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Project Risk Assessment: All You Need to Know About

Project Risk Assessment

If I were to give one project risk assessment example that ultimately led to project failure, it would be the launch of Samsung Galaxy Note 7.

Do you remember that launch?

The Samsung Galaxy Note 7 was launched on Aug. 2, 2016. It was said to be “the best smartphone the world will see” for that year. But, in just twenty it went from “the best” to “the most deadly” smartphone that year!

The phone had a battery issue that led many products to burst when people used the phones. It was a disaster!

This ordeal lasted for forty-seven days, after which Samsung completely stopped the production of the Note 7. The loss for this project was estimated to be $17 billion. Ouch!

This is precisely the kind of damage companies tend to face if they don’t pay attention to project risks. They may seem petty or irrelevant, but in the long run – they bite!

Before we get into risk analysis in project management, we first must know what it is.

What Is Project Risk?

Project risk can be defined as:

Any uncertain or unfortunate event that can cripple a project, keeping team members from achieving the objectives.

Such risks can be known or unknown as no project is completely immune to them.

Other than that, it is also essential to know that project risks can be of various types, and that’s why it is difficult to predict the occurrence of risks. Let’s discuss the types of risks in project management.

Types of Project Risks

There are nine types of risks in project management, including:

  • Cost Risks
  • Schedule Risks
  • Performance Risks
  • Governance Risks
  • Strategic Risks
  • Operational Risks
  • Market Risks
  • Legal Risks
  • Other Miscellaneous Risks

The miscellaneous risks are the ones that are associated with external hazards; a few examples are earthquakes, cyclones, storms, and floods; sabotage, terrorism, and vandalism; labor strikes; and civil unrest.

While known risks can be anticipated and eliminated in advance with careful planning, unknown risks are hard to tackle. That’s why organizations leverage a risk assessment strategy to learn about the possible risks, to avoid them or minimize their impact.

What is Project Risk Assessment?

Project management risk assessment is one of the most important steps in the risk management process. 

Risk assessment can be defined as:

The determination of the qualitative or quantitative value of the risk that may or may not crop up in a project.

Like any process, project risk assessment has several stages, and each stage is crucial to eradicating project risks and its potential drawbacks completely.

Let’s now discuss the different stages of project management risk assessment. 

Project Management Risk Assessment: An Overview

Project risk assessment answers the question “how to identify project risks?”

The process takes into account five things:

  • Event: What can happen that affects your project and cause a risk?
  • Timeframe: When can the risk occur?
  • Probability: What are the chances that the risk will actually occur?
  • Impact: How badly will it affect the project?
  • Factors: What are the triggers that could cause a risk to occur?

With all these factors in mind, you must follow a project risk assessment process. Let’s discuss how you can go about project risk analysis and what are the steps you need to follow. 

Project Management Risk Analysis: 5 Steps to Follow 

# 1 Identification

Identifying the risk is the first step and requires the active involvement of the team members, regardless of the role. Any person who is a part of the project lifecycle qualifies to be a part of the discussion and voice their opinion.

The goal of this step is to identify the probable risks that may trouble any phase of the project later. As multiple factors can lead to project failure, you should comprehensively discuss key risks such as:

  • Technical
  • Managerial
  • Cost
  • People
  • Financial
  • Schedule

When the entire team participates, you get more insights into possible problems, or else, you may end up missing a few. You can either discuss and pen down the risks, or better, document them on a simple project management tool for keeping a track.

Initiate the discussion on past mistakes to ensure that they don’t impact the current and future projects. After that, you can brainstorm solutions to do away with the mistakes, so that they have no impact on your project lifecycle.

To proceed effectively with this step, you can use a simple project management tool to take inputs from everyone on a single platform.

Read more: Project SWOT Analysis

#2 Evaluation

  • Probability Analysis

When you have multiple risks to mitigate, analyzing the likelihood of their occurrence is crucial. You can take a cue from past projects or ask your team members to add inputs to gauge what risks can cripple the project.

