- Project Risk Management Definition Part 1
- Benefits of Project Risk Management Part 2
- Risk Management Challenges Part 3
- Best Practices Part 4
Part 1
What is Project Risk Management?
At the heart of its definition, Project Risk Management is all about developing strategies to prevent or minimize the impact of troubling threats to a project. There is always uncertainty about the positive outcome of a project. Things can go wrong quickly, and when project managers embrace the meaning of risk management, they are strategically preparing to handle these risks. When a manager takes on a long-term task, there are a lot of issues to be concerned with from establishing a budget to keeping staff on task. Therefore, it is likely that risk management strategies might never enter into project planning. However, exploring these approaches are a necessity because the benefits of developing plans for handling unforeseen issues are numerous.
Part 2
Benefits of Project Risk Management
A good project risk management plan allows managers to look at the entirety of their project through the lens of what could go wrong. This, in turn, will help them to develop a Plan B, C, and D for a variety of budget, timing, or personnel issues. Here are benefits of developing a project risk management plan.
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Knowledge of a contingency budget
An effective risk management plan allows managers to explore ways the project can go over budget. If a significant piece of technology breaks in the middle of a race to complete a deadline or an employee makes a project-altering mistake that causes a project extension; managers can go through each scenario to see the resulting impact on cost. They can then calculate the amount of funds that need to be put away in case one of these situations occurs.
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Determining pre-determined responses to problems
Again, anything can happen in the midst of a project. A key team member may need to leave or support from senior management may fall through. Managers can develop responses to unfavorable events. While acknowledging that these events could happen will bring initial stress to managers, they will relieve tension in the long-run because managers and senior leadership can feel confident that responses to specific scenarios have been established.
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Can be shared with future managers
It is easy for anyone to think they will be in the same position and working on the same projects, but the reality of the situation is work situations can change at the drop of a hat. This can happen due to personal or professional changes (i.e., promotions). Therefore, it is crucial for project managers to set an example for the next person who may take over and develop a risk management plan they can follow. It also helps co-workers to pick up the slack of a project manager who cannot fulfill their duties for any reason. Thinking through risk has positive ramifications for the manager as well as the company.
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Increase return on investment
If project managers can manage an unforeseen risk due to careful planning then everyone wins, and the resulting return on investment should be high for all stakeholders involved. A project’s revenue is decreased considerably if the project delivers later than intended, and even worse if it fails entirely. Therefore, a plan to mitigate risk means that managers can pay back investments earlier and ensure that profit margins are observed. It will also allow managers to reinvest any contingency funds that were not needed due to exemplary planning.
Part 3
Challenges of Risk Management
While there are many benefits to developing a comprehensive risk management plan, there are also challenges involved with this process. Managers should overcome these to effectively layout a plan.
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Identifying risk
The act of determining risks can be a challenge. There is no way for one person to be aware of all the financial and time limit risks. Therefore, it is a good idea for managers to conduct a full-on risk analysis. However, this might be incredibly time consuming and may require compliance from other individuals. All the moving parts associated with identifying risk may prove overwhelming for a lone project manager or small team.
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A lack of buy-in
From co-workers to upper management, others may not understand the importance of developing a risk management plan. Project managers have to get the team and top management buy-in for most components of a project. If others don’t see the value in doing this, then project managers might not be allowed the time to do it, and co-workers might not adhere to guidance from it.
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Cannot precisely predict the future
Regardless of how much planning a project manager does, there is no way to predict the issues that will occur correctly. Managers can only include information concerning past events that deterred a project. If a company has never had anyone develop a risk management plan, then managers have to piece together the past to the best of their ability. Regarding the future, the best anyone can do is guess, and sometimes this is not always good enough.
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Aligning risk management with business strategy
Project managers have the sometimes daunting task of making sure that risk management plans have to align with company goals and strategy. The contingency of a risk management plan may scale back on the budget or alter the schedule which may not line up with the policies of upper management. This means project managers will have to work alongside senior leadership to iron out synergies and take care of any differences which may not always be the easiest of processes.
Part 4
Project Risk Management Best Practices
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Involve everyone in project risk management plan development
In order to identify as many risks as possible, project managers should involve the entire team in this process. Through brainstorming sessions and interactive meetings, everyone can get on the same page about the importance of project risk management, and they can contribute input on how issues in their respective departments can contribute to increased risks.
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Use a mixture of quantitative and qualitative analysis
There is strength in words and numbers. So, project managers can assess risk by conducting interviews or internal focus groups. In addition to this, they can also create mathematical models to predict various risk outcomes. These methods can ultimately be used predict risk management outcomes and add layers to proposed scenarios. These methods should provide a clear and complete picture of risk predictions.
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Assign an owner to issues that arise
Once potential problems and risks are identified, stakeholders should then agree on who will be accountable for heading up responses to issues if or when they occur. Once everyone agrees with this, then everyone can be on the same page about who will step in, and that person can adequately prepare their responses.
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Project risk management is not a one-time action
Risk management plans should allow for consistent reviews and updates. Threats will always change and evolve, so risk management plans have to do the same. This will also get a team in the habit of including this in preliminary project planning.