While risk management is no new concept, teams find themselves increasingly pressure to actively monitor, control and manage risks in an increasingly complex, volatile and fast-paced market. While new technologies and tools have made managing risks easier, no tools can fully predict the future. Simplified and optimised risk management practices are still critical to help predict uncertainties and minimise the likelihood or impact of the potential occurrences. So, what does risk management look like today?
In this blog post, we will explore the definition of risk management, its various benefits, types, and processes as well as the different tools you can apply to take your risk management activities to the next level.
What is risk management?
A Project Management Institute article defines risk management as ‘ the art and science of identifying, analyzing, and responding to risk factors throughout the life of a project and in the best interests of its objectives.’. Risk management is not merely a reactive practice but also a proactive practice that aims to identify and plan for different risks before they occur.
Risk management can have various forms depending on the type of project, ranging from highly detailed risk mitigation plans for large-scale projects to simple risk prioritisation charts for smaller-scale projects.
Before diving any further into risk management, it is first important to clarify the differences between a risk and an issue.
Risk vs Issue
Here is the key distinction between the two:
- A project risk is anything that could impact the success of a project by impacting the project timeline, budget or performance in some way.
- A project issue is anything that has already impacted the success of a project and solving issues is a reactive practice rather than proactive.
Risks are potentialities that can later progress into an ‘issue’ if left unaddressed. Risk management is thus a collective science of prioritizing and planning for risks before they can escalate into issues.
Benefits of risk management
There are plenty of benefits of effective risk management. A few include its ability to help organisations:
Identify hidden risks
Risk management processes often conduct extensive early-stage questioning that helps teams identify hidden risks that may not have been as obvious or apparent at the beginning. When an organisation has an effective risk management process and system, teams can tap into historic data to identify potential unseen risk patterns that would go unaddressed if not identified and mitigated on an enterprise level.
Gain visibility and control over project risks
Once you can see the potential problem, only then can you fully address the problem. Effective risk management enables organisations to have a complete understanding of the active risks within their portfolio of projects to make the right manoeuvres to place the entire organisation in a better position holistically. Without enterprise-wide visibility of risks, organisations may lose the opportunity to effectively shift resources to prioritise the most pressing risks that can impact the overall organisation.
Prepare effective risk management processes
The way you control risks is through risk management practices such as risk identification, prioritisation, mitigation and response. With clear and concise processes, teams know exactly what to do, who to look for and what is expected of them to overcome this issue. The smoother the process, the faster the risk can be addressed before it escalates.
Improve stakeholder management and expectations
Making sure everyone is on the same page and aware of the ongoing risks involved within a project is critical to managing expectations and making informed decisions. With the help of proper risk reporting and analysis tools, teams can make sure they are relaying the most relevant and accurate information on project risks to stakeholders and key decision-makers so they can be addressed promptly.
Increase the likelihood of project and organisational success
By identifying, prioritising, managing and mitigating risks, projects will less likely run into potential problems that can derail or impact project success. The dangers of unmanaged risk are not only onto projects themselves. Research shows that unmanaged risk events can negatively impact overall employee productivity, operational efficiency, employee safety, competitive differentiation and reputation. Risk management is thus a critical tool to ensure organisational success beyond the realm of projects alone.
Different types of risks
Risks come in all different shapes and forms depending on the type of project. However, several common types of risks affect three core areas of projects – cost, schedule and performance.
- Cost-related risks
These are risks that can impact the project budget, typically causing the project to run over budget. Things such as inaccurate cost estimation and external supplier cost increases are common cost-related risks.
- Schedule-related risks
These are risks that can lead to schedule delays and overall project delays. This is commonly caused by unaccounted scheduling conflicts and scope creep.
- Performance-related risks
These are risks that will prevent teams from producing consistent results outlined in the project specification. These are typically more internal risks related to internal processes, structures or resources limitations that can restrict or delay teams from achieving the results they need.
It is important to also understand that not all risks are equal nor are they all negative. An unexpected event can either positively or negatively impact a project. In the same way, project risks can be both positive and negative.
- Negative risks
These are potentialities that can harm the project or the organisation as a whole. These are the risks that risk management processes aim to reduce, mitigate or prevent.
- Positive risks
These are unaccounted events outside the organisation’s control that can positively impact the project or organisation. For example, a supplier ends up delivering the product earlier than expected leading to cuts on the project timeline.
While risk management is overarchingly focused on addressing negative risks, being able to prepare for both positive and negative risks makes sure teams are acting on the most accurate estimations and understanding of their project context and can respond accordingly to these events. A positive risk can be wasted if teams are not prepared to reap its benefits.
Risk Management Process
Every project, team and organisation is unique and so will its risk management processes. However, there are some general outlines most organisations adhere to when implementing their risk management activities. Here are seven general steps in the risk management process.
1. Identify the risks
Identifying the different risks is the first step that allows teams to properly evaluate and mitigate risks. Project teams and managers can ask themselves certain questions to help guide this process. Some critical questions to ask include:
- What areas of the project are vague or vulnerable?
