What are project risks and how to avoid them

Even the best project managers cannot predict every risk that may potentially impact their project. Risks range from a lack of clear communication and a system bug to human errors in the project timeline. You might have the most detailed project plan but still be derailed by unforeseen events.

Project risk management is an essential part of planning for success. It helps to try and control future events. It's proactive rather than reactive and enables you to respond appropriately should unexpected events arise.

Understanding project risks

Project risk refers to the potential that an unforeseen circumstance may arise that affects the outcome of a project, often negatively. Project risks impact budgets, timelines, and deliverables. They may cause delays and a decrease in productivity. If not managed properly, project risks may lead to failure.

As a project manager, you need to be aware of anything that could go wrong with your project so you can set your team up for success. When you understand the potential risks for your projects, it's easier to come up with reasonable project objectives.

Every project plan has a certain degree of uncertainty, and it's up to you as the project manager to plan for it. One of the most important tasks for project managers is to identify uncertainty and include it in their project roadmap.

Analyzing potential project risks will help you develop strategies to mitigate them so you can avoid negative impacts on your budgets, project timelines, and other outcomes. Here are the seven types of project risks you need to know:

• Schedule risks: This is the risk that the project may take longer to complete than estimated and lead to increased costs and decreased productivity.
• Cost risks: The risk of spending more money than was budgeted for due to inaccurate planning or scope creep.
• Scope risks: The tendency for project requirements to go beyond the initially determined scope. This is often a result of insufficient planning or a change in stakeholder expectations. It's essential to write a clearly defined project scope to avoid scope creep.
• Resource risks: This risk may occur if you lack enough resources to complete a project. Resources include time, money, tools, and even skills.
• Communication risks: This is the risk that there may be a breakdown in communication or misunderstanding that causes delays and reworks.
• Technology risks: This covers the operational and financial risks that may arise from relying on technology for a project.
• External risks: They are the most unpredictable risks arising from wholly external factors like nature, the government, other people, and society.

Identifying project risks

While it may not be possible to anticipate everything that may happen in the course of your project, there are ways to manage those circumstances instead of reacting to them. Proactive risk identification helps to reduce management by crisis and prevent future challenges.

Here are a few practical tips you can use to effectively identify project risks:

Conduct a thorough project assessment

The first step to risk management is risk identification. One way to identify potential risks is to conduct a thorough assessment of the project. Sometimes risks arise due to avoidable factors like oversight and lack of clarity.

It's important to analyze the project in detail to identify loopholes and potential risk areas. Involve your team in brainstorming all the things that could go wrong and keeping a log of potential risks to look out for.

Engage stakeholders for input

Early stakeholder engagement is crucial to project risk management. Stakeholder engagement and input help to build trust and mitigate risks and is one of the major project success factors.

Stakeholder engagement helps to avoid communication breakdowns that cause delays and affect the project later. Taking their input will ensure that their expectations are included in the project, in both strategy and implementation activities.

Analyzing historical data and lessons learned

Keeping a record of historical data and lessons learned is one of the best ways to avoid making the same mistakes. If your organization maintains a lessons-learned database, it's easier for you as the manager to identify the key areas of potential risk and how to avoid them going forward. This database is an invaluable tool that gives you and others confidence in decision-making.

Utilizing risk identification techniques, such as SWOT analysis

There are many tools and techniques that you can use for risk identification. For example, the Strengths-Weaknesses-Opportunities-Threats framework is an effective tool you can use to identify potential opportunities and risks.

Analyzing and prioritizing project risks

While problem-solving in most cases moves from problem identification straight to solution, the best way to handle project risks is to analyze them first to try and identify the root causes and then prioritize the risks. What is the process of analyzing and prioritizing identified risks?

Assessing the likelihood and impact of each risk

In your list of identified risks, there are those with a higher probability of occurring and a bigger impact than others. It's vital to focus and spend more time on the risks that may cause the biggest losses.

Assigning a risk rating or score

You can assess the likelihood and impact of a risk by creating an evaluation instrument to categorize the risks and prioritize them. You can also use existing tools designed to take the load off of risk identification.

One important tool is a risk matrix, which helps you compare risks and their potential impacts. The matrix has four quadrants:

• Low impact/low probability
• Low impact/high probability
• High impact/low probability
• High impact/high probability

Using a simple scale from 1-10, with 1 being the lowest impact and 10 being the highest, and a different scale for probability, you can determine the impact and probability of each risk. This will make prioritization a lot easier.

Determining which risks require immediate attention

After identifying the risks and rating them on a scale, you can prioritize them in an order that suits your business. Risks with a high impact and high probability should be dealt with first. These are the most urgent and should be treated as such. Effort and resources must be allocated accordingly to mitigate the prioritized risks.

Mitigating project risks

Developing a risk response plan helps to minimize the negative effects should the risk occur. It's vital to regularly monitor and review risks throughout the project lifecycle. Circumstances change, and they may affect the likelihood of some risks. Sometimes, new risks may arise in the course of the project. Continuously monitoring your risks will help you remain prepared.

There are several strategies you can employ to mitigate project risks:

Creating contingency plans and fallback options

Having a contingency plan saves you from crisis management. If the risk event does occur, it's beneficial to have fallback options that will help reduce the impact of the risk event on your project.

Your contingency plans should be such that they can be quickly put into effect in the event that the risk arises to avoid waste of time and other resources.

Implementing risk prevention measures

Once you have identified the risks, you can devise preventative measures for each risk. It's more beneficial to come up with ways to reduce the likelihood of the risk occurring or prevent the risk altogether. The preventative measures can be converted into simple tasks which reduce or eliminate the risk.

Avoidance is also a popular risk prevention measure. If you can take steps to avoid the risk altogether, there are no downsides. This strategy involves the least effort and needs for damage control. While this may be the most effective strategy, it may not be possible to entirely avoid some risks, so you'll need other strategies for risk management.

Incorporating risk management into project planning and execution

The best way to mitigate risk is to incorporate risk management into project planning and execution. It's essential to train your project management team on risk identification and management. When you have a culture of risk awareness, your team will make informed decisions that reduce the likelihood and impact of risks on your project.

Learning from project risks

One of the best risk assessment and management approaches is using lessons from past projects to guide brainstorming sessions for current and future projects. Using lessons learned previously shows your organization's improvement in its project management methodology.

Post-project reviews are an essential part of continuous improvement in project management. Continuous learning and improvement is a powerful mindset that will help refine your project management mechanism. Post-project reviews help to make the succeeding projects more successful and less prone to risks.

Conclusion

Project risk assessment and management is essential to every project because failure to plan for risks could result in wasted resources and an overall negative impact on an organization's bottom line. Project risk management enables you to plan for and deal with unforeseen circumstances proactively rather than scrambling to respond to a crisis.

Work your project risk management into your overall project plan and keep assessing continuously during the project's lifecycle. This increases the likelihood of your projects succeeding. It's also important to keep tabs on your risk management mechanism and continuously make improvements where necessary.