Trying to run a business or manage a large project can often feel like walking a tightrope. One wrong step, a single bad decision, a slip, and… let’s not go into the details.
Of course, you don’t have to go blindly into projects with no idea of the risks. That would be like planning to do a tightrope walk without checking the weather forecast and wearing a harness.
Project risk management helps you identify all possible risks, figure out the worst ones, and start taking action to deal with them.
In this article, we’ll show you how to identify, monitor, and mitigate risks for your project, so you can safely complete it and reap the rewards.
What is project risk management?
Within project management, risk management is the practice of identifying, assessing, mitigating, or even preventing risks to a project so you can complete it safely.
The whole idea is to predict and avert disaster before it happens so you reach your goals without issue.
It can be something as small as backing up your project files, in case a computer breaks down, or as massive as doing aerial mapping and 3D laser scanning to survey the area for a building project.
Who is responsible for risk management?
A common misconception regarding risk management is that it’s one person’s job.
In reality, there’s often a risk manager or risk coordinator that helps oversee the process and is responsible for managing individual risk. But all project stakeholders are responsible for identifying risks.
Overall or high-level risks may be addressed during the concept phase conducted prior to a project’s launch, alongside scope and objective clarification. Here’s where the project’s owners or sponsor will define the benefits the final project will deliver alongside the degree of risk they’re willing to tolerate.
Then more risks will be identified and analyzed during the initiation and planning stage as well, as throughout the execution, monitoring, and control of the project. That’s because new risks readily present themselves throughout the project’s lifecycle.
Why is risk management important for business projects?
Risk management is essential because it helps you complete more projects successfully. A few cheap and easy-to-implement precautions can save you vast amounts of money in the long run.
Even risk mitigation — not prevention — could save your company millions.
Some benefits of the risk management process include:
- Providing a more predictable project outcome by clearly identifying and planning for risks, so they’re less likely to derail the project.
- Increasing stability of project operations by providing clear ownership for risk items and corresponding actions should the risk occur.
- Addressing possible regulatory issues by having a formal plan ahead of time, along with any pertinent paperwork that might be required.
- Decreasing legal liability and avoidance of possible litigation by showcasing a formal plan to both mitigate and prevent risk, therefore preventing any negligence.
- Compliance with newer pieces of legislation by proactively identifying all possible risks to the project and doing proper research at a local, state, and federal level.
Many companies are willfully underprepared, hoping for the best out of naivety. If that sounds familiar, we’ll help you do something about it.
What’s the difference between positive risk and negative risk?
Not all risk is bad risk.
Sure, risk is mostly associated with being negative because most risk is, in fact, negative. But there are positive risks as well.
Negative risk implies a potential unwanted action that has the capacity to delay a project, inflate costs, or downright destroy a project’s chances of success.
Positive risks are exactly the opposite. They have the potential to affect the project in beneficial ways and be an absolute blessing.
Some common examples of positive risk are completing the project early or getting more customers than you originally planned.
6 most common types of project risks
Before you can take steps to minimize risks, you need to figure out what could go wrong with your project. It’s a lot easier when you know what you’re looking for.
1. Environment, safety, and health risks
The first category of risks are environmental. This includes weather, markets, and more. A storm could take power down, shutting down your plant or data center. Your whole team could get sick or quarantined and be unable to do any on-site work for weeks.
Due to global warming, extreme weather will only get more common, making it an essential risk to factor in for large-scale building projects. You also need to figure out how it might impact your supply chain or factories.
2. Strategic or competitive risks
A strategic risk is an inherent risk that any large-scale business decision can backfire. Even if, with all the information at the time, you objectively made the right choice, things can still go wrong.
For example, after deciding to develop a new product, a competitor could release a similar product years before your project is even close to done.
3. Scheduling and cost risks
Most projects will exceed their initial budget and project schedule. Unless you want to fail, you must factor that in when you evaluate and plan a project. If you’ve ordered services or rental equipment in advance, those expenses can quickly balloon out of control if your project doesn’t go according to plan.
The last thing you want is a parking lot full of idling equipment that costs thousands of dollars per day.
4. Third-party risks
These risks come from working with a partner, like a SaaS company, supplier, or fulfillment company.
According to a 2020 study by Prevalent, the most common incidents were operational issues and vendor performance issues.
The worst-case scenario is that a data breach puts your customer relationships at risk. For example, a payment processor could get hacked for their clients’ credit card information. Or, a power outage could knock out a hosting company’s data centers and have your website down for hours. Since you chose to work with that vendor, this also puts your company in a bad light.
But the answer isn’t to do absolutely everything in-house. That would involve a steep learning curve, lots of wasted capital, and its own unique set of risks. Instead, make reliability, security, and operational track record a priority when choosing services and business partners.
By providing secure and reliable storage and processing capabilities, data centers contribute significantly to business risk management, ensuring the availability, confidentiality, and integrity of critical data while mitigating potential threats and facilitating informed decision-making.
5. Loss of support
Loss of support is a risk specific for projects and companies funded primarily by a few outside sources. Your main project sponsor or a crucial VIP client can suddenly stop the funding, leaving your project without sufficient money to continue.
If the project is mission-critical to the future of your company, line up other potential funding sources. Your existing relationship could go sour, so be prepared.
Components of a detailed risk management process
The risk management process is an iterative process involving key steps like identifying, analyzing, prioritizing, assigning ownership, and planning. Often, it also involves monitoring as well.
We’ll examine each facet of the risk management process in this section.
1. Risk identification
A crucial step in the risk management plan, risk identification is where you identify and record new potential risks in the risk register.
