Project Risk: Definition and Advice for Project Managers
One of the reasons why projects fail is not preparing for possible project risks before they happen. As a project manager, you stand a better chance of setting up your project team for success if you can anticipate what can go wrong during the project and how to solve these risks.
Knowing the potential risks for your projects helps you create practicable project objectives and keep the project team on course to produce the expected project deliverables.
In this article, you will learn about the role project risks play in project management and how to solve them.
Let’s get started.
What is Project Risk?
A risk generally is the direct cause of uncertainty of events. The project process comprises a series of events that are subject to the likely threat of certain risk factors. Unlike the general conception of risks, risks associated with the project process can have either a positive or negative effect on the project’s goals and objectives.
Project risk usually targets key project elements such as project stakeholders, key project documents, and available resources. Unlike issues that arise during the project process, risk surfaces without prior warning or heads up and this fact distinguishes it from project issues.
In trying to determine the likely risk during a project process, here are five key elements to consider.
- Risk Events are the likely occurrences and factors that might affect the project process either negatively or positively.
- Risk Timeframe is a risk element that provides an appropriate estimate on the likely time frame for these risk events to occur.
- Risk Probability aims at determining the chances of these risks occurring as there is no way of confirming its certainty.
- Risk Impacts are key risk elements that spell out the expected outcome of the project if the likely risks do occur. They can either have a negative or positive impact depending on the project.
- Risk Factors comprise a series of events that provide prior knowledge to the occurrence of these risks. They are also referred to as risk triggers.
Common Project Risks
Project risks vary depending on the project structure and strategies chosen to implement major project key plans and objectives. Some of the common project risks that often plague projects include:
1. Technology Risk
Technology risks are specific risks that are associated with the introduction of new technologies or the complete overhaul of existing project process technologies. Such technological changes leave a huge gap for uncertainty and are usually exploited as a key risk occurrence point.
They directly impact the data and information security network of a project process. The technology risk factor leads to a delay in the project implementation process which ends up having dire consequences on the overall project schedule.
Changes in the personnel in charge of the technical structure of a project can also pose a considerable risk to the project process.
2. Communication Risk
Risks associated with communication often arise around the loss of key project information resulting from the absence of periodic and efficient communication. Communication risk can grossly impact the project process negatively. This leads to a wide range of disruptions that deviate the project from its set schedule and timeline.
Lack of constant communication between the project manager and the project sponsor also opens a gap for confusion which causes an abrupt delay in the project.
3. Scope Creep Risk
Scope creep is the major risk factor to the project planning and implementation stage. You can associate scope creep with abrupt changes being implemented during the project process that were not accounted for in the initial project scope.
The nightmare of every project manager is to change the initial project scope plan. Scope creep causes the overstretching of the limited budget allocated for the project process and stress for project stakeholders that would take up these new tasks.
Out of the common project risks, the most likely to occur is the scope creep risk because it is directly linked to all project types. Scope creep risk can also have a positive impact on the project if the new tasks added help to contribute to the project’s success.
4. Cost Risk
Cost risk directly affects the allocated and key project resources caused majorly by misappropriation of resources or a bloated budget. This common project risk poses a great threat to the project completion process as resources are the key driving force of the project process.
Unavailability of key project resources often puts the project at a standstill, which increases the overall project cost as more costs are now incurred. Cost risk leads to the project cost exceeding the available allocated resources which ultimately results in a budget deficit.
5. Operational Risk
Operation risks originate from the inefficiency of the project team to properly implement key project operational processes. This leads to either a direct or indirect loss on the part of the organization.
6. Health and Safety Risk
Depending on the type of project to be embarked on, health and safety risk comprises the organization’s compliance rules. Health and safety risk directly impacts the human resource of the project process as they are the implementers of the project plans and objectives.
Decapitated project stakeholders can negatively affect the project process as they lead to huge losses both financially and physically, as well as fines on the organization. Health and safety risk also has a gross impact on the outlook of the organization and can stain the image of the organization in question.
