Risk management is both a process and a strategy. As a strategy, it assumes that all projects involve risks and the aim is to manage those risks so that projects are successfully completed. On the other hand, the process has to do with executing the strategy.
Project risk management allows organizations to minimize the negative effects of threats to projects and maximize the favourable impact of the available opportunities. The process involves identification of any new risks and changes in the threats to existing business functions and using project risk assessments to obtain a comprehensive understanding of the risks across silos and functions.
Project risk management involves anticipating and prioritizing risks before they surface, using a quantitative risk analysis to predict the overall project risk, acting to address the most critical risks, and controlling and monitoring those risks and their responses.
Project managers are required to align everyone and everything including project members, vendors, functional areas, business systems and processes to new goals. Here are some effective project risk management practices to use today:
1. Risk Identification
Adopt a root-cause approach that involves understanding the cause of the risk and relate this with the impact of not managing the risk. Many projects have been shown to fail because managers weren’t aware of the root cause until the last moment. Oftentimes, someone in the project teams knows about the cause but lacked the structure to share the insight with managers. This missing structure and methodology is what risk managers provide to project managers.
For example, missed deadlines are a major concern for managers representing an outcome or impact of a certain risk. Before deciding what needs to be done, you need to identify the cause of this impact. If you don’t define the root cause, you’ll end up identifying vague risks such as ‘scheduling issues’ without any details into the source of the risk.
You don’t exactly know whether the issue lies with the people, vendors, processes or systems. Unless you can identify where the problem lies, the action remains unclear. Risk management software offers a list of root causes that helps you understand where the problem lies. This should greatly simplify the next step; that is, acting on the risk.
You can also use multiple defining elements to define risks and organize them. For instance, for tracking and reference purposes, a risk identifier or code can be used. You can also organize a risk based on the name of the person who raises the risk and the date it was raised on. You can also specify the target response date; that is, the date when the risk must be reviewed and addressed.
2. Task Allocation and Team Empowerment
There are numerous tasks that need to be assigned to team members for successful project risk management. Some of these include submission of risks or risk management processing, analysis and review of the risk, development and selection of control strategies and risk response, approval of risk assessments, including the control strategies and response, execution of control plans and risk response, monitoring the progress of risk management efforts and the status of the risks, approval of risk closure, and tracking the performance of the complete risk management process.
Divide the tasks in an efficient manner so that your team feels empowered and independent.
3. Execution Phase
This is the most important phase in standard project risk management. The practice involves raising and initially identifying a risk, which is then assigned and prioritized for further decisions. It’s then reviewed based on a predefined criteria.
Steps that follow include approval of the risk response strategies, implementation of the risk response strategies, and documentation of all these activities.
Once they’ve created a list of risks and their mitigation activities, project managers think they’re done with project risk management. However, the real value of risk management has to do with using those risks to track the true progress of the project that includes risk mitigation, achievement of goals, and compliance with regulatory standards.
It’s important to understand that treating all risks equally wastes a lot of time and effort in project risk management. Keep in mind that certain risks are more likely to occur and have a greater impact than others. Therefore, prioritizing risks is extremely important. Risk assessments by risk managers allow project teams to decide where to spend the resources and time. Numerous risk management templates are available to help you with this.
Often overloaded with tasks, project teams fail to cross that finish line on time. The mitigating activities need to be connected with risk assessment. Each task should be assigned a priority score to determine what is more critical to achieve goals and mitigate risks.
Figure out the relative significance of goals or risks changed. A project management software can help you out here. Software programs help project managers realize what matters the most for business value.
4. Tracking Risk Management Results
In this phase, you set and manage a schedule for risk review. To make sure that risks are reviewed in a timely manner, you must readily measure progress. For this, the review schedule will have to be aligned with project circumstances, external resource demands, and the overall project status.
Manage all risk activities including the decisions and tasks required to address individual risks. Look into the degree of completion of risk review assignments and the recovery and response action plans. When determining these aspects, you will need to dig through other details, such as whether or not the plans were properly communicated or not and what mitigating activities were used to act upon them.
By now, you should have developed a clear idea about how project risk management works. Following the above-explained risk management practices should help ensure project success while eliminating the negative impacts of potential threats.
For immediate help with your complex capital project, contact Epeus Consulting. We can help you mitigate risks, avoid pitfalls, and realize your project goals.
Claudette leads the marketing initiatives for Epeus Group and regularly produce market insights papers for Upstream Oil & Gas and Renewable sectors. She’s an experienced business, reporting and market analyst, with several years’ experience in Upstream Oil & Gas and Financial Services.