Good or bad, a risk is an inherent part of any business project. How you decide to manage that risk could be what ultimately determines whether or not your project ends in success or failure. Therefore, a careful and methodical approach to the risk management process is crucial. But don’t stress out just yet. You should hopefully find that implementing this four-step process will help you to develop a strong risk management plan that you can then effectively apply to any project.
What Is Risk?
Before we get into the appropriate steps for building a solid risk management plan, an important definition is in order. Namely, what is risk?
According to the Project Management Body of Knowledge, a risk is “an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.”
With this definition in mind, a risk management plan is important in not only striving to eliminate any of the harmful side effects associated with an identified risk, but also determining if the risk management process could work as an ultimate benefit to the project.
4 Steps for Effective Risk Management Process
While each project manager may approach the risk management process slightly differently, any strong risk management plan should have the following four steps present in some capacity.
1. Identifying Potential Risks
This can otherwise be known as the “brainstorming process.” Gather the members of your project team and jot down any and all potential risks that could be affecting your project. These risks should be written down in what is known as a risk register.
During this identification process, it’s especially important to hear from those who may have different perspectives than you as they could bring to light risks that you may not have considered.
2. Analyzing and Evaluating Risks
Once you identify any risks, you should then go about determining the likelihood of each risk. And what potential consequences could arise from them. When going about this method, you may find that some risks need to be addressed immediately. While discovering other risks that are not serious enough to necessitate action or even others that may be positive. Meaning they must be present for the project to come to its conclusion.
During the analysis phase, you should conduct both qualitative and quantitative risk analysis. Qualitative risk analysis is plotted on something known as a PI Matrix and charts risk probability along with risk impact. Quantitative risk analysis, on the other hand, looks at various data and risk reports. Then assigns numbers to risks as a sort of ranking system. Any analysis you conduct, whether qualitative or quantitative, should also be added to your risk register.
When it’s time to evaluate risks, you should rank them. Rank them in the risk register on a scale of low, moderate, and high in terms of their impact. This will help you to effectively prioritize. The evaluation step is when it would be most beneficial to assign someone from your project team to deal with a particular risk. It’s up to you whether each risk owner possesses expertise in dealing with that risk. But the decision to assign an owner is important in ensuring a risk’s ultimate mitigation.
3. Responding to Risks
In this stage, you want to look at your highest ranked risks and formulate a plan that will help to effectively alleviate them through various preventative strategies and contingency plans.
Have you identified a positive risk? If so, then you should be working on exploiting it to your project’s advantage.
Work with the respective risk owner during this phase when deciding on how best to approach each risk.
4. Monitoring Risks
You’ve determined what the risks are, ranked them, assigned them, and developed appropriate mitigation strategies. Now, it’s time to effectively monitor your risks.
This monitoring phase should be done tangentially to your project’s progression. During this time, you will want to routinely look back at the risk register. Set up face-to-face meetings with your risk assignees and take any consultation time seriously. Establishing effective avenues of communication is crucial during this stage.
Be Sure to Constantly Hone Your Risk Management Skills and Research New Trends
When condensed as it is here, the risk management process may seem like simple problem solving, but it can be a fairly complicated process.
It may behoove you to purchase some sort of extensive risk management software program. On top of any additional management aids, it’s important to do anything and everything you can to stay on top of all potential risks. Research new risk management trends. Hone your planning, analysis, and communication skills. Consult with other project managers and see how they manage their risks.
Staying as transparent and thorough as possible when dealing with risk management is absolutely essential in making sure that your projects are running as smoothly as possible.