underlying risks of the project. A project always has numerous resources for a risk to arise namely cross-functional teams, multi-level hierarchy, tight deadlines, many more.
How to Perform Project Risk Management?
For every issue faced by the project, a detailed risk analysis is the first step to mitigating it. This analysis has to be conducted during the project planning phase and acted upon throughout the project lifecycle.
Moreover, a resource management tool can help prevent risks arising from a risk-prone department i.e. resources. However, the steps given below are useful for identifying and solving risks.
Identify the Nature of Risk
Risks can be of any type, depending upon the number of multi-disciplinary streams involved in your project. Every stream can have a potential threat to the project’s health if not dealt with appropriately.
As a project leader, you can prepare a list of potential risks by conducting brainstorming sessions with team members and stakeholders. This practice will require risk analysis tools in order to identify the nature and intensity of the risks.
Calculate the Risk Probability
Risk occurrence is not a fixed entity for anyone to predict accurately, and can only be estimated by its likeliness to happen. However, you can rely on the risk assessment tools that help you calculate the odds.
Calculating the risk probability is relevant when you are trying to find a feasible solution without running out of time. Given that you cannot pay equal attention to every risk popping from various areas of the project, a better solution is to forecast the risk occurrence probability. Prioritizing the risks helps you understand which risk needs to be looked at first, which saves a lot of time while addressing them.
Assess the Impact of Risk
The impact factor significantly measures the severity of the risk and damage it can cause to the project. Risks can be prioritized according to the severity of the impact. In this manner, both probability and impact collectively are used to prioritize the risks while planning.
A risk is not bound to impact the project in one dimension or single area particularly, it will affect the interlinked departments either directly, or indirectly. You can evaluate the impact on the basis of areas it could affect i.e. timeline, project budget, organization’s brand value, client satisfaction/trust, standardized approach, and more. Assessing the impact of the projected risks empowers you to prepare a contingency plan at the earliest, and helps execute your project smoothly.
Prepare a Project Risk Management Plan
Now that you know the different risk variables, namely their nature, probability, and impact factor, a contingency plan is the next step forward. A typical project risk management plan would help you identify the risks properly, along with a suitable plan to handle.
Preparing a contingency plan again requires brainstorming sessions with the team. It will demand a fair knowledge of the project, prior experience of similar projects, and good coordination between the departments. A contingency plan is prepared only when the impact of the risk is going to be severe.
Standardize the Contingency Plan
The feasibility of the contingency plan on paper and after execution may vary. The reason behind the varying plans is the limited time you get to implement it and the pressure that comes with it!
You can get the contingency plan validated by authorized project team leaders to stay on the same page during a critical situation at work. In fact, the contingency plan can be documented and standardized such that future teams can see when and how risks can appear, and which solution works best.
These are some of the ways in which you can assess the risk and the different methods of managing the risks. However, there are certain ways to act upon the risk given below because not all risks would be of similar nature and severity.
How to Overcome Risks
There are three clear ways to manage risk by looking at the probability of risk occurrence and its impact factor. Both of these factors can be quantified into three different intensity levels i.e. low, medium, or high.
Therefore, after evaluating the intensities of both the factors, you can go for a feasible way out of the three stated below:
- Avoiding the Source of Risk
When the likelihood of risk occurrence and its impact are low, avoiding the risk is the feasible way out. It is possible when the invested capital on the project is negligible.
Avoiding the risks essentially requires getting rid of its source(origin) and implementing an alternative approach towards the same tasks.
- Risk Mitigation
Mitigating the risks becomes an obvious choice when the project is halfway completed and substantial capital has been invested. This is a good option when the likelihood of risk occurrence and impact factors are between medium to high.
Generally speaking, project managers prefer mitigating the risk when they realize eliminating the cause of the risk is out of their hands. Simply put, they can reduce the impact of the project as far as possible.
- Accept the Results
This is the last stage when the project is about to be completed, where avoiding and reducing the risk impact is barely possible. The best course of action is to prepare for the damage to be caused.
Nevertheless, a well-thought contingency plan can prevent a project from failing completely but the repercussions are inevitable. This will definitely add cost and time to your cart but can actually save the project from being derailed altogether.
Risk management is a continuous process and not only a reactive approach. A seasoned project manager expects risks and knows why it is important to estimate severity and impact. Only then can solutions be devised ahead of time.
The methods discussed earlier is useful whether you’re just starting to manage projects or have mastered project management professionally. Maintaining a risk register and healthy communication among colleagues and stakeholders will go a long way towards ensuring projects stay the course. Additionally, conducting timely risk assessments during the project lifecycle can keep impending issues in check, especially since the project may change from planning to the execution phase.
At the end of the day, a project manager who consults the team regularly and keeps an open eye for risks would be in a position to minimize its impact and manage to keep the project profitable at all times.