Project Risk Management: Strategies for Identifying, Assessing, and Managing Risks

Even the best-laid plans aren’t immune to disruption.

That’s why effective project management should go beyond theory, and expand to include risk factors – both internal and external.

A practical project risk management strategy accounts for team member miscommunications and mistakes, scope creep and shifting client expectations, and any technical difficulties along the way.

While you can’t account for everything, you can create a project plan that should prevent you from veering off course in the face of disruptions. You can use this guide to create a risk management strategy so you aren’t blindsided by unexpected setbacks.

Identify

The importance of a good risk management strategy is hard to overstate – just as an engineer needs to know what problems might occur during a complicated installation, a project manager must be aware of the risks associated with each project they take on.

The first stage in any project risk management plan should be to come up with ways of accurately identifying risks you’re likely to encounter.

With a handful of strategies for picking up potential risks, you can head into every project with the confidence of knowing what setbacks might impede you and your team.

1. Data Analysis

One of the most logical places to start identifying risks with upcoming projects is to take a look at past data – if you have it.

As the expression goes, history has a tendency to repeat itself, and you can use this common wisdom to identify potential risks for future projects. When you take the time to review the data you have on previous projects, you can uncover both the small and large obstacles that you had to overcome to reach the finish line.

2. SWOT Audit

Another way to identify project risks is to get together with your team and carry out a SWOT analysis or audit in the planning phase.

With this type of systematic review, you can piece together every aspect of a project and then share your findings internally but also with any external stakeholders so they understand the opportunities and risks involved.

In a typical SWOT grid, you would list any risks that could throw you off course under the category ‘Threats’. These may include supply chain issues, technology outages, budget constraints, or loss of talent. Think of anything and everything that could negatively impact project progress.

3. Assumption Review

At times, the biggest risks you’ll face when managing projects come from the assumptions and assertions you make from the outset. Understanding them can be a key component of your risk management strategy.

An assumption review is an informal sit-down with team members and stakeholders in which you bring to light any and all assumptions you’ve made about the project. Once you have a list of assumptions, you can go through each and assess whether you’ve accounted for all pertinent information.

At best, assumptions can serve as mental heuristics that allow you to cut down on the time spent on rigorous analysis as you can predict what might happen in different scenarios. At worst, they can steer you off course as they’re proved to be far from the truth of what happens. You have likely witnessed the very human tendency to over-promise and under-deliver. Pay special attention to this when assessing target dates. One approach you may consider is to apply ranged vs. fixed estimation for project and task completion.

4. Group Discussion

Sometimes the simple solution is the best option.

A classic brainstorming session with team members and any stakeholders can be an excellent way of bringing potential risks into your awareness.

It’s easy to overlook or underestimate certain risk factors, and we’re all prone to having our blinders up from time to time which might prevent us from identifying certain project risks. That’s why inviting the input of the whole team can help ensure nothing falls through the cracks.

Assess

Once you’ve settled on some strategies for spotting project risks, you can turn your attention to assessing project risks and categorizing them according to priority level and how big an impact they could have on your portfolio.

1. Risk Probability Review

Assessing the probability of risks coming to fruition can save you time as you can focus your attention on those that are most likely to impact your progress.

With a risk probability review, you can draw up a table then list risk likelihood in one column and their likely impact in another. This way, you’ll have a comprehensive view of risks you might encounter and their subsequent impact if you do run into them.

Getting informed about the likelihood and impact of risks gives you the power to make important decisions based on priority levels and the potential setbacks the risks could prove to be.

2. Project Risk Matrix

Not every project risk will prove disastrous, which is why it’s important to categorize them according to threat level.

A project risk matrix provides you with a clear visual of the risks you’ve identified on a sliding scale of threat level.

You can use a simple 1-5 rating system to arrange the project risks according to priority level, so you have a reliable way of tackling the most pressing risks.

3. Risk Categorization

Risk categorization is all about determining what type of risks you’re dealing with.

Here are a few types of risks you might encounter:

• Technical – Technical risks are those which impact the technology you use for project management. It could be that your communication tool is down, your project management solution is experiencing issues, or something similar.

• Financial – Financial risks refer to any issues which might arise with your budget, or your position in the market compared to your competitors.

• Operational – Operational risks are associated with the nuts and bolts of project management. Anything that affects day-to-day processes and workflows would fall into this category.

4. Scenario Simulations

If you have the technology at your disposal, running scenario simulations and analyzing the results can be a very effective strategy for unearthing and assessing hidden project risks.

Monte Carlo simulations use random sampling to detect likely outcomes and thereby inform you as to the impact changes could have on projects across your portfolio. LiquidPlanner’s forecasting engine integrates these simulations allowing you to be on the front foot in the face of upcoming change and adapt accordingly.

Manage

Finally, once you’ve discovered and assessed your risks, you can start to think about managing project risks and keeping a lid on the biggest obstacles to success.

1. Risk Mitigation

If you’ve taken the previous steps and used the outlined strategies to locate project risks that could set you back, risk mitigation is one of the best ways to combat these threats.

With risk mitigation, the goal is to come up with plans to nullify the threat posed by project risks so you can make seamless progress regardless. One way to do this would be to create backup systems which can negate certain technical risks you might encounter such as system outages.

Another risk mitigation tactic could be to introduce robust safety procedures to ensure that accidents are far less likely.

Of course, with this mitigation approach, you do have to consider the expense of mitigating various risks and whether that would significantly impact your budget. Knowing what types of risks you’re likely to face and their probability is a great way to be confident that your risk mitigation efforts won’t be in vain.

2. Risk Transfer

Risk transfer is an alternate approach to dealing with threats that can be seen as a form of delegating or outsourcing.

If you’re heading into a project that requires skills your team currently doesn’t have, turning to a third-party agency or contractor can be an effective way of transferring the likelihood of risks throwing off your progress.

Even if you do have the skills in your team, sometimes a specialist can do a more thorough job which is less likely to lead to unforeseen risks.

3. Risk Avoidance

If you come across a fallen tree’s branches blocking the road, you can either wait and attempt to clear the debris, or you can find another way to reach your destination.

Risk avoidance is all about sidestepping potential risks so you don’t have to deal with the impact they might have on your project. If you have a dynamic timeline and dashboard in your project management platform, you can simply slide the timeline or budget to account for risks you might encounter.

You can also adjust the project scope to bypass these risks and ensure streamlined progress.

4. Risk Acceptance

As in life, sometimes you just need to embrace ‘amor fati’ and accept what will be to move forwards.

With this risk management strategy, the goal is simple: allow the impact to wash over you and keep going regardless. This isn’t a strategy you can use for every risk as absorbing too many threats can cause your project to go under, but it works well for those that would incur too great an expense to mitigate or avoid.

Using the strategies outlined in this guide, you can get one step ahead with your project management and identify potential hurdles that could keep you from making progress and adhering to your initial budget.

Find what works best on a project-by-project basis and you can create a foolproof system for mitigating the impact of risks in your projects.