What is Project Risk?
When you are planning your projects one of the key considerations is risk. Risk is defined as “an uncertain event or condition, that if it occurs will impact at least one project output or outcome”.
It is common in projects that risks may be identified but not prioritised. If they are not prioritised then it is impossible to develop mitigation strategies!
If you are interested in me writing about how to identify, prioritise, treat and track risks just let me know in the comments!
Project risk analysis considers the project performance over its life cycle and reflects on problems that may lead to loss or project failure.
A project risk analysis considers the likelihood of a threat occurring and the level of impact. Once this is determined mitigation measures are put in place.
In this post we provide insight into why an organisation will consider project risk and provide five examples of common risks encountered in project management.
Why is consideration of project risks important?
Projects are all unique and therefore the risks can also be new to a project team. It is important for a project team to identify the level of experience and familiarity they have had with similar projects. If the project is completely new or the team have no experience with the upcoming project then stakeholder consultation becomes important. By gaining the insight of people who can affect or will be affected by a project may uncover potential risks that the project team may not have considered.
A project team brainstorming session is a good way to start identifying the risks associated with your project. It is also important to identify all of the unexpected events that may occur with the project. This is so you can identify any impacts on the processes, technology or resources and then develop thorough mitigation strategies to minimise loss.
One of the challenges when considering risks to a project are those problems that occur that were not considered or could not have been foreseen. I’m sure that in 2019 the consideration of a pandemic was not considered in many project risk management plans. Fast forward to today and I can assure you that nearly every risk plan would be considering the potential impact of Covid-19.
In order to address the unknown unknowns of a project it is prudent to put in place a contingency fund. This fund can be accessed when an issue appears that had no specific mitigation strategy in place. Ideally this contingency fund should only be used for such occurrences and not be used for any shortfalls in cash that the project may have at any given time. Ideally the Project Manager has the delegated authority to access the funds quickly if required. Once the project has been completed the funds are then returned to the regular operational accounts.
By being proactive in the identification of risks sends a positive message to the project stakeholders. It assures them that any problems associated with the project will have a minimal impact on the project and therefore enhance its success.
Scope Creep Risk
Having someone ask if we can ‘just’ add this or ‘just’ add that is very common in projects. Scope creep occurs when uncontrolled changes to the initial intended scope of a project are made. By allowing scope creep to enter the project there is pressure on the budget and deadline. There is a relationship between scope and the quality of the project. If scope increases – and cost and time stay the same – then the quality of the project will reduce. Alternatively, a way to improve the quality of the project is to take some of the scope out of the project. This is common when budget is tight or the deadline is not negotiable.
Every project manager should be aware and prepare for the potential of scope creep. One mitigation strategy is to ensure clarity in the business case or project charter. By clearly stating what is in and what is out of scope, and have it signed off by the relevant project sponsor/client then it is possible that this signed document can be referred back to.
Having a clear Work Breakdown Structure (WBS) may also go some way to preventing scope creep. If you can communicate to the project sponsor/client that the extra work will either mean more cost or a delay to the project then this may be enough to thwart their requests.
Of course, if the project sponsor is willing to provide more time and money then adding the scope may be the correct course of action. By just saying yes may be the path of least resistance. There may be other times when you need to pick your battles!
Budget Risk
A project being over budget may pose a significant threat to a project’s completion. There are several strategies to put in place when the budget is being considered.
Firstly, ensure that everything has been done to provide accurate estimations. This can be tricky especially in modern times when supply chain challenges are in play. However, you may want to refer to expert stakeholders, past projects, current pricing offered via internet research or statistical methods to fine tune the estimation techniques.
Consideration of indirect project costs should also be made. These can sometimes be difficult to judge especially when you are weighing up shared recourses, insurances, taxes and travel and accommodation. One way to approach these is to put in place contingency and management reserves as a buffer for budget overreach.
Communication Issues
There are many moving parts to a project, and it is communication that holds it all together. No having effective communication on the progress of the project created a vacuum. What stakeholders will do when they are not receiving transparent communication is that they will begin making assumptions. They are usually wrong! This can hinder the project and is sometimes a project killer!
The key to effective stakeholder engagement is to identify, prioritise and then develop the engagement strategy based on where they sit in importance. By using the stakeholder register you can provide the right engagement strategy to the right level of stakeholder. A key point is to continue to monitor the document as a stakeholder’s priority may change through the life of the project.
Health and Safety Risk
This is a risk that all project teams should be aware of. The health and safety of stakeholders should be a top priority for the project team and health and safety standards should be monitored and evaluated frequently. There are significant penalties in place in many countries if health and safety is compromised. A breach of the health and safety standards can not only be costly, it could also mean significant legal implications for management.
Schedule Risk
There are several reasons for a project not being completed ahead of schedule. The most common reason is that there is an increase in the requirements needed to complete the project. Other reasons may be that estimates of completion are inaccurate. This may be because of an inexperienced project team or there could be more profound issues such as the current supply chain crisis.
There are some strategies that the project manager has at their disposal that may alleviate the pressure on the project schedule. These include resource levelling, fast tracking and crashing. If you want me to write a post on these strategies let me know in the comments section!
So there you have it, risk can take many forms and are not limited to the examples I have provided here. If you have any examples or stories on how risk management went wrong in your project, please let me know in the comments.