7. External Hazards Risk
External hazard risk surfaces due to the geographical location of the organization in which the project is to be carried out. They are mostly natural occurrences and are way beyond the control of the project team.
Examples of external hazards include natural disasters, terrorism, vandalism, and civil unrest. These categories of risks hurt the project process as they cause a halt in the project or the loss of key project resources and personnel.
How to Solve Project Risks
The uncertainty that project risks generate to a large extent can lead to late project delivery or in extreme cases, incomplete project completion. The utilization of efficient risk mitigation measures and contingency plans helps reduce the likelihood of these risks occurring.
1. Identifying the Risks
Proper identification of likely risk factors is the first step to take to solve project risks. The project team would need to put a list of all the likely project derailers or enablers regarding the specific type of project to be carried out.
A meeting to discuss these factors should be scheduled to enable all project stakeholders to be involved to give the project manager a comprehensive and detailed risk assessment. Ensure you write an effective team meeting agenda to drastically improve your productivity in your meetings.
The aim of this meeting is to create a detailed report of the likely risk factors and means of counteracting their impact to the project management team for onward approval.
2. Prioritize and Report the Risks
After successfully identifying all the likely risks for a project process, the next key measure to take is to prioritize these identified risks based on their level of impact on the project process.
High-risk occurrences are distinguished from medium and low-risk occurrences. Prioritize the order of the necessary risk mitigation strategies, focusing more on the high-risk occurrences as they tend to have the most drastic impact on the project process.
Adequate reporting of risks also affords project managers the foresight to begin tracking and mitigation measures early to combat these risks.
3. Link Each Risk Outcome with its Impact
Each risk can contribute to a low, medium, or high impact. As a team, you can develop a probability matrix that measures the risks versus the impact. Such a matrix or an application will assist in decision-making regarding the likelihood of risk compared to its effect to establish timely measures.
Linking a risk to its potential impact is also essential because it provides the management with a roadmap to the project's activities for an effective monitoring purpose.
4. Develop and Cultivate Responses to the Risks
The use of regular project risk response strategies helps to give the project team the much-needed head start in dealing with likely risk threats or minimize their level of impact on the project process for unavoidable risk factors. Regular reviewing and monitoring of these risks help defuse a potential threat waiting to happen.
5. Have a Contingency Plan for Each Risk
Putting in place counteractive plans otherwise known as contingency plans to tackle the occurrence of project risk or limit its impact on the project process is one of the most efficient ways of dealing with risks.
Involve all project stakeholders in the process of planning and implementing the contingency plan to ensure the right strategies are implemented from a variety of levels of knowledge and experience.
6. Record and Track Risks Associations with their Respective Tasks
Collating project risks and linking them to the likely task or activity to be grossly affected is one of the ways of tracking and assessing project risks. The risk register helps to narrow project stakeholders’ concentration to specific risks and helps in the speedy proffering of solutions.
Example of a Completed Risk Register
The risk register is pivotal to the implementation of any successful risk management plan. Project managers use the risk register to reduce the likely occurrence of certain risk factors that might hamper the project.
A completed risk register is a document that stores relevant information on the likely risks to plague the project process and their predicted impact. This document also provides solutions to project risks to reduce the likelihood of their occurrence. All these are compiled in one essential document for easy access.
Here is a detailed example of a completed risk register entry for an organization X that specializes in providing eCommerce services for small businesses.
- Risk Name: The likely delay of the website and a product design catalog for the organization X online market platform.
- Risk Description: There is a shortage of hands available on the design team as they are presently overloaded with various tasks and activities.
- Risk Category: Project schedule.
- Risk Likelihood: Likely to occur.
- Risk Impact: Medium
- Risk Analysis: Medium.
- Risk Mitigation: Organization X’s management team needs to approve the temporary employment of an experienced and competent freelancer who specializes in creating project graphics design content. Prior meetings scheduled should be moved to a later date to free up time for effective monitoring of the new employee activity and completion status and provide the much-needed approval by the project manager.
- Risk Priority Level: Level 2.
- Risk Bearer: Organization X.
- Risk Status: In progress.