Controlling risk is one of the most important areas of project management. Project managers need to know how to identify, track and mitigate project risk. Let’s learn what is project risk, some common examples and how can you manage it.
What Is Project Risk?
A risk is an uncertain event or condition that can have affect the outcome of a project. The term “project risk” refers to the sum of all individual project risks that might affect a project. When estimating overall project risk, you’ll need to consider all the positive and negative risks that your project might be subject to, including their likelihood and potential impact.
You should use project management software to facilitate the process of identifying, analyzing and managing project risk. ProjectManager offers multiple project management tools like Gantt charts, kanban boards and project dashboards, as well as a risk management feature that lets you track project risk in real time. Get started for free today.
7 Common Types of Project Risk
To understand where risk can come into a project, always start with the lens of the triple constraint. When you’re documenting risks, note where impacts to time, cost and quality are likely to occur. You’ll also want to bring in stakeholders who can identify other risks that they may be aware of such as market conditions or other constraints not yet communicated.
Once you’ve identified risks, you’ll want to work with your team to develop strategies for addressing them, should they arise. But before we dive into that, let’s review seven common risks that could affect your project budget and schedule.
1. External Risk
External risks are project risks that are beyond your control, such as the threat of new competitors or changes in economic conditions. It’s important to do an assessment of the external environment surrounding your project early during the project initiation and project planning phases to look for potential risks.
2. Scope Creep Risk
As its name suggests, scope creep is a type of project risk that occurs when tasks are added to the project scope without the proper approval of the project management team, causing the scope to grow without control, which has a direct impact on your project schedule and project budget.
3. Schedule Risk
Schedule risk occurs whenever there’s a high likelihood of not meeting the planned project schedule. This risk can affect any project and has many causes such as failing to estimate task duration correctly, not paying attention to the critical path or overlooking resources needed for the completion of work.
4. Financial Risk
Financial risk occurs when the actual project execution costs are higher than what was planned. These extra costs can’t be covered with the initial project budget which is a critical resource management issue that might lead to project failure, as there are no resources to complete the project.
5. Strategic Risk
Strategic risk occurs whenever there are strategic decisions that affect project execution. For example, you could choose a project management methodology that’s not the best fit for your team or make a purchase that affects the project budget and the overall project plan.
6. Performance Risk
This type of project risk occurs whenever work isn’t progressing as expected, so deliverables and milestones aren’t being accomplished. This means the project performance is low which can compromise its completion as more resources are needed to complete the initial project plan.
7. Legal and Regulatory Risk
Many projects require some sort of legal or regulatory compliance. You need to be aware of any permits or requirements that you need to obtain before you start executing your project. It’s important to do thorough regulatory research before or during the project planning phase to avoid costly mistakes later on.
How to Manage Project Risk
Here are some simple steps you can follow to get started with project risk management.
- Identify risks: The first step towards managing project risk is to identify individual risk events. You should have a brainstorming session with your team to think about the potential risks that could affect your project. Use a risk register to document them.
- Analyze risks: Once you’ve mapped out the different project risks, ask yourself two things. First, what’s the likelihood of these risks occurring, and second, what would be the impact of that risk event on your project plan?
- Prioritize risks: Now that you’ve defined the likelihood and impact of those project risks you’ve previously identified with your team, you can assign them a level of priority. The higher the level, the faster the response should be if that risk were to occur.
- Create risk mitigation strategies: Create one mitigation strategy for each individual project risk. It’s important to allocate resources for this, such as a team member who will be the risk owner, and any equipment or materials needed. These details are usually included in a risk management plan, which is a project management document that explains how you’ll manage project risk at large.
Project Risk Video
In this video, Jennifer Bridges, PMP, discusses the definition of project risk and ways risk can impact a project positively or negatively.
Project Risk Management Templates
Risk management is an ongoing process that goes from the beginning to the end of any project life cycle. Here are some free templates to help you with this critical process.
Project Risk Matrix Template
A project risk matrix allows you to quickly determine the likelihood and impact of risks by mapping them out on a graph. This free template is easy to use and can be customized to adjust to your project needs.
Project Risk Register Template
As stated above, risk registers are fundamental risk management tools. This free risk register template is a great place to get started.
Project Issue Tracking Template
Project risk management goes beyond risk identification and risk analysis. Project risks will become issues and you’ll need to take action. This project issue tracking template helps you document information about your risk mitigation strategies.
While these free project management templates are easy to use, they’re not the best tool you can use for identifying, analyzing, tracking and managing risk. Instead, you should use project management software such as ProjectManager, which has robust risk management tools to help you streamline this process.
How to Manage Project Risk with ProjectManager
You can manage project risk with ProjectManager. Our online project management software has dynamic risk cards with a risk matrix that automatically calculates your risk to help you track risk mitigation. Use risk cards to collaborate with team members and add detailed information, attached files and more. You can also asses the risk level according to its likelihood and impact on your project, all of which can be viewed at a glance.
Each risk has its own card with rich functionality, collaboration and fields for detailed information. Included is a ‘matrix widget’ which assesses the individual risk level according to your likelihood and impact settings and gives risk level indication at a glance.
ProjectManager is award-winning software that empowers teams to plan, manage and track project risks in real time. Our collaborative platform connects everyone from the office to the work site, allowing them to stay informed of risks as they develop to prevent them from derailing the project. Get started with ProjectManager today for free.