What is Risk Management in Project Management?

There are many ongoing projects that take place within an organization on any given day. Individual projects come with their own separate risks that need to be managed to ensure the success of this project. All employees need to learn how to efficiently recognize and manage their risks while the project is underway. This is done by first identifying the risks and threats to a project and then analyzing it, after which project team members can respond to the risks that will arise in the project’s lifetime efficiently. This way the project will also meet its goal on time. Risk management in project management should not be a reactive process, but sadly that is not the case. According to a PMI survey from 2017, it was noted that only 28% of project managers used risk management practices regularly and diligently. When risk management goes from being reactive to a part of the planning process itself, it becomes easier to identify the risks that might hinder the project’s success. This will make it easier for project members to control this risk in case it occurs.

Risk management does not have to mean the same thing to each project. Different projects can have different risks and need to be managed differently in each case. When it comes to big projects, for example, the risk management strategy could be a lot more extensive and it could require a lot more planning. If it is a small project on the other hand, efficient risk management could just mean prioritizing the risks.

There is no doubt about the importance of risk management within projects. Project managers are better equipped to deal with uncertainties that may arise while saving company resources and time. This article has an overall plan in which project managers can use risk management to ensure the successful delivery of the project.

Need for Risk Management 

All project managers and team members need to learn how to implement necessary and systematic risk management processes. This will enable the entire organization to run their projects in a much smoother manner in the following ways:

  • Improve all resource planning by predicting future costs
  • Improve how companies track project costs
  • Improve the accuracy of estimates of ROI
  • A more flexible response to all future challenges

risk management process - Risk management in project management - Invensis learning

There are five main steps in the risk management process that organizations should follow, which include risk identification, its analysis, evaluation and treatment, and finally, constant monitoring of the risk. These steps are discussed in detail in the article below:

Identifying the Risk

The first step in a successful risk management process is to identify the type of risk the organization is currently dealing with or could deal with in the future.

Some of the different types of risks include:

  • Strategic risk
  • Compliance risk
  • Market risk
  • Regulatory risk
  • Operational risk

It is important to identify all the different potential types of risks that the organization can face. These risks can be noted down manually but if there is a risk management platform implemented in the organization, the risk identification process becomes a lot simpler. The gathered information is directly inserted into the system.

Access to this data also becomes a lot simpler because the project managers and other team members do not have to request an email for this information. They can directly log in to the risk management system and see all the identified risks.

Analyzing the Risk

All the possible risks for the organization have been identified in the previous step, which will lead the teams to analyze these risks. The risk analysis should answer the following questions:

  • What is the likelihood of these risks occurring?
  • What will be the consequences of these risks to the organization?

During the risk analysis process, teams estimate the probability of each risk occurring and its fallout to prioritize the identified risks.

The factors that companies consider when prioritizing the risks include:

  • Potential financial loss
  • Time lost
  • The severity of the impact
  • Availability of resources to manage the risk

Risk analysis helps companies create their response to these risks depending on their severity. It also helps in understanding the link between the risk and the number of aspects of the business it will affect. To put it simply, the more business aspects at risk, the higher the risk to an organization. 

If companies use a manual risk management process, then this risk analysis takes place manually. If a risk management solution is deployed across the organization, then different documents, policies, processes, and procedures are analyzed by the solution to map the risk and create a framework for the next step, which is risk evaluation.

Evaluating the Risk

After completing a thorough analysis of risks, they need to be ranked in order of severity and then prioritized. When companies use a risk management solution, they already have different categories of risks in-built into the solution, which categorizes the risk based on its severity.

A risk causing minor inconvenience to the organization gets a low rating, whereas risks that can have a big impact on operations is considered to be high risk. Low risks do not necessarily need intervention from upper management, but high risks require immediate intervention.

When organizations use risk management platforms, they can help in identifying different workable solutions for each risk that the enterprise could face. This way all the projects in the organization and processes can go on uninterrupted and without any delay.

Treating the Risk

Once the risks have been analyzed and prioritized, it is time to take action. Every risk to the organization or the project needs to either be eliminated or contained. If the risk treatment is done manually, team members need to contact each stakeholder to discuss the issues. Usually, these discussions get spread out over email chains, various documents, and many phone calls, making the entire process longer and more difficult.

According to a study done in 2018, it was found that only 34% of institutions have the required security staff capable of identifying and resolving threats. This is why using a risk management platform is even more necessary today. 

When companies employ a risk management solution, the stakeholders are immediately notified by the application, and all the key decisions are made in one go. This way it becomes easy to monitor the progress of the solution.

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Conclusion

Currently, according to a recent study, about 97.5% of projects fail to meet the targets and deadlines they had set initially. With the different practices for risk management in handling the projects mentioned above, that can change. This only emphasizes the importance of training all employees on how to understand and manage risk. It improves project quality and saves the company a lot of resources in the future. Individuals and enterprise teams can be part of industry-recognized training programs to ensure the successful completion of projects in a timely manner.

Know more about project management best practices through Invensis Learning’s Project Management certification training on PMP Online Training, CAPM Certification Online, Prince2 Foundation Training, Project Management Fundamentals, P3O, and MSP. We are a trusted training partner for Fortune 500 companies and Government institutions globally.

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Lucy Brown has many years of experience in the project management domain and has helped many organizations across the Asia Pacific region. Her excellent coordinating capabilities, both inside and outside the organization, ensures that all projects are completed on time, adhering to clients' requirements. She possesses extensive expertise in developing project scope, objectives, and coordinating efforts with other teams in completing a project. As a project management practitioner, she also possesses domain proficiency in Project Management best practices in PMP and Change Management. Lucy is involved in creating a robust project plan and keep tabs on the project throughout its lifecycle. She provides unmatched value and customized services to clients and has helped them to achieve tremendous ROI.

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