What Is Project Risk and Why Should You Care?

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Risk is part of life. You can’t avoid it, but if you’re smart, you’ll plan for it and work on strategies to keep risk as limited as humanly possible. This, of course, applies to projects. It’s part of your job as a project manager to take the level of risk down to an acceptable place and make sure your project is brought in on budget and on time.

This may not be a major part of your planning structure, but for the larger project managers it is because they’re dealing with a level of complexity that amplifies everything about the job — especially potential risks. Your Agile project may not have time allotted to devote to such matters, but when your project is in the millions of dollars or more the doom and gloom that can possible cloud your results are going to have terrible repercussions for you, the project and your stakeholders.

Who wants to think about what can go wrong in a project? It’s like psychologically jinxing yourself. Of course confidence is part of leadership, but blind faith can take you to a very dangerous place. Therefore, a simple risk analysis that determines where the points of latent risk lie in a project is helpful.

It’s also important to understand that not all risks are bad. Risk helps you to avoid potential disasters in your project. But that’s not the subject of this article. If you’re interested, though, take a look at contributor Elizabeth Harrin’s article “What Is Positive Risk on Projects.”

So, in practical terms, what do you do when you’re in the midst of a project and you’re up late at night unable to sleep because your mind is running with fears that the work might be delivered late or go over budget? The following tips will help you better manage these risks and, hopefully, get some well-deserved rest.

1. Start out on the right foot

Just like breakfast is said to be the most important meal of the day, it’s crucial how you start off your project. If you begin without a clear and precise definition of what it is your project is to deliver than you’re already behind. That’s why the first thing you should do is write a very detailed Project Charter. In it, you will outline your project vision, objectives, scope and deliverables, so you can see how foundational this document is to everything you do going forward. You may not be able to avoid “black swans,” or surprises in your project, but as this KPMG report notes you can turn them into white swans if you’re prepared for their potential impact. 

ways to reduce project risk

2. Involve the whole team

It may seem counterintuitive, but by focusing your team members strictly on the tasks assigned to them you may be neglecting a valuable guage of assessing risk in a project. Not only you, but your team has to be accountable for everything in the project, from their micro-responsibilities to the macro-health of the entire job. As noted in this report from McKinsey, “High-performing teams recognize that their position gives them not just a unique view of the whole organization but the authority and responsibility to take decisions that affect the entire business.”

3. Identify risks upfront

Meet regularly with your team to identify potential risks in your project. This may seem a bit like soothsaying, but you can approach it rationally and it will help you prepare for the unexpected. Also, as Forbes magazine wrote, by identifying risk you add flexibility to your project plan, speed your response time and get control to manage the outcome. Some possible risks to stay aware of include: suppliers who may deliver late, running out of materials or being unable to acquire extra resources when needed. 

4. Plan risks wisely

Now create a Risk Plan, a document to capture potentially negative impacts to the project and the actions to deal with them. Take, for example, the risk of running out of materials, you may come up with an alternative of striking a deal with a supplier that requires them to have extra material on hand and available for you if and when you need them. Another idea is to have made a plan with a backup supplier to provide you with what you need if your original supplier is out of stock. 

5. Monitor risks carefully

Keep vigilant by having bi-weekly or monthly risk meetings to monitor potential risks that you have already identified and keep aware of possible new ones. It’s also a good way to get the team together and ask pertinent questions, such as: Are the risks like to occur? Are there any new risks? Are the actions in the Risk Plan complete? Is risk reducing or advancing? In this way you’re doing what the Harvard Business Review recommends in its article, Make Everyone a Risk Manager.

One more for good luck: Be transparent

Talk openly to your boss or project sponsor about risk. You want them to be aware of what risks are lurking in the shadows of the project. Never keep this information to yourself, you’ll just be avoiding a problem that is sure to come up later. Keep sponsors informed with regular reporting that outlines the risks and your plan of action for resolving them. Now you’re managing the project and its risks while developing trust and getting needed support from your boss. The Wall Street Journal has a good article offering tips on office transparency. 

There’s more than one way to skin a cat, and you can’t learn enough about managing and reducing risk in your projects. Therefore, it’s recommended to continue your education and never become complacent when it comes to exploring new and novel ways of identifying and resolving potential problems in your projects. Why not start here, with this short video tutorial by PM trainer Devin Deen, entitled “Plotting and Managing Risks in Projects.”

When it comes to managing risk you want to have not only a strategy but the right tools to help you implement that strategy. That’s where ProjectManager.com comes in. With its huge stable of features and a robust, collaborative online platform, you’re able to address risk whenever and wherever it comes up. Check it out for yourself with the free 30-day trial offer.

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