Risk management in project management is a lot like weighing the pros and cons of a major life decision. You want to achieve the best possible outcome, but you also want to plan for any negatives that may impact your decision. So in terms of project risk management, this thought process will identify strengths, weaknesses, opportunities, and threats.

Mistakes aren’t avoidable. But by planning for risk upfront, you’ll have a better grasp of what to expect when hurdles arise.

You’ll have a better chance of achieving project goals using these best practices for planning, preparation, and evaluation.

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Importance of managing risk

How does incorporating risk in project management affect your results? There are several benefits of putting a risk response plan in place.

Better planning

Taking the time to walk through your project before it actually occurs will lead to better outcomes.

Creating a list of potential internal and external risk factors and how these relate to budgets and timelines will further align project goals within the needed tasks.

Increased communication

Risk management in project management leads to better overall communication.

By assessing risk, stakeholders will understand the process better and your project team will know what’s expected of them.

Plus, everyone will understand why money is being allocated for the project and has time to voice feedback before the project begins.

Deadlines maintained

While a project plan includes milestones and a targeted completion date, unforeseen factors often throw timelines off.

By identifying project risk from the start, problems are discovered and eliminated before the project gets rolling. This keeps the target date effective.

More proactive

Projects often spiral out of control because a team member tries to fix an issue in the middle of a project.

This is usually reactive and done quickly to avoid adding time and money, leading to an incomplete or subpar project.

Being proactive and using risk management means that problems can be addressed in a systematic approach with enough time. That way, contingency plans are ready should they be needed.

Supports future projects

Once your project is complete and you run your analysis, project risk is also important.

If it was done properly and helped your project stay on task, then you can use lessons learned for your next project.

However, if your risk management response could have been improved, you can make tweaks to your process before the next project begins.

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Steps in the risk management process

Now that you know some of the benefits of risk management, how do you use it within project management?

Here are some steps to take in order to mitigate any negative risks that could throw your project off track.

1. Risk assessment

Begin by talking to your project team and discuss any concerns they have.

Running scenarios against the major milestones should uncover potential risks. Write down any and all concerns.

Keep the conversation casual so that communication can flow and the team will feel free to share their honest thoughts.

Not only will this uncover risks, but it will build a stronger team dynamic.

It’s also important for the project risk management process to uncover all categories of potential concerns, including technology, materials, budget, people, quality, suppliers and legislation.

2. Identify positive vs. negative risks

Many project managers tend to think of risks as negative.

But really there are two types of risk in project management. And while there are many potential project setbacks, there are also project advantages.

These positive risks should also be identified. For example, what if you have more customer demand than anticipated? How will you respond? There are several potential and unforeseen successes to plan for.

3. Risk analysis

After all risks have been uncovered, put it to paper. Dig into each one and analyze its impact.

This can either be done in an Excel document or better yet, use an Agile project management software that can outline the process.

Suggested fields can be things like:

  • Risk with a brief description and date 
  • Probability on a scale of 1-5 of it occurring
  • Scale 1-5 how risk impacts end date
  • Scale 1-5 how risk impacts budget
  • Salce 1-5 how risk impacts quality
  • Scale 1-5 how risk impacts benefits
  • Suggested action to take should risk occur
  • Current status of risk

4. Rank risks

Once you have numbered all your risks, focus on the ones with the highest ratings across all categories.

If you have three or four risks with several fours or fives, you know these are likely to occur.

How will you address these so that your project stays on task?

Why are they even issues from the start?

By figuring out what the main issue is with each of these risks, they won’t snowball out of control.

5. Estimate costs

Next, determine how much it will cost to address each of these high-ranking risks.

You’ll want to account for this in your project plan’s budget. Otherwise, your projected budget will derail quickly.

It’s best to give a range of cost estimates based on how the risk plays out. These costs can be added in as a contingency on your project plan since they may or may not occur.

But at least you have accounted for the best case and worst case impact on overall costs.

6. Assign team members

You may have assigned team members to various project KPIs within your plan, but you also need a point person for every potential risk.

Make sure each owner is the most capable on the team for handling the potential risk and also monitoring its possible flare up.

Appropriate actions should be outlined and assigned.

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7. Risk tracking throughout the project

Once the project gets going, it’s important to check-in with these point people on a regular basis.

Communication is key, and so is managing a risk before it gets too big to handle.

Risks are not meant to be thought of when creating a project plan and then forgotten. They should always be top-of-mind throughout the entire project, which you can do with proper risk tracking.

8. Summarize risks and plan ahead

Once the project is complete, discuss the risk response plan you created with the team and any other stakeholders.

Talk about what went well and what could have been improved. Then create a report that you can use for future projects. All lessons learned should be applied going forward.

Utilizing a project risk protocol

When building your risk response plan, using tools and templates will help you better manage the process.

You can use a simple tool like Excel, but what’s even more effective is the right project manager software.

If you’re already using an Agile framework, turning to a digital workflow can help you manage risk even more effectively.

Not only can you manage risk at every project phase, but using visual boards and columns for each step of your process will keep your team organized.

Agile risk management software allows you to assign, move, and monitor risks. Unlike a static Excel document, this system is dynamic and also visual. This keeps everyone on task, in control and allows risk changes to easily be documented and even commented on.

What’s your risk response plan?

Risk management in project management is vital to keeping a project flowing.

Where many projects fail is lack of planning.

By looking at all risks before and during a project lifecycle, it keeps the team collaborating in a constructive and transparent way.

It will also propel a project forward, minimizing risks before derailing a project objective. This will further help pinpoint, assign and handle risk for successful project outcomes.