There are no projects that do not involve risk. Whether the project is small or large, simple or complex, some uncertainties always occur that could impact the budget, schedule, and scope of the project. These uncertainties may result into extending beyond schedule completion dates, projects exceeding initial cost estimates, or experiencing sudden complications that may cease project to meet its goals.
Some poor project performance predictions that can lead to negative consequences include:
- The design requirements and deliverables of the project are not properly planned that may lead to changes in scope, schedule, and budget.
- Overestimating and underestimating costs, which can force project teams to make changes in project scope, resulting in the schedule and budget changes.
- Inaccurate funding that remains inconsistent throughout the project lifecycle.
- Improper scheduling due to which milestones are not met as per the scheduled completion date.
Due to poor project planning, there is a risk of loss of opportunities. Looking at available opportunities to maximize the benefit of project activities such as accept, capitalize, or redefine an activity.
Defining a Project Risk
Project risk refers to an uncertain event or condition that leads to the positive or negative impact in attaining the project objectives like cost, scope, schedule, and quality.
Three important elements needed to define the risk:
- An event in the future, which if removed or corrected can prevent the occurrence of potential consequence.
- Assessing the likelihood or probability of the occurrence of future time at present.
- The level of impact of that future event.
An Overview of Project Risk Management
Risks are future events that lead to potential problems and uncertainty in the success of the project. Unlike risks, issues are problems that have already happened and needs resolution
Thus, the focus of project risk management is not only evicting risk but instead thoroughly managing it through the iterative steps of risk management.
- Potential risk treatment
- Monitoring & control
These steps are necessary to cost-effectively maintain risk exposure at a level that is acceptable. It is important to note that risk can often relate to opportunities that help the project team in delivering the project with short scheduled, lower costs, and high scope or quality. While risk management looks for the factors that might cause a negative effect on a project.
The procedure of managing risks at the project level is illustrated by the organization like the Project Management Institute. Irrespective of the type of project, the basic approach to risk management closely relates to the cyclic process shown below.
Benefits of Project Risk Management
The complexity of projects and the nature of the risk involved raises the need for a formal process of risk management. A typical project may include numerous risks that are often correlated and can change during the course of the project.
With a formal, continuous procedure, project teams can easily sort through the various risk events. This includes identifying the risks, pinpointing the critical risks and determining the cost-effective ways to mitigate those risks or staying consistent with the complete project goals.
When a comprehensive risk management plan is put forward in the entire project lifecycle, there is a need to identify the critical program risks. So, a well-designed risk management process is important to balance schedule, cost and performance goals.
Having a structured and systematic process facilitates the project management approach to assess the risk and opportunity. Moreover, then monitor and communicate it to stakeholders. It minimizes any self-interest.
Risk management allows the project team to carry the appropriate measures, which are as follows:
- Plan the project activities in a realistic way as per the schedule, scope, and budget
- Avoiding the conflicts by realizing the potential issues in resource utilization
- Identify continuous project practices to minimize management.
The process of risk management improves the likelihood of achieving project goals. The list of some project management risks include:
- Support decisions to move the project in the right direction, set schedule and cost targets.
- Identify the actions that are required to improve the schedule and cost performance.
- Create a reliable foundation for each project by representing the possibility or else show the infeasibility of the project to avoid the situation.
- Provide opportunities to improve projects on time.
- Uncovers weakness in the project plan and provides a suggestion for resource shifts, new activities, and changes that improve the project.
- Risk management does not only assist in project communication but is also useful in negotiating with project sponsors.
- It increases institutional knowledge by learning lessons from documented practices of risk management.
The Right Time to Perform Project Risk Management
Applying risk management in the process of project planning is necessary. Generally, it is pivotal at the conceptual design phase to identify the risks and opportunities.
The reason behind is to integrate any essential response actions into final designs to make a better schedule and budget estimates.
I have explained in detail about all the steps involved in Project Risk Management in the below articles.
The 7 Steps to Evaluate Project Management Risk
Potential Risk Treatment
Implementing Risk Management
Risk Monitoring and Control
Feedback : A Risk Management Essential Step