No matter how carefully you planned your project or used the most sophisticated project planning tools, you can still experience unexpected problems. No project is entirely immune to risks. You may suddenly be faced with unforeseen human resources or budget issues or experience calamities beyond your control.
While you might not be able to prevent adverse events and conditions from ruining your project entirely, you can still do something about it. A vital part of project management is adopting strategies to address potential problems or what is known as a risk management process.
What is Risk Management?
Risk management is the process of not only recognizing potential problems but assessing how they will affect your project. It also includes coming up with a plan to minimize, if not eliminate, the negative impact of these issues.
The conduct of a risk management process is vital to the success of any venture. Note that several studies showed how inadequate risk management led to project failure and severe financial loss. Ultimately, proper preparation can help your team adequately respond to unexpected issues.
What are the Key Elements of Risk Management?
Managing project risks involves the following key components:
- Identifying Risks.
There are two ways of identifying project risks. One is the creative process that involves brainstorming exercises wherein you and the members of your team will think about everything that can go wrong during the project. All ideas should be listed down as there is no right or wrong answer during this stage.
Another way is the disciplined process that uses ready-made checklists of potential problems based on lessons learned from past projects. The use of lists will not only aid in determining specific risks but can generate more ideas as well.
- Evaluating Risks.
Once you’re done with the process of identifying risks, you will proceed to assess each problem in relation to the following:
- The likelihood that the risk will happen, and
- The possible negative impact of the risk on the project.
Risk evaluation is critical so you can focus your preparation on potential problems that will significantly affect the project’s success. When you do this process, you can assess the likelihood and impact by rating each risk as low, medium, or high. Once this is done, the items with high ratings on both factors should be prioritized when you create a mitigation plan.
- Mitigating Risks.
The last stage of risk management is creating a risk mitigation plan to diminish the potential harm of the risks that were identified and evaluated as a high priority. You can alleviate potential problems using the following techniques:
- Risk avoidance technique – Uses time-tested strategies instead of an innovative method even if the latter is promising and less expensive.
- Risk-sharing technique – Partners with other players to share potential risks.
- Risk reduction technique – Involves financial investments to implement, such as hiring experts to review plans and figures, or buying certain currency to negate the impact of currency fluctuation, among others.
- Risk transfer technique – Commits transferring the risk to another player, such as buying insurance.
Risk management is invaluable in project implementation, as failure to do so can lead to wasted time, effort, and financial investment. On the other hand, if you spend time to conduct this process carefully, you can significantly increase the likelihood of project success.