Project management is an important tool for ensuring business success. Investment in IT project management can save you time and money by efficiently allocating resources where they are most needed, creating clear accountability for necessary tasks and setting hard deadlines to ensure projects are completed on time. However, an often-overlooked benefit to project management is the assessment of, and preparation for, potential risks a project creates. Used effectively, this can help your team mitigate possible issues before they begin, allowing you to focus attention and resources toward prevention rather than damage control. But what is risk management, and how do you manage project risk?

What Is Risk Management in Project Management?

Project risk management is simply the process of anticipating possible risks to the project, assessing their impact and creating anticipatory solutions. Risks are identified as any unforeseen event that could impact the progression and completion of the project, including events that affect your proposed timeline, budget or final performance overall. It’s important to note that risks are not the same as issues, which are foreseen as certain and planned for separately. Therefore, risk management focuses on impacts that have the potential to come into play. This may be why some companies elect not to focus on managing their project risks, believing the planning to be a waste of time and effort. However, successful businesses know that these extra steps are an important part of ensuring a favorable project outcome. Also, despite the negative connotations to the term “risk,” project risks can have either a positive or negative result.

Examples of Possible Risks

Keeping in mind that risks are unexpected elements, the risks you identify between projects can vary greatly. However, there are some risks that can almost be considered universally applicable.

Positive Risks

  • Completing your project ahead of schedule
  • Attracting more clients than expected
  • Ending with a surplus of resources that can be allocated to another project

Positive risks could improve the performance of your project, but remember that they have the potential to turn into negative risks if not handled appropriately. For example, if you attract a greater number of customers than you anticipate, this could become a liability if you are unable to keep up with the demand, creating a negative experience for new clients.

Negative Risks

  • Data loss
  • A team member leaving before a project is complete
  • Unexpected time delays

Risk Assessment

Risk assessment is the first step to narrowing down what risks need to be managed. Risk assessment requires three basic elements to cover your bases.

1. Identify Risks

Begin with a master list of every possible risk you can imagine for your project. Take advantage of insight from other team members to help identify risks you might miss. Remember to also include positive risks so you won’t miss the chance to capitalize on possible opportunities.

2. Assign Probability

Some risks are going to be more likely than others. Determine the odds of each, labeling them as low, medium or high, so you can focus on those that have the greatest chance of impacting your project.

3. Measure Impact

Assess how each risk could affect your project, and determine how big the impact would be. Risks that could jeopardize the project’s success would be considered high impact, while those that create mild inconvenience would be categorized as low impact.

Managing Risk

Once you’ve identified the risks you need to focus on, there are several tactics project managers can use to manage project risk. The ones you choose will depend on the resources you have available and the nature and size of the project you’re planning. Depending on the complexity of the project, you may choose to simply list possible risks in order of priority, basing it on the level of impact potential to let your team know which risks need the most attention. For larger projects, risk management may include detailed analysis of any reasonably anticipated issue with contingency plans for each, should they become relevant.

Begin risk management by determining the tolerance level on your project. This is the level at which your project is deemed too risky and may need to be abandoned. Once you have this baseline, use your risk assessment to determine which risks need your focus. Identify possible signs to alert you when a risk is imminent. Develop action plans to prevent or exploit risks and a plan to mitigate damage if the risk can’t be avoided. Finally, do another assessment at the end of the project to determine how effective your risk management was. This can help you improve risk management for future projects by identifying weak points.

Whatever specific tools and tactics you choose for your risk management approach, remember that the effort you put in now can save your business the stress of damage control later.