As projects become increasingly dynamic, organizations need the ability to manage the uncertainty, or risk, that come along with those changes. The growing demand for skilled project management professionals reflects this trend—an estimated 22 million jobs will be added to the industry by 2027.
For those looking to enter or advance in a project management role, the ability to manage risk is an essential skill that employers look for. To become an expert in preventing and responding to risk, you must first understand what risk is and the process by which it is managed.
Below, we take a look at the risk management process and provide five tips for success as you begin to take steps toward reducing and managing risk for your organization.
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What is Risk Management?
In project management, risk management is the practice of identifying, evaluating, and preventing or mitigating risks to a project that have the potential to impact the desired outcomes. Project managers are typically responsible for overseeing the risk management process throughout the duration of a given project.
To effectively manage risk, project managers must have a clear understanding of their objectives so they can identify any possible barriers that could impact the team’s ability to produce results.
“Risk management is really about looking at your project objectives and figuring out what the threats to those objectives are, and what you can do to address them from the beginning,” says Connie Emerson, assistant teaching professor for Northeastern’s Master of Science in Project Management program.
The types of events or scenarios that fall under the category of risk can be broad and sometimes misinterpreted. While project managers or those tasked with overseeing a project may be inclined to view risks exclusively as threats, this is not always the case.
To clarify this common misconception, Emerson defines project risk as “…a future event that may or may not happen which, if it does happen, will have some impact on the objectives of the project. It could be positive—an opportunity, or negative—a threat.”
Types of Project Risk
Beyond the basics of what “risk” means, project managers should also know the different types of risks they may encounter. Depending on the project type, the factors that should be considered will differ.
There are several types of risks that occur frequently, regardless of the specifics of the project. These common types of risk include:
- Cost: The risk of events that impact the budget, especially those that cause the project to be completed over budget. Errors in cost estimation commonly generate risk in addition to external factors.
- Schedule: The risk of unplanned scheduling conflicts, such as events that cause the project to be delayed. Scope creep is a common reason for scheduling issues and project delays.
- Performance: The risk of events that cause the project to produce results that are inconsistent with the project specifications.
Depending on the project details, there are many other types of risks that can occur. For example, project managers may also need to plan around risks pertaining to implementation, training, testing, and so on.
Once project managers identify the categories of risk they should be concerned with, they can begin to understand how these risks might impact the project outcomes and what they can do to reduce their effects. To do so, they will also need to consider the breadth and depth of each type of risk in the context of the overall project.
Steps in the Risk Management Process
To protect a project from unplanned risk, project managers typically follow an ongoing risk management process which helps them identify, understand, and respond to threats and opportunities. Before beginning this process, however, it’s important to fully understand your organization’s practices and how you will conduct your risk work for that project. This plan then will drive the following steps:
- Identify the risks that could potentially impact your project.
- Assign ownership of each identified risk to a team member who will be charged with overseeing that threat or opportunity. Although some project managers prefer to assign ownership after the risks have been analyzed and prioritized, taking this step early can be beneficial. “Many times I assign an owner to the risk very early on because I want that person to drive the analysis of the risk,” Emerson notes.
- Analyze each risk to fully understand the driving factors involved and potential impacts. Be sure to consider the breadth and depth of each threat at this stage in order to evaluate the severity of each risk in the context of the overall project.
- Prioritize project risks according to urgency and the severity of the impact they could cause.
- Respond to your identified risks in accordance with your risk management approach, either by taking steps to prevent the risk event from occurring or to minimize the impact if it does occur. This step should include building the response as well as taking action.
- Monitor your risk management strategy and make changes as needed.
Although there are clear steps in the risk management process, this should ideally be an ongoing effort. After all, the nature of risk is inherently unpredictable, and project managers need to have the agility and discipline to continuously adapt to changes throughout a given project.
5 Tips to Reduce and Manage Risk
While it is impossible to completely eliminate risk, there are steps that project managers can take to effectively manage projects while reducing the amount of risk. Here are four tips to get started:
1. Create a risk management plan.
Anyone that has experience in project management knows how essential a strong project plan is to the success of the endeavor. There are many ancillary plans that are often encompassed in this plan, including the risk management plan.
According to Emerson, your risk management plan should define your methodology for identifying and prioritizing risk, your risk tolerance, how your team will respond to risk, how you will communicate risk, etc. Developing such a plan takes time and effort, but investing in the planning phase often pays off by creating a roadmap that will guide your team throughout the execution phase of your project.
2. Keep your risk register up to date.
Your risk register, which can either be combined with your risk management plan or a separate document, is a list of all possible risk events that have the potential to impact your project. Having this document will help you stay on top of potential issues, but it is important that you keep it current so that you always have an accurate snapshot to refer to.
Use your risk register to keep track of what risk events occurred, how your team responded, and which new risks have surfaced which you were unable to detect initially. By keeping this document up to date and ensuring that it is integrative with other planning deliverables, you, your team members, and other key stakeholders will always have a clear picture of the state of the project.
3. Understand the risk event.
A common mistake in risk management is the tendency for people to think about risk in terms of the possible outcomes rather than the risk event itself. For example, people sometimes identify “missing the deadline” as a risk to their project. While missing the deadline is certainly a threat to the project, this isn’t actually the risk, but rather the impact.
Instead, consider risk in the following format: Due to X, Y may occur, causing Z impact. Doing so will help you understand the root of the risk, the risk event, and how you should address it.
4. Be proactive instead of reactive.
Project managers can sometimes make the mistake of taking a reactive approach to risk management rather than a proactive approach. It will always be necessary to have the agility to react when an unplanned event occurs, but it is also important to take a step back and view your project through a proactive lens.
By investing time in the early stages of the risk management process and fully analyzing each risk, you can prepare yourself to take preventative steps that reduce the probability of the risk event occurring, rather than trying to respond once it has already happened.
5. Develop your project management skills.
Above all, effectively managing projects and their risks requires a strong foundation of project management skills. In addition to practicing, staying up to date with industry trends, and attending conferences and workshops, one of the best ways to refine these skills is to earn a certificate or graduate degree in project management.
Those who are faced with the opportunity to oversee a project but lack formal training stand to benefit substantially from project management education; however, those who are already working in the field can also benefit by honing their craft.
Programs like Northeastern’s Master of Science in Project Management, for example, are designed to develop essential skills through hands-on experience. Industry-leading faculty bring unique opportunities to discuss real-world challenges in the classroom, giving students the ability to apply their knowledge to the scenarios they will face in their roles.
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