It’s basically a brainstorming session where you ask, “’hey, what if X happened?” If X is even remotely risky, then you write it down and begin tracking it.
The bulk of the risk identification process happens at the beginning of the project, but it’s important to remember that it’s an ongoing process. New risk presents itself every day and requires constant identification, analysis, and planning.
Read also: Creating a Risk Breakdown Structure
2. Risk analysis
Now that you’re done identifying risks, it’s time to analyze them.
Risk analysis is the process of examining how your project’s outcomes and objectives could change due to the impact of potential risk events. Put plainly, risk analysis determines the likelihood of a risk event occurring and takes it a step further to measure risk impact, risk exposure, and set a risk occurrence time frame.
The 2 major types of risk analysis are qualitative and quantitative:
- Qualitative risk analysis determines every possible outcome for a project and gives them a rating based on a general scale you’ve agreed upon as a team, such as high, medium, low.
- Quantitative risk analysis takes the qualitative analysis up a notch by adding numerical values to your assessments. Probability is usually given on a 0-100% scale, while impact may be given as a dollar value, number of weeks delay, or other measure.
3. Risk prioritization
Very few risks are created equal, so it’s crucial that you find a way to prioritize your efforts. This is especially important if you have a mile-high list of risks that feel daunting to even look at.
You’ll find that some risks require immediate attention because they have the potential to derail your entire project. Since failure isn’t an option, everything else gets pushed aside until these risks are sorted out. Some other risks fall into the important but less threatening category and require a less intense approach.
Finally, there are risks that have little to no impact whatsoever. Since they don’t affect the project’s budget or schedule, they are often just monitored to ensure nothing changes.
4. Risk ownership
You’ve put in a lot of effort to identify, analyze, and prioritize risk, and now it’s time to make sure there’s clear ownership.
Oversight is a critical element of the risk management process and one that shouldn’t be taken lightly. Assign someone who’s familiar with the type of risk and has the capabilities necessary to respond to that risk in a timely manner. It’ll be their responsibility to identify whether the risk has become a reality. They’ll also lead the charge toward resolving it.
Once identified, find a way to communicate it to the whole team. A tactical example here would be assigning clear ownership and corresponding actions for each risk in your Work OS.
5. Risk response
There are 4 general responses you can select for any identified risk:
- Avoid the risk, so that its probability of occurring is next to nil.
- Mitigate the risk, so your project doesn’t feel too strong an impact.
- Share the risk by transferring to a third-party of some kind.
- Accept the risk by choosing not to resolve, share, or mitigate it.
The risk owner will typically be the first to act on the outlined risk mitigation strategy. It’s often their role to also communicate the risk event and any corresponding actions taken to both the team and any stakeholders.
6. Risk monitoring
Unleashing the fury of your risk management process onto potential risks isn’t complete without some form of tracking system in place. This is especially important for larger risks that are ongoing and require long-term oversight.
Here’s where monitoring comes into play.
The risk owner will monitor the risk and track it until you come to a resolution or the project’s completion. Usually, this comes in the form of risk meetings or regular risk updates via project risk management software.
The most important element of risk monitoring is ensuring there’s transparency. Keeping everyone on the same page is priority one for any great risk management process.
monday.com has your back for managing risks
Arguably the greatest feature monday.com offers to the risk management process is transparency.
Anyone on the team has the ability to identify, flag, and add to the risk issue log board — as shown below — which acts as a form of digital risk register.
Make an initial risk assessment
Start cataloging your risks using our project risk register template.
monday.com has a handy Risk Register Template that makes it incredibly easy to measure risk probability and determine its corresponding owner.
It also shows probability calculations, categories, and risk status, so every project management professional and risk manager has full visibility.
You can start filling it out by brainstorming risks in a meeting with your project team. Think about what can go wrong with each process or deliverable, and make a list. But risk identification is only the beginning. For the list to be useful, you need to prioritize likely or potentially devastating risks.
Assess impact and probability to prioritize which risks to tackle.
Once you’ve got a list of risks, you want to rate their potential impact and probability of happening with a risk analysis.
A qualitative risk analysis sticks to rough estimates on a number scale. But our template also has room for a quantitative risk analysis that estimates the impact in actual dollar amounts.
A realistic estimate can help your team understand the gravity of the situation.
Assign a risk owner to enforce your risk management plan.
With a vague risk management plan and no responsibility, chances are nothing will change. To counter that, mobilize your team and reduce your risk exposure by assigning a risk owner to every high-risk event.
For the highest-priority risks, create a contingency plan where you outline your risk response strategy.
Monitor projects closely with real-time dashboards and multiple sources.
With monday.com’s robust native integrations, you can easily sync data from multiple sources to keep your team up-to-date. For example, you can keep up with leads and customer relationships to troubleshoot the effect of a marketing campaign or new feature you released.
You can then use custom widgets to build a reporting dashboard that makes it easy to keep up with even the smallest developments in real time.
When every decision-maker has access to real-time data, your company starts making better long-term decisions as a whole.
Share access directly with stakeholders to keep them informed.
Only 27% of companies are satisfied with reporting on key risks, according to AICPA research.
With monday.com, you can easily share and control guest access to relevant boards and dashboards. That way, every external stakeholder can stay up-to-date or even contribute directly to the risk assessment and risk response.
Don’t leave project success up to chance
A whole host of things can impact or derail even the least complex projects.
From cyberattacks to changes in regulations, to competitors launching a new product, or a supplier going bankrupt, the possibilities are endless. With project risk management, you can monitor these risks and have contingency plans in place to prevent or recover from disaster.