Project risk is an unpredictable event that may or may not happen during a project. Understanding and controlling these are essential parts of project management.
Therefore, it is a project manager’s job to identify these risks and provide effective solutions to mitigate them. In this article, we will define what project risk is, discuss types of risks, and provide tips to handle these risks.
What is Project Risk?
A risk is an unpredictable event or situation that can have an impact on the result of a project. The term “project risk” refers to the total of all individual risks that may harm a project.
When calculating overall risks, you must consider both positive and negative risks that your project may face, along with their chances and potential impact.
You should use project management software to help you discover, analyze, and manage project risks. Project manager includes a variety of project management tools, such as Gantt charts, Kanban boards, and dashboards, as well as a risk management function that allows you to track risks in real time.
7 Common Types of Project Risk
Here are the 7 common types of project risk.
1. External Risk
2. Schedule Risk
3. Financial Risk
4. Performance Risk
5. Scope Creep Risk
6. Regulatory and Legal Risks
7. Strategic Risk
External Risk
External risks, such as new competitors or changes in economic conditions, create challenges to your project that are outside your influence and control.
To identify potential risks, it is critical to conduct an assessment of the external environment surrounding your project early in the project’s start and planning phases.
Schedule Risk
It occurs when there is a high possibility of failing to fulfill the anticipated project timetable.
Project outcomes can be affected by various factors in this risk, such as inaccurate task duration estimation, neglecting critical paths, overlooking necessary resources, and posing a potential risk.
Financial Risk
It arises when the actual project execution costs exceed the budgeted amount.
These additional expenditures cannot be covered by the initial project budget, which is a key resource management issue that could lead to project failure due to a lack of resources.
Performance Risk
This type of project risk occurs when work does not go according to plan, which leads to delayed deliverables and milestones.
This indicates that the project’s performance is poor, which may endanger its completion because additional resources are required to achieve the initial project plan.
Scope Creep Risk
Scope creep, as its name indicates, is a sort of project risk that happens when tasks are added to the project scope without the required approval of the project management team, causing the scope to grow out of control and having a direct influence on your project timeline and budget.
Regulatory and Legal Risk
Regulatory and legal project risk refers to the risks that arise from complying with laws, regulations, and legal requirements that affect project success.
This includes the possibility of regulatory changes, legal battles, or non-compliance issues that could impact project deadlines, costs, or outcomes.
Strategic Risk
Strategic risk arises when strategic decisions have an impact on project delivery.
For instance, choosing an inadequate project management style for your team or making an investment that affects the project budget and overall plan can represent strategic risks.
Tips to Handle Project Risk
Here are some easy tips you may take to get started with project risk management.
1. Identify the project risks: The first stage for managing these risks is to identify specific risk events. You should hold a brainstorming session with your team to consider the potential hazards to your project. Document them using a risk registry.
2. Examine the risks: After you’ve identified the various project risks, ask yourself two questions. First, what is the possibility of these risks occurring, and second, how would that risk occurrence affect your plan?
3. Prioritize project risk: Prioritize risks according to their severity and frequency. Prioritize high-priority risks first to maximize resources and attention, ensuring effective risk mitigation and resource allocation for the best possible results.
4. Develop a backup plan: Prepare backup project management strategies for high-impact and high-probability threats. These plans should include clear actions to be performed if the indicated risk occurs.
Having backup plans set up allows the project team to respond quickly and efficiently, reducing the impact on project timelines and objectives
5. Regularly monitor and update: Monitor the success of risk mitigation techniques regularly and be prepared to change the plan as needed.
Encourage open communication among the team to detect and handle emerging risks as soon as possible.
7 Tools and Techniques of Risk Management
The following are the 7 best tools and techniques of risk management.
1. Risk Register
2. Root Cause Analysis
3. SWOT Analysis
4. Risk Data Quality Assessment
5. Risk Assessment Template for IT projects
6. Probability and Impact Matrix
7. Brainstorming
Frequently Asked Questions
ANS: It refers to the uncertainties and potential events that may have an impact on a project’s objectives, schedule, budget, or overall success.
ANS: Project scope creep is the uncontrolled expansion of project scope.
To avoid it, clearly define the scope from the start and implement effective change control methods.
ANS: Yes, various free project management solutions provide simple risk management features. risk register, root cause analysis, and SWOT Analysis are a few examples.
ANS: A risk-aware encourages team members to actively identify and disclose potential hazards, promoting a proactive approach to risk management.
ANS: A risk register is a tool that provides a single location for risk information by documenting detected risks, their characteristics, and planned solutions.