- What risks have occurred in previous projects that can also occur here?
Some vital tools teams can use to identify risks include conducting stakeholder interviews, team workshops, SWOT analysis, assumption identification and risk analysis assessments. Teams must identify the root causes of risks during this process to ensure risk response and actions are truly effective.
2. Analyse the risks
The next step is to then analyse the likelihood of the risk occurring, its severity and the necessary response towards it. This can easily be done through a risk level assessment matrix. The matrix shown below considers two factors: i) measuring the probability of the risk occurring and ii) evaluating the level of impact it has on overall project success.
- Probability of risk occurring:
- High probability (80% ≤ x ≤ 100%)
- Medium-high probability (60% ≤ x
- Medium-low probability (30% ≤ x
- Low probability (0%
- Level of risk impact:
- High: catastrophic (rating A – 100)
- Medium: critical (rating B – 50)
- Low: marginal (rating C – 10)
3. Prioritise risks
Once the risk level and exposure of each risk have been identified, it makes it easier for the team to then prioritise the right risks. In this case, the most severe is most likely to place the highest on the risk priority register. With the help of project management software, risk levels and exposure can be calculated in real-time to help inform your risk prioritisation needs.
4. Assign risks
The next step is to then assign the risk to the right people. While this does not always need to happen, complex projects may have various interconnected and technical risks that can only be effectively addressed by specific people. In those situations, assigning a distinct risk owner makes sure there is a person dedicated to monitoring and managing a specific risk that is highly volatile requires continual monitoring. Project management software can make this process a lot easier as risk ownership and communication can all be managed within the application itself.
5. Monitor and report on risks
Once your project is up and running, the team has to continually monitor project risks as they go to avoid any unexpected surprises. Project management software is particularly handy in these situations as they allow you to easily keep track of risks in real-time as well as allow teams to easily build reports that can be sent to the necessary stakeholders to make sure the right response is crafted.
Conducting regular status updates is important to make sure the entire team and all relevant stakeholders are on the same page so they can not only react to changes but pre-emptively prepare for potential risks. Additionally, collaboration is a critical factor to effective risk management as team members need to feel empowered to speak up and identify new risks that may arise.
6. Respond to risks
This is where all your contingency plans are put into action. If your team has developed a robust response or contingency plan, teams should know exactly what to do and who to look for when risks emerge. This allows teams to respond to changes as quickly and effectively as possible. In an increasingly fast-paced market, swiftly addressing risks as they emerge is vital.
7. Improve risk management processes
Always look the improve your processes. At the end of every project, it can be valuable for teams to spend time assessing and evaluating their risk management activities to identify potential opportunities for improvement. This can be collated in a lessons learnt document that can then inform future risk management processes in projects. Risk management is a neverending process, so make sure your teams are always improving and adapting their processes as they go.
Risk management tools
As risk management became more complex, people started to build different tools to help them conduct their risk management activities more accurately and effectively. Many of these tools have taken advantage of current technological advancements by integrating themselves into project management software. Teams can now easily tap into real-time data, automation capabilities and high-level calculations that can take their risk management activities to the next level. Some key risk management tools include:
RAID logs are risk management tools that allow teams to log, document and track the ongoing risks, assumptions, issues and dependencies related to a project, thus earning its short form RAID. RAID logs give teams greater visibility and control over their risks as all risk related factors are consolidated onto a single platform. This helps simplify the risk management process as well as streamline reporting activities. They often implement a heat map approach to help identify the most pressing risks that need to be prioritised.
Risk Breakdown Structure
Risk breakdown structure (RBS) is another risk management tool that organizes potential risk sources into a hierarchical framework. RBS typically organizes risks in terms of a risk scoring system that helps identify high-level risks and enables teams to prioritise addressing the right risks. It gives project managers greater clarity and visibility over both planned and unforeseen risks that may have a detrimental impact to project success. It typically depends on a risk assessment matrix and can be used in tandem with a risk register and repository to clearly define proceeding risk management actions.
A risk register is a document that collates all the identified risks in a project as well as the ensuing consequences, responses and ownership of those problems. The risk register allows teams to have a clear understanding of all risk-related activities and processes so they can promptly address risks and potential escalating issues with minimal disruption. A risk register consists of many different parts that help clarify all risk management needs. It will typically feature an outline of risk response plans, ownerships, levels and triggers.
A risk repository is a comprehensive collection of all risk events identified throughout the organisation thus far. It aims to improve the risk management processes across the organisation by acting as a central repository through which teams can learn how to improve their risk management practices.
Take your risk management activities to the next level with pmo365
With our intuitive RAID logs and integrative system, pmo365 consolidates all your project-related activities across your organisation onto a single platform to make sure you always have the most accurate data informing your risk management actions. If you want to see how we do that, make sure to see our tool in action with our free trial. If you want to learn more tips on how to level up your risk and project management activities, make sure to check out our blog.