What Are The Different Types Of Risks In Project Management
Every project comes with its own set of risks, whether you see them or not.
From stakeholders who keep asking for more changes than your productivity can handle, to a budget too tight to make any mistakes, you’re successfully navigating all those risks daily.
But they still take their toll.
In this post, we’ll show you how to use the project risk management process to reduce headaches and increase productivity.
Let’s dive in!
What Is Project Risk Management?
Risk management is a simple project management procedure where you identify and evaluate potential risks to your project, so you can prepare in advance to avoid or deal with them.
Typically, when you talk about risks associated with projects, you think about budgetary constraints and the general lack of resources.
However, there are different types of risk in project management.
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Types of Risk in Project Management
The three main types of project risk are associated with the things most vital to every project:
You often manage financial risks because they’re the most pressing ones.
Your client may be looking for too much with too few resources.
If the project is set back or if it requires additional changes, that means you’ll need more room in the budget.
There’s always a risk of running out of money or allocating it incorrectly due to a number of reasons, so a project manager (even if it’s someone who’s simply fulfilling the role) needs to be able to predict them and minimize their effect.
The second most finite resource is time.
Each activity in the project takes a certain amount of time, which is why you should understand your project life cycle.
It can help you predict how much time you’ll spend at each phase of the project (from the beginning to the end), and identify any roadblocks before you’ve started planning the execution.
However, the schedule risk doesn’t just depend on your team.
You should always leave enough time for changes or modifications the client may ask for (and we all know they ask for them a lot).
Finally, the third most important risk in project risk management is performance.
90% of outcomes depend on the performance of your team.
And when you’re managing the performance risk, you’re actually predicting and planning for the ideal outcome: finishing the project successfully.
However, the ability to successfully manage risks relies on your risk management process.
The 5-Step Risk Management Process
Step 1. Identify risks
Make sure you grab the pessimists on your team for this one!
The first step starts by asking: “What could go wrong?” and then planning for the most likely possibilities.
For example, a potential risk could be a client requesting changes halfway through the project (especially if they’re prone to that kind of behavior).
The solution: a contingency plan.
For example, this is why code is often reused and kept as flexible as possible in the IT industry.
You can also try planning out the workflow of the project to see if there are any potential risks linked to task management.
This is especially beneficial if your team is working on multiple projects at once.
You can take a look at your previous projects, as well, and see if they have any shared characteristics that would make similar problems occur.
Finally, you should try to see the bigger picture of your project.
This means understanding how your project fits into the organization, industry, and society at large.
For example, a project marketing a super-fast car that uses regular petrol to eco-conscious Millennials wouldn’t be a failure because the product itself is bad.
The external conditions (target audience’s sentiment) just don’t fit the sentiment of the product.
Even a simple SWOT analysis can go far towards predicting these internal and external risks.
Step 2. Measure the Likelihood and Impact
When you’ve listed all the possible risks, you should check whether they’re even likely to affect your project.
If they are, you should measure the severity.
You can use historical and research data (as well as interviews with the stakeholders, experts, and team members) to understand how often these problems occur, and whether they’re likely to pose a risk to your project.
In order to understand the severity of the likely risks, you can use a risk map to understand how they could affect your resources and plan for that.
A great option for measuring the likelihood and the impact of risks threatening your project is using a tool like Project Central.
By displaying all the relevant data on your projects, Project Central helps you understand the risks in a second, and plan out a successful project in spite of the obstacles.
And since it’s a visual project management integration for Microsoft 365, it even alerts you to projects that could be at risk!
Step 3. Make a Decision
Just because you’ve identified a risk doesn’t mean you have to accept it.
Sometimes it’s not even in your domain and all you have to do is make the stakeholders aware of it.
If the project is worth the risks, you can accept them and/or mitigate their effects by coming up with alternative solutions.
Finally, if the risks just aren’t worth it, you can avoid being a part of the project.
Step 4. Come up with Potential Solutions
Once you’ve identified the risks and decided to accept and/or mitigate them, it’s time to come up with potential workarounds.
Make sure you create an actual risk management plan in cooperation with the stakeholders and your team.
For example, if you believe you may need more people, you can discuss it with the stakeholders and arrange for extra team members to drop in when necessary.
Step 5. Keep an Eye on the Risks
Understanding the risks and having a plan for mitigating them can go a long way towards eliminating that particular headache.
However, you should keep an eye on the potentially risky situations and make sure you’re seeing all the data you need.
This is where Project Central can help!
Editor’s Note: This post was originally published in May 2019 and has been updated for freshness, accuracy, and comprehensiveness