Risk Management: How to Identify, Analyze, and Mitigate Project Risk

Risk Management: How To Identify, Analyze, And Mitigate Project Risk

Finance, tech, manufacturing — no matter the industry you work in, you’re always doing project risk management. Whether you’re a startup founder working on your first Minimum Viable Product (MVP) or the head of IT for a Fortune 500 company, you know that any new initiative comes with some element of risk.

Risk assessment is, in and of itself, a critical part of project management. By identifying potential risks and analyzing their possible impacts, you can put in place mitigation strategies to help ensure your project’s success.

In this article, we’ll discuss the basics of risk identification and analysis, as well as some common mitigation techniques. Let’s get started!

Project risk: what’s the big deal?

So, you’ve been neglecting your project management risk. It’s no big deal, right? Wrong! Ignoring project risk can lead to potential problems down the road.

Risk management is the process of identifying, analyzing, and mitigating risks to your project. It’s important to include risk management as part of your overall project planning. By doing so, you can avoid or minimize potential problems and ensure your project is successful.

So, what is risk? Risk is defined as the possibility of something bad happening that could affect your project. There are a number of potential risks that can impact your project, including:

  • Technical risks — Problems with the technology or software you’re using
  • Schedule risks — Delays or missed deadlines
  • Financial risks — Unanticipated expenses or budget overruns
  • Resource risks — Lack of staff or expertise to complete the project
  • Political risks — Changes in government policy that could impact your project
  • Environmental risks — Natural disasters or other unforeseen events
two people leaning over a wooden table while discussing risk management

To effectively manage risk, you need to identify all potential risks and assess the likelihood and impact of each. You then need to come up with a plan to mitigate those risks.

In failing to do so, you risk encountering the following consequences:

  • Fines and revenue loss
  • Employee turnover
  • Missed opportunities for innovations
  • Damage to company reputation
  • Wasted time and money
  • Inability to deliver the project on schedule or within budget
  • Loss of customers or contracts
  • Lawsuits

So, how do you go about identifying and mitigating project risk? Let’s take a look.

Identifying project risks: 5 ways

When starting out on a new project with your team, it’s easy to get caught up in roles, responsibilities, and who’s-doing-what. However, the very beginning of any project is also the time to take a step back and assess potential risks.

The first step in mitigating any risk is to actually identify it. Here are five ways to help identify potential risks on your next project:

1. Conduct a team brainstorming session.

Before you begin carrying out your project plan, it’s a great idea to hold a meeting and communicate any doubts, concerns, and risks that team members may have. This will help to surface any potential problems early on, so you can address them head-on.

For example, if you have a team of writers, they may express concerns about the deadline being too tight. Or, if you’re working with a new vendor, your team may be worried about potential delivery delays.

2. Interview certain members of your project management team.

Another way to surface potential risks is to conduct one-on-one interviews with different members of your team. Ask them specifically about any risks they see in the project and take note of anything that seems especially concerning.

two people discussing risk management while sitting down in front of each other

For example, if you’re working on a new website design, your web developer may be worried about potential coding errors. Or, if you’re launching a new product, your marketing team may be concerned about a potential backlash from consumers.

3. List some of the most common risks associated with your project.

There are countless potential risks associated with any given project. However, some risks are more common than others.

For example, if you’re launching a new product, you may be concerned about:

  • A potential product recall
  • Design flaws that could lead to consumer complaints
  • Poor sales due to a lack of consumer interest

By listing out the main risks you are already aware of, you can go through your project plan and make sure you have contingencies in place for each of them.

4. Review your project’s dependencies.

A dependency is any event, action, or condition that must happen before another event can take place. In other words, it’s something that can delay your project if it doesn’t go according to plan.

For example, if you’re dependent on receiving approval from your boss before starting a new project, and she’s out of town for the next two weeks, that would be a dependency delay.

By identifying the dependencies in your project, you can begin to create a timeline and identify potential risks associated with each one.

