Tips on Managing Project Risk

Managing project risk is an inevitable part of a project. They exist for various reasons, such as inaccurate scope definition and management, unforeseen circumstances, and ineffective stakeholder management. As a matter of fact, project management risk can crop up from practically any project process. Hence, managing project risks is critical to project success. Follow these simple project management risk rules and you will be more effective in managing project risk:

• Make managing project risk a recurring process
• Analyze and prioritize project risks
• Track project risks

Here's to more effective project management risk and a less turbulent project!

Note: Using Decision Trees to Manage Project Risk is covered in the Using a Decision Trees Example in Project Risk Management to Calculate Expected Monetary Value article.

During Project Kickoff, to reduce project management risk, you document project risks and make a list of risk mitigation strategies in a Risk Register. The risks identified will vary from project to project. However, the Risk Register will always need to be created at the start of a project. This is a critical aspect of managing project risk.

Use the SWOT Analysis tool to identify risks during Project Kickoff. You’ll use the identified risks to create appropriate project plans. When the project is executed, do not forget about the Risk Register. As a project manager, you are expected to update the Risk Register as the project progresses. This is what managing project risk is all about.

Best Practices of Managing Project Risk:

• Block your time once a week to review and update the Risk Register. This will reduce project management risk.
• Gather project risks from team members in the daily team meeting. This will help to train them in proactive project risks identification. Your team can help you reduce project management risk.
• Review the Risk Register with all stakeholders frequently. If you are following Agile Project Management practices, then an Iteration Kickoff can be used to identify project risks. Some project management methodologies have processes that are very effective in reducing project management risk.

Managing project risk is a daily, 24X7 activity for the Project Manager.

If you follow Rule 1, managing project risk should be a part of your project’s DNA. If all goes well, you will have a litany of project risks coming from various stakeholders. Not all project risks are equally dangerous or good (remember there are ‘good’ risks, also known as opportunities), therefore risk prioritization is necessary to successfully reduce project management risk. This is where managing project risk by risk quantification comes in handy.

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To quantify project risks, assign each risk a value out of 4 based on the probability of the risk occurring and the impact of the project risk on the project. For example, suppose you have identified the following project risks:

1. Project Management Risk 1: The vendor will not be able to deliver on time given labor problems.
2. Project Management Risk 2: The client’s requirements will keep developing as the project progresses.

For managing project risk, look at the first project risk, the probability of occurrence may be low if the vendor is located in a country that has few labor problems. However, the impact on the project will be high when the risk is materialized. Therefore, the project risk would be classified as high with a value of (3). You can manage project risk choosing a vendor in a location that does not have labor problems.

Now, looking at the second project risk, the probability of occurrence is high and so is the impact. Therefore, managing project risk would involve assigning this risk the highest value (4). One way to mitigate this risk would be to use Agile Project Management practices. This will help you reduce project management risk and you'll be more effective in managing project risk. Hopefully the Cost Performance Index and Schedule Performance Index will both show healthy project performance.

Note: There are several other techniques used for managing project risk by risk quantification, which have not been discussed in this article.

Managing project risk by tracking is about not losing focus. In the Risk Register, you would have mentioned a mitigation strategy for each risk. Managing project risk is more effective if this strategy is implemented so that the project risk doesn’t surface. It is important to track all tasks associated with the risk mitigation to closure. This ensures reduced project management risk. It is similar to how you would track other project tasks and activities to closure.

By following these risk management rules, your project will have reduced project management risk and you will be less likely to modify the Project Network Diagram (Precedence Diagram) during the course of the project.