5 critical steps to a watertight risk management process
What is Risk Management on Projects?
Project risk management is the process of identifying, analyzing and responding to any risk that arises over the life cycle of a project to help the project remain on track and meet its goal. Risk management isn’t reactive only; it should be part of the planning process to figure out the risk that might happen in the project and how to control that risk if it in fact occurs.
A risk is anything that could potentially impact your project’s timeline, performance or budget. Risks are potentialities, and in a project management context, if they become realities, they then become classified as “issues” that must be addressed with a risk response plan. So risk management, then, is the process of identifying, categorizing, prioritizing and planning for risks before they become issues.
Risk management can mean different things on different types of projects. On large-scale projects, risk management strategies might include extensive detailed planning for each risk to ensure mitigation strategies are in place if issues arise. For smaller projects, risk management might mean a simple, prioritized list of high, medium and low priority risks.
How to Manage Risk
To begin managing risk, it’s crucial to start with a clear and precise definition of what your project has been tasked to deliver. In other words, write a very detailed project charter, with your project vision, objectives, scope and deliverables. This way risks can be identified at every stage of the project. Then you’ll want to engage your team early in identifying any and all risks.
Don’t be afraid to get more than just your team involved to identify and prioritize risks, too. Many project managers simply email their project team and ask to send them things they think might go wrong on the project. But to better plot project risk, you should get the entire project team, your client’s representatives, and vendors into a room together and do a risk identification session.
With every risk you define, you’ll want to log it somewhere—using a risk tracking template helps you prioritize the level of risk. Then, create a risk management plan to capture the negative and positive impacts of the project and what actions you will take to deal with them. You’ll want to set up regular meetings to monitor risk while your project is ongoing. Transparency is critical.
Defining the core risk management process steps
There are many takes on the risk management lifecycle, with differing terminology and some organisations even including additional steps to ensure certain requirements do not fall through the cracks. This may encompass activities such as assigning roles and responsibilities or measuring the company’s risk threshold.
You cannot manage your risks if you do not know what they are, or if they even exist. In which case, the first step is to identify the potential events that may influence your organisation’s ability to achieve its objectives, define them and then assign ownership. The four main categories of risk to consider at this stage are:
There are several ways in which to identify risks, including drawing from previous experience, consulting with industry professionals, conducting external research or holding brainstorming sessions. It is key to involve as many stakeholders as possible to help build a holistic picture of the risk landscape.
Once the risks have been identified, they need to be examined in terms of their likelihood and impact. This involves determining the frequency and severity of the risks since some could have the capacity to bring the entire business to its knees if actualised, whereas others may only pose a minor inconvenience.
Typically, risk matrices and scoring methods are used at this stage of the process as a visual aid to help assess the probability of risks and the consequences of them occurring. This is crucial to pinpointing which risks should be prioritised in terms of resources and, ultimately, how urgent your response needs to be to mitigate any negative impact.
The depth of details in your response plan for each risk should mirror the significance of the risk. Therefore, prioritise those that have been defined as high-impact and high-probability in step two.
It is important to keep in mind that risk management is a continuous cycle rather than a linear path. Since every organisation will always face unknowns, the risks you have identified must be monitored on a regular basis.
Whoever owns the risk will be responsible for tracking it over time and ensuring that the wider business is kept appraised of any changes. What might appear as a low probability risk one month could quickly develop into a business-critical threat in the next. The trick is to ensure the lines of communication are kept open so that there are no surprises down the line.
Reporting at each of the four stages above is a core part of driving decision making in effective risk management. This exercise should help to provide rationale behind any changes or updates made, as well as clarify if existing strategies are doing the right job.
The reporting framework should be defined at an early point in the risk management process by focusing on report content, format and the frequency of production. It should also be shared across all key stakeholders to maintain an integrated approach and ensure consistency.
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