5. Use a risk assessment tool.

If you’re feeling overwhelmed by the task of identifying risks, there are a number of risk assessment tools available online. These tools help you to systematically go through your project and identify any potential risks.

a right hand holding a blue pen on top of a notebook

They typically ask you a series of questions about your project, such as:

  • What could go wrong?
  • What are the consequences of these risks occurring?
  • How likely are they to happen?
  • How much damage could they cause?

By answering these questions, you can begin to develop a plan to mitigate the risk.

Analyzing project risk using a risk matrix

Once you have identified any potential risks, it is important to analyze them in order to determine their potential impact on the project. This can be done by using a risk matrix, which is a tool that allows you to compare risks and their potential impacts.

The risk matrix consists of four quadrants:

  1. Low impact/low probability
  2. Low impact/high probability
  3. High impact/low probability
  4. High impact/high probability

To use the matrix, you first need to determine the impact and probability of each risk. This can be done by using a scale from 1–10, with 1 being low impact and 10 being high impact. You can then use a scale from 1–5 for probability, with 1 being low probability and 5 being high probability.

Once you have determined the impact and probability of each risk, you can place them in one of the four quadrants. This will help you to determine which risks are the most important to address and how to best address them.

For example, if you have a risk that has a high impact and low probability, it would be placed in the fourth quadrant (high impact/high probability). This means that you need to take action to address this risk as soon as possible, as it has the potential to cause a lot of damage to the project.

Strategies for mitigating risk

Now that you have both identified and analyzed the risks associated with your project, it’s time to start mitigating them. Mitigation is the process of implementing strategies that will reduce or eliminate the likelihood and/or impact of a risk event occurring.

There are many ways to mitigate risks, but some common strategies include:

Avoiding the risk

This strategy is popular, as it involves the least work and damage control. If you can avoid taking a risk altogether, that’s the best way to go. However, this isn’t always possible (or desirable); for example, you may not be able to avoid a risk that’s inherent in your industry or business, and so must take steps to manage it.

two people wearing construction helmets while standing by the window

Reducing the likelihood of a risk event occurring

Second-best to avoiding risk, you can also take steps to reduce the likelihood that it will happen. This could involve implementing processes and procedures, putting in place safety nets or fallbacks, and/or training your team on how to handle potential risk events.

Reducing the impact of a risk event if it does occur

If you can’t avoid or reduce the likelihood of a risk event occurring, you can at least take steps to reduce the impact it will have on your project. This strategy works well in conjunction with the previous two, and could involve things like:

  • Having a backup plan in place
  • Building in extra time for tasks that are particularly risky
  • Purchasing insurance to cover potential losses
  • Strengthening your team’s skills and knowledge

Training your team

Training the people on your project management team to identify and manage risk is one of the best ways to mitigate it. By creating a culture of risk awareness, you can help your team make better decisions that will reduce the likelihood and/or impact of any risks that may occur.

To train your team, you can do any or all of the following:

  • Hold risk management workshops
  • Encourage team members to share their risk experiences
  • Use scenario planning to help team members understand how risks can play out
  • Create a risk register and update it regularly

No matter which strategies you choose to mitigate the risks associated with your project, it’s important to keep in mind that there is always some level of risk involved. By being proactive and implementing strategies that will help reduce the likelihood and/or impact of any risk events, you can put your project on a much more solid footing.

Final thoughts

No matter how competent and experienced your project team may be, there is always some inherent risk in undertaking any new endeavor. Risk can come from any number of sources — technology failures, personnel issues, supply chain disruptions, natural disasters, and so on.

a black chess king piece while six white pieces have fallen down

The key to mitigating risk is to identify potential hazards and threats early on and put in place measures to address them. This involves a process of risk analysis, in which all possible risks are identified and assessed for their potential impact on the project.

Mitigating risk is not always easy or cheap, but it is essential for any successful project. By taking steps to identify and address potential hazards, you can minimize the chances of costly disruptions and ensure that your project is on track for a successful finish.