Our ongoing series explains and explores new and relevant terms in project management, focusing on a specific definition and summarizing what it means for anyone leading a project.
What is Risk Management?
Project risk management is the process of identifying, analyzing and then responding to any risk that arises over the life cycle of a project to help the project remain on track and meet its goal. Managing risk isn’t reactive only, it should be part of the planning process to figure out risk that might happen in the project and how to control that risk if it in fact occurs.
A risk is anything that could potentially impact your project’s timeline, performance or budget. Risks are potentialities, and in a project management context, if they become realities, they then become classified as “issues” that must be addressed. So risk management, then, is the process of identifying, categorizing, prioritizing and planning for risks before they become issues.
Risk management can mean different things on different types of projects. On large-scale projects, risk management strategies might include extensive detailed planning for each risk to ensure mitigation strategies are in place if issues arise. For smaller projects, risk management might mean a simple, prioritized list of high, medium and low priority risks.
How to Manage Risk
Jason Westland, CEO, ProjectManager.com, offers his take on why you should care about project risk. He also offers some practical measures to apply to managing risk when in the midst of your project. To begin with, he notes, it’s crucial to start with a clear and precise definition of what your project has been tasked to deliver. In other words, write a very detailed project charter, with your project vision, objectives, scope and deliverables. This way risks can be identified at every stage of the project. Then you’ll want to engage your team early in identifying any and all risks.
Devin Deen, Scrum expert and video trainer, says you can’t be afraid to get more than just your team involved to identify and prioritize risks. “Many project managers simply email out to their project team and ask their project team members to send them things they think might go wrong on the project, in terms of a risk to the project,” he says in his training video on how to plot project risk. “But what I like to do is actually get the entire project team together, some of your clients’ representatives on the project, and perhaps some other vendors who might be integrating with your project. Get them all in the room together and do a risk identification session.”
And with every risk you define, you’ll want to put that in your risk tracking template and begin to prioritize the level of risk. Then create a risk plan to capture the negative and positive impacts to the project and what actions you will use to deal with them. You’ll want to set up regular meetings to monitor risk while your project is ongoing. It’s also good to keep communication with your team ongoing throughout the project. Transparency is critical so everyone knows what to be on the lookout for during the project itself
And if you’re not working in an organization with a clear risk management strategy in place? “Talk openly to your boss or project sponsor about risk,” Westland writes. “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.”
What is Positive Risk?
Not all risk is created equally. Risk can be either positive or negative, though most people assume risks are inherently the latter. Where negative risk implies something unwanted that has the potential to irreparably damage a project, positive risks are opportunities that can affect the project in beneficial ways.
Negative risks are part of your risk management plan, just as positive risk should be, but the difference is in approach. You manage and account for known negative risks to neuter their impact, but positive risks can also be managed to take full advantage of them.
There are many examples of positive risks in projects: you could complete the project early; you could acquire more customers than you accounted for; you could imagine how a delay in shipping might open up a potential window for better marketing opportunities, etc. It’s important to note, though, that these definitions are not etched in stone. Positive risk can quickly turn to negative risk and vice versa, so you must be sure to plan for all eventualities with your team.
How to Respond to Positive Risk
Like everything else on a project, you’re going to want to strategize and have the mechanisms in place to reap the rewards that may be seeded in positive risk. Our contributor, Elizabeth Harrin, wrote about how to identify and respond to positive risk, in a recent post. She offered three tips:
- The first thing you’ll want to know is if the risk is something you can exploit. That means figuring out ways to increase the likelihood of that risk occurring.
- Next, you may want to share the risk. Sometimes you alone are not equipped to take full advantage of the risk, and by involving others you increase the opportunity of yielding the most positive outcome from the risk.
- Finally, there may be nothing to do at all, and that’s exactly what you should do. Nothing. You can apply this to negative risk as well, for not doing something is sometimes the best thing you can do when confronted with a specific risk in the context of your project.
“We’ve all been conditioned to think of risks as negative,” wrote Harrin. “But risk is a way to safeguard yourself by preparing for the possibility of failure or danger.” If you have prepared for risk, understand its potential to both serve and derail your project, then risk can help you widen the aperture and see things that may have beforehand been invisible.
Managing Risk throughout the Organization
Can your organization also improve by adopting risk management into its daily routine? According to risk management expert Mike Clayton, the answer is a resounding, Yes! He notes that as a project manager you can help move your organization towards a stronger risk management culture through incorporating organizational learning from your previous projects.
Building a risk management protocol into your organization’s culture by creating a consistent set of standard tools and templates, with training, can reduce overhead over time. That way, each time you start a new project, it won’t be like having to reinvent the wheel. You’ll have a head start and a path already in place to more efficiently and quickly address the specific risks of your individual project.
Things such as your organization’s records and history are an archive of knowledge that can help you learn from that experience when approaching risk in a new project. Also, by adapting the attitudes and values of your organization to become more aware of risk, means your organization can develop a better sense of the nature of uncertainty as a core business issue. With improved governance comes better planing, strategy, policy and decisions.
“There are plenty of benefits to be gained from embedding risk management into the day-to-day practices of your organization,” Clayton writes. “These compound one-another to have an increasing effect on the overall health and performance of your organization.”
If you have the right tools at your disposal then it’s going to be a lot easier to manage risk. With the online collaborative suite of software solutions by ProjectManager.com, and risk tracking features built right in, you have everything you need to plan, monitor and report on your project in real time. See for yourself by taking this free 30-day trial.