There would be no need to mitigate against problems in an ideal world because proper planning would ensure that everything went down without a hitch. But, of course, it only takes the briefest of time out in the real world to disavow any notion that something like that would be possible.
Even the simplest of operations often have too many variables to safeguard against unforeseen problems, and that is why risk management is important. You might not be able to prevent issues from arising, but you can be prepared for them when they do.
What is Risk Management?
In the context of project planning, risk management is how we identify potential problems that might crop up throughout the life of a project, analyze that risk, and formulate ways to respond to it. This helps to ensure the project stays on track since not only is the impact of an issue reduced, but the impact can also be accounted for to some degree in the initial planning phase.
Risk, in this case, could be anything that might affect the project’s budget, timeline, or performance. As an identified risk, the problem is merely a potentiality, but should that potential risk become real, it becomes an “issue” that needs addressing, which is where the planned response comes in.
Before any risk can be managed, a clear definition of the goals of your project must be established. Its impact on those goals essentially defines risk, so you cannot identify a risk without knowing what that risk would be impacting. It helps to have a detailed project charter that will be accessible to the relevant members of your team and will detail each step of the project.
The more input you have on risk management, the more comprehensive your risk mitigation will be.
For example, you could involve your team leaders in the risk management process. Still, if you were also to include external contractors, vendors, and any other project partners, you would have a far more comprehensive risk management strategy.
What Is Positive Risk and How to Respond to it
Risk is typically thought of as a negative thing. Still, if you consider the definition given above—anything that might affect the project’s budget, timeline, or performance—there is no prerequisite that a potential risk negatively affects the project.
A positive risk could arise from finishing the project early and perhaps reducing the expense by not needing equipment hire for as long. Just as you would plan for the eventuality of negative risk, you can also plan for a positive risk. You will need to establish whether a positive risk is something that can be exploited.
For example, if the equipment you use is hired every week, and you finish a week early, you can save a week’s worth of equipment rental costs. On the other hand, if the equipment is hired for a fixed term, there is no exploitable benefit to finishing the project early.
The Risk Management Process in 6 Steps
It’s all well and good saying that planning is the key to risk management, but how do you go about it? Here are the six steps to risk management.
- Risk Identification – The first step is identifying potential risks. This is where it helps to have input from as many sources in the process as possible. Be sure to get right down to the cause of the risk, so you can accurately assess its impact on the project.
- Risk Analysis – Once you have identified the risk, it’s time to analyze it to expose as much potential fallout as possible. Of course, it will never be possible to predict all eventualities completely, but you should strive to understand as much as possible about the risk.
- Risk Prioritisation – No two risks are the same, and planning for risks is not without its overheads. By prioritizing the risks your projects face, you can better judge where to put your resources and which risks to tackle first if many arise at once.
- Risk Ownership – You can’t be everywhere at once, and delegation is as important in risk management as in other project management aspects. When assigning an owner to risk, be sure to consider their strengths and weaknesses and try to pick someone who is suited to the circumstances a particular risk would create.
- Risk Response – If the previous steps have been followed correctly, you will be well-prepared for this step. A risk you have identified has turned into an issue, and your risk owner is taking care of things.
- Risk Monitoring – Don’t rest on your laurels; keep in regular touch with your risk owner to ensure the risk is managed according to your planning.
Give Structure to Your Risk Management
Like most planned processes, a properly structured risk management process will be far more effective than the alternative. We have already mentioned how useful a project charter can be and getting input from those people and departments beyond your team leaders.
You will also want to make sure you find the root cause of any risk, not just one symptom. Getting to the heart of a potential problem will allow you to plan for it more effectively, if not stop it from occurring altogether. It would be best if you also looked to prioritize your risks, as not all risks will have the same level of impact on your project, and there could be many risks to manage, especially if it is a large project.
Finally, when a risk does become an issue, be sure to monitor the progress of your risk management strategies. Like any other plan, your plan to handle those risks is subject to risks of their own, so don’t assume everything will go fine because you made a plan and implemented it! Expect the unexpected.