After that, decide what risk needs to be nailed down first and what can be addressed later. Categorize the risks as high, medium and low for better management and to stay on top of the project lifecycle.

While deciding the probability of the risks, it’s crucial to rely on a data-driven approach than simply following your intuition.

  • Impact Analysis

Different events can have varied repercussions in the project lifecycle. In other words, some undesirable events can have a larger impact on the project than the others. Until you gauge their impact, it’s impossible to come up with a mitigation plan.

The ideal approach is to assess the impact of individual risks and focus on minimizing them. Since you are already done with probability analysis, you can apply the approach for segregating risks based on impact:

  • Low Probability – High Impact
  • High Probability – Low Impact
  • Low Probability – Low Impact
  • High probability – High Impact
  • High Probability – Low Impact

Focus your energy more on the “high probability high impact” risks first, and then, you can deal with risks having a low impact.

Moreover, you must also learn about the type of impact associated with every identified risk. The risk can be a threat to your budgeting, timelines, or any other factor.

Now, you need to decide what you need to work on first. Is it timelines or budgeting or any other factor? Once you prioritize, setting realistic expectations for your client will become easier, which also helps in preventing burnout.

Read more: Improve Your Project Evaluation Process

# 3 Avoidance

If you find a risk that can be avoided, consider doing away with them at the beginning of the project lifecycle. Avoiding a risk usually involves leveraging technical strategies that have a 100 percent success rate. All in all, you can breathe free as the probability of that risk is reduced to almost zero.

#4 Mitigation

Although some risks can be avoided, that’s not going to be the case all the time. There are risks you can’t avoid, no matter how hard you try. If your project, for instance, has a high rate of employee attrition, you can set aside buffer resources who can work in case the need arises. This way, you can ensure that such a risk doesn’t cripple the bottom line of your project.

For such imminent and unavoidable risks, you need to have a mitigation plan. Having a mitigation plan ensures minimal impact on your project if any unfortunate event occurs during the project lifecycle.

#5 Monitoring

The real worth of a plan is realized, only after its successful implementation. Even if you draft the most comprehensive risk plan, the application is crucial. For that to happen, you need to have a risk monitoring plan.

A risk monitoring plan helps in keeping track of whether teams are following what’s required or not. Risk monitoring helps in maintaining accountability since you can now determine whether a person is following the plan or not.

Risk Assessment Project Management: Deploy the Right Tools

No project manager can forgo risk assessment as it directly impacts the bottom line of the project. Even the old adage says,

“Prevention is always better than cure.”

Risk assessment can ensure that every stage of your project lifecycle is seamlessly executed, without experiencing any significant issues. Even if problems arise, you always have a mitigation plan to guide you on exactly what you need to do for averting damage.

Drafting an assessment plan is not enough for multiple reasons. Until team members are on the same page, there is always a probability of miscommunications and conflicts.

Adequate training for risk assessment can help in filling the gaps and further ensure that your members are not running from pillar to post, in case of an outage.

At every stage, you are most likely to receive multiple inputs; causing you to lose track. To avoid such situations, you can consider using project risk assessment tools to stay on top of risk assessment. Not only a tool will help you in planning, but it will also promote collaboration among your teams.

Now that you have a basic idea about risk assessment in project management, let’s cover a few FAQs on similar topics.

Q1. What is risk assessment in project management?

  • Project risk evaluation or assessment can be defined as the process of identifying and eradicating the possible risks in a project.

Q2. What are project risk factors?

  • A project risk factor is an event or situation that might give rise to one or more risks.

Q3. What makes a project high risk?

  • Risk is all about the uncertainty of events that affects a project negatively or positively. A few examples of risks include safety risks in construction projects or IT project risks such as security risks.

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About the author

David is a Project Management expert. He has been published in elearningindustry.com, simpleprogrammer.com. As a project planning and execution expert at ProProfs, he has offered a unique outlook on improving workflows and team efficiency. Connect with David for more engaging conversations on Twitter, LinkedIn, and Facebook.