Risk management is the process by which you identify and analyze the uncertainty associated with your project, no matter how large or small. This is important because it gives you the chance, during the planning process, to figure out what risks might affect your project. That way you can take steps to avoid those risks becoming a real problem. And, if those risks do become reality, you can immediately take action.
Despite the benefits of risk management, many businesses still have huge misconceptions about the risk management process, as well as what risk is. As a result, they waste time, money, and resources, and run into problems that could have been avoided.
Lack of Risk Management and Its Effects on Projects
- Are You Making the Most of Risk Management?
- Understanding Risk Misconceptions
- Missed Categories and Methods of Risks
- Other Common Mistakes Made When Trying to Manage Risk
Are You Making the Most of Risk Management?
To figure out if your lack of risk management is a problem that needs to be addressed, ask yourself the following questions:
- Do you want to control your project or have your project control you?
- Can you imagine going on vacation at the beginning of the execution of your project because everything is under control?
- Would you like to prevent 45-90% of the problems on your project?
You can do all of these things, as long as you know and implement risk management. It starts with understanding some of the biggest misconceptions about risk, along with some of the major mistakes that people make in risk management.
Understanding Risk Misconceptions
Because misconceptions about risk can do a lot of damage and hinder your ability to take full advantage of the benefits of a strong risk management approach, here are some of the things that you should know about risk and risk management.
With this knowledge, you’ll be able to implement risk management into any project you lead, and you can boost the odds of successfully completing projects without hitting snags along the way.
- Risk identification cannot begin without inputs to the process.
Risk management isn’t completed using only a checklist or a Monte Carlo simulation. It involves identifying risks for the project and by work package. Inputs to risk identification include the project scope statement, a WBS or backlog, the project team and other stakeholders, a network diagram, and a project budget and schedule.
- Risk identification cannot stop after only a brief effort that results in a short list of risks.
Rather than putting in minimal effort in identifying potential problems and their odds of arising during a project, it’s important to really take your time, and it is best to involve as many of the project’s stakeholders as possible. By the time you’re done, you shouldn’t be surprised to find that you have identified hundreds of risks on a large project.
- Risks should not be evaluated as they are identified.
Risk identification is its own process, then it is followed by qualitative and quantitative risk analysis. Evaluating risks as you identify them bogs down the process and decreases the number of risks identified. Focus on one step at a time, and the first step is to simply identify risks.
- Remember: The risks that are identified are only probabilities.
To clarify, a risk is an event that is uncertain. It is something that may negatively impact anything from your budget to your team’s ability to complete their tasks. So, as an example, if your project has too few resources, this is not a risk. It is a fact. One risk of operating with too few resources is going over budget; another is going over schedule. The fact of too few resources must be addressed in the project management plan.
- Risks need to be clearly and properly stated.
For example, a risk of “poor communication” is too nondescript to be useful in the risk management process. Risks should be described fully. So, in this example, the risk would be identified as such: “poor communication of customers’ needs regarding installation of system XYZ will cause two weeks of rework.”
Missed Categories and Methods of Identifying Risks
Some project managers and their teams focus only on technical, cost and schedule risks. There are many of types of risk so using risk categories is helpful. For example, technology, cost, and schedule are good risk each knowledge area can represent a risk category (scope, quality, procurement, stakeholders, communications, and resources), as well company culture, existing systems, operations, regulations, the marketplace, and other categories related to your industry.
You should also not use just one identification method, such as a checklist for example. It’s best to use a combination of methods and brainstorming with the team and other stakeholders is another good method. Surveys are also good, especially when meetings with all appropriate stakeholders.
Other Common Risk Management Mistakes
Here are additional mistakes to avoid:
- The first risk response strategy identified is selected without looking at other options to find the best option or combination of options.
- Project meetings address everything except what they should be addressing: risks!
- Contracts must not be created or signed until the project manager is assigned and a risk analysis is complete. Remember, contracts should be risk mitigation tools and contractors you use should have their own risk strategy in place.
- Companies forget that risks can be good or bad. They are sometimes referred to as threats and opportunities. As well as diminishing negative risks, look to enhance positive risks..
- Due to lack of knowledge, some businesses equate risk management with adding a pad to the project schedule and cost. A pad in the budget is hidden. Proper risk management will result in a reserve identified as part of a specific risk strategy with each line item tied to a specific risk.
Take Advantage of Good Risk Management in Every Project
Having the right risk management strategy in place and being aware of the common risk mistakes to avoid will allow you to move through projects from start to finish while remaining on schedule and budget. Risks that arise will be handled smoothly through a risk plan you have in place, and reserve money not used for those that don’t arise is returned to the organization.
If you want to improve your skills in this area, check out RMC’s online course, Risk Management Tricks of the Trade for Project Managers.