Identify and Analyze Project Risk
One of the most important steps when coming up with a plan for your next project is identifying and analyzing risks. Whether you’re new to project management or you want to become a better project manager, understanding how to accurately determine where your risks lie can help ensure you’ll meet your goals with fewer, if any, setbacks along the way. We encourage to find out how your lack of risk knowledge could be hurting your projects.
In our previous post, we covered the essential element, Creating a Work Breakdown Structure. A WBS is a graphical decomposition of project deliverables. It is the “family tree.” Now, it’s time to cover the important element of identifying and analyzing risks when you’re managing any project.
What Are “Risks” in Project Management?
What is a risk, exactly? Basically, it’s anything that might affect your project in either a positive or a negative way, so a risk is really a potential threat or a potential opportunity.
To further clarify, a threat might delay your project, increase your costs, and reduce the level of quality that you deliver, as a few examples. On the flipside, an opportunity might improve project performance by doing things like reducing the cost, improving the schedule, or boosting the quality delivered.
Each project will have its own set of risks, so you shouldn’t assume that the risks involved in your last project will affect the one that you’re currently working on. In other words, every time you start a new project, it’s best to identify the risks, analyze their possible impact on your project, and come up with plans to reduce those risks or deal with them in the event that they turn into actual problems.
What Is Risk Management?
The purpose of risk management is to identify as many potential opportunities as possible, and to plan the project in such a way as to take advantage of them. Risk management also seeks to identify and eliminate as many potential threats as possible, and reduce the negative impact of any remaining project threats.
Basically, you can use risk management to prevent problems, rather than just dealing with them after they occur. You identify and assess risks, and then you plan accordingly.
So, you would start by identifying what could possibly go wrong throughout the duration of your project. Then, you would assess the probability of those risks manifesting into real problems, and you would figure out the impact that a risk would have on your project.
Next, you’d come up with strategies to mitigate the risks you’ve identified, and you’d also create plans in advance to solve any problem that might arise so you’ll be able to take action right away whenever necessary.
Finally, you’d continue performing ongoing risk assessments, in case anything changes.
The Main Benefits of Risk Management
A few of the main benefits associated with risk management are:
- Saving on project cost and time.
- Greater control over the project.
- Fewer hours spent dealing with problems because solutions have been planned to improve efficiency if a risk occurs.
- Minimizing scope creep (scope creep refers to uncontrolled changes or continuous growth in a project’s scope, and this can occur when it isn’t properly defined, documented, or controlled).
A Guide to Risk Identification and Analysis
For the best results, take advantage of a systematic process for risk management, like the one below.
Using this process, you can spend more time managing the creation of your project deliverables. And, if a risk were to become an actual problem, you’ll be able to quickly implement your planned risk responses (contingency and fallback plans), rather than determining a course of action when a problem has already occurred. All in all, this allows for more proactive project management, and you can avoid losing a lot of time and resources.
- Plan Risk Management: Determine how risk management will be done on your project, who will be involved in it, and what procedures will be used.
- Identify Risks: Determine specific risks by project, as well as by work package or activity.
- Perform Qualitative Risk Analysis: Subjectively analyze the probability and impact of each risk (for example, by using a scale of 1 to 10 for each risk). Also, prioritize the risks and categorize them so you can find common causes for those risks.
- Perform Quantitative Risk Analysis: Numerically estimate the cost and time impact of the risks. For this step, you might do things like perform sensitivity analysis, use modeling and simulation, and utilize expected monetary values analysis (EMV).
- Plan Risk Responses: Determine a course of action to reduce the overall risk to the project by decreasing the probability or impact of threats, while increasing the probability or impact of opportunities.
- Control Risks: Execute the risk response plan to manage risks and control overall project risk.
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Remember, It All Starts During the Planning Stage
Risk management begins while you’re planning your project, so it’s really never too early to think about what might end up getting in the way of your ability to meet your goals. But, just because it starts during planning doesn’t mean it stops there. Instead, you should continue performing risk analyses, including qualitative and quantitative analyses, during each stage of your project.
Ultimately, by using risk identification and analysis throughout a project, you can increase the odds that it will go smoothly, that you’ll stick to your budget and anticipated resource requirements, and that you’ll finish on schedule to impress and satisfy your stakeholders.
A whitepaper by RMC Learning Solutions, “6 Essential Elements to Effective Project Management.”