The Basics of Risk Management in Project Execution
It was Robert Burns, in 1785, who wrote, “The best-laid schemes of mice and men go oft awry.” This is because the world is full of uncertainties that can derail even the most meticulously planned projects. This is why risk management in project execution is so important.
Risk management in project execution involves identifying, assessing, and prioritizing potential risks that may arise during a project and devising strategies to mitigate or eliminate those risks.
This blog post will cover what risk entails and its types. We’ll also discuss risk management, the different types of risks that can affect projects, and how to manage them.
What is Risk in Project Management?
Risk is an inherent part of a project management plan. It’s the unfortunate possibility that something could go wrong or derail planned objectives while executing the project.
Taking risks in a project can be considered as investing in uncertain returns. The risk affects the project’s outcome and sometimes the entire organization. Organizations must manage two main types of risks to ensure successful delivery; they are internal and external risks.
Types of Project Risk
There are two major risk types in project management. These are:
Internal risks can be attributed to the internal environment of the project, such as a lack of resources, miscommunication between stakeholders, inadequate training for personnel, or a lack of awareness about new technologies. They are also closely related to the quality and efficiency of processes within an organization and are often caused by mistakes in planning or assigning tasks.
External risks arise from external factors such as economic conditions, political changes, market shifts, or even natural disasters. These risks are more unpredictable and can affect the entire organization and industry.
What is Risk Management?
Risk management is an integral part of any project execution process and requires the involvement of all stakeholders. Risk management aims to identify potential risks and create strategies to mitigate or eliminate them. To achieve this, the following steps need to be taken:
- Identify Risks – This involves identifying potential risks that could affect the project and assessing their potential impact on its objectives.
- Analyze Risks – This is where the risks are analyzed in detail to determine their likely impact and probability of occurrence.
- Prioritize Risks – Following the analysis, risks are prioritized based on their impact and probability of occurrence.
- Develop Strategies – Once the risks have been identified, analyzed, and prioritized, teams can develop strategies to mitigate or eliminate them.
- Respond to Risks — Once strategies have been developed, they can be implemented to respond to them.
Types of Risk Management Strategy
There are 4 main types of risk management strategies:
Risk avoidance is a proactive risk management strategy that reduces the chance of unwanted results by taking proactive measures to avoid any possible risks. It works by identifying potential risks and then working to eliminate them before they become an issue.
For example, a project team might avoid a specific type of technology if they anticipate it could be unreliable. Or, they might choose to cancel a planned event if the weather forecast is terrible. Risk avoidance works on the principle that it is better to be safe than sorry.
Risk mitigation is another proactive risk management approach that reduces the severity of a potential risk’s impact on an organization.
Organizations can do this through various techniques such as diversification, hedging, or increasing capacity. For example, a project team might choose to use two different vendors for the same material to reduce the risk of one vendor being unable to deliver.
Risk transfer is a strategy used in risk management to reduce the financial impact of future uncertainties. It helps organizations limit their losses by moving the responsibility or cost associated with potential risks to another party.
Teams can do it through contracts such as insurance plans, outsourcing services, or indemnification agreements.
Risk transfer effectively reduces financial losses, as it reduces a business’s reliance on self-insurance and shifts the responsibility for risk coverage to an external provider. This allows businesses to focus on more important tasks, knowing that potential risks are covered.
Risk acceptance sometimes referred to as “risk retention,” is the intentional decision to accept certain risks to move forward with an action or project. This strategy requires examining the potential consequences of risk and making a conscious decision to pursue it despite potential obstacles.
Risk acceptance can be used as a strategy where the cost of retaining the risk is lesser than avoidance or transferring it to a third party.
It can also be utilized during the project’s lifespan when a new risk has yet to be accounted for. Risk acceptance does not entail the risk being ignored but managed accordingly.
Risk management throughout the execution of a project is a vital factor for any organization to take into account to guarantee that the project will go smoothly and as planned.
Businesses can make educated judgments about how best to manage risks throughout a project and enhance the success of the endeavor if they have a solid understanding of the various risk management types.
UPPWISE is a tool for managing projects that walk you through the stages of a project’s lifecycle. Teams can readily identify and analyze possible risks, establish plans to minimize them, and track progress throughout the project duration thanks to the user-friendly platform that UPPWISE provides. With UPPWISE, teams can ensure that their projects continue on schedule and achieve successful outcomes.
Founder of Uppwise, Gioacchino has solid hands-on, experience and vision in the PPM Market, gained as a startupper and founder of a number of software & cloud-services companies. During the last two years he has lead the company transformation, shifting from the offering of a traditional PPM product to a new suite of SPM, APM and CWM products.