How to manage project risks?

Before diving into how to manage project risks, it’s really important to know what the risk is. However, is achieving the project’s objectives in terms of schedule, cost, and quality. Now, to accomplish these objectives, you must consider what could hinder me from achieving them. What dangers will I encounter and where will they come from? That’s called risk.

Risk

A source of danger; the possibility of suffering harm or loss. A possibility of loss—not the loss itself! This possibility could have both positive and negative impacts on the project objectives. This possibility could have both positive and negative impacts on the project objectives.

The WBS shows that risk can come from any source of uncertainty. While some of these risks are within the project team’s control, others are not. Not all risks are negative (opportunity). For instance, employing new technology in construction projects can help team members work more effectively. External variables can also help your project, such as a change in regulation.

To effectively manage the risk, you need to develop a plan of action to manage the processes and address the potential impact of risk. This process can be used to perform preventative action or corrective action for both positive and negative impacts of the risk on the project.

Planning for risk management (risk management plan) should begin in the early phases of project development and is expected to be a continuous process throughout the project lifecycle.

Identify Risks

The purpose of this first step in the risk management process is to identify the risks that could result in either an increase in cost to the project, a delay in schedule, or a loss of profit.

To do this

• Review the project scope, cost, and schedule.
• Review project contracts for potential risks and liabilities and reviewing legal requirements in the contracts to determine the potential impact of contract clauses.
• Hold a brainstorming session with your team, stakeholders, and subject-matter experts to identify potential obstacles, generate ideas with you, and create suggestions.
• Identify specific risks that could have an impact on your project by creating a list (or spreadsheet-risk logs) of potential hazards that might arise.
• View project realistically, not idealistically. in terms of cost and schedule, must be objective and realistic.

Some project managers make the mistake of trying to accomplish brainstorming sessions on their own in order to allow team members to complete other tasks. It is important that the entire team get involved in identifying threats and highlighting what can go wrong.

Risk Analysis.

In this stage you have to answer these questions

• How probable is it that each risk will become a reality?
• If the risk becomes a reality, how badly will it damage the project?
•  If the risk becomes reality, how will it affect the budget, schedule, resource utilization, scope of work, and so on?
• If the risk becomes reality, what will we do?

To analyze the risk,

• Calculate the priority based on probability and potential impact. Severity = Probability x Impact
• Insert a list of risks into a risk register.
• Evaluate (or score) risk based on the likelihood that the risk will actually occur and the severity of the impact on the project should it occur. (Use the matrix of likelihood and severity results).
• To determine where to devote time to project risks, rank the risks from “critical” to “minor.”.
• Perform quantitative analysis to estimate severity and percentages of likelihood to better define potential risk impacts. You can make better decisions with more precise information. That’s what this process is about—assigning numerical values to the probability and impact of each risk.
• Develop mitigation plans and contingency plans for the degree of impact associated with the risks. Contingencies represent the specific actions that will be taken if the risk occurs.
• Establish the trigger point. The trigger should be a specific point in time or a defined range of time. Most project managers consider this to be the trickiest part of the project risk plan.
• Establishing Reserves. The most comprehensive risk plan can be compromised if you realize that you do not have the time or means to take appropriate action. Establishing reserves enables you to leverage the plan to its fullest potential.

Sometimes you don’t know what you don’t know. Management reserves are created to cover unknown risks to the project.

The table below shows the output of this step results in a list of potential risks with corresponding values for probability and negative Impact

How you deal with risk?

When you’re planning your project, risks are still uncertain: they haven’t happened yet. But eventually, some of the risks that you plan for do happen. Nevertheless, once you have evaluated the priority of the risks, you’ll want to select a response strategy for each hazard. Avoid, mitigate, transfer, and accept are four typical approaches to managing risk, and the best risk response techniques

Avoidance: Risk is eliminated or avoided by changing the parameters of the project. May change the project plan to eliminate conditions creating the risk.

Mitigation: Reduce the likelihood and/or consequences of a risk (preferably both) by a series of control actions. Performing a cost/benefit analysis can be useful in selecting the best control action. or Schedule Control.

Transfer: This involves shifting the risk to another party outside of your project. You could transfer the risk to your insurance provider. Often called risk allocation.

Acceptance: You may have to incur risks in order to finish a project. For instance, you can choose to accept the weather-related delays while planning to manage the project more effectively to get around the issue.

Many project managers wait too long to assess risk factors and delay creating a risk management plan because they assume they don’t know enough yet, that there are too many unknowns. This is a common trap that you should try to avoid.

You and your team members should take a strategic approach to “what can go wrong” and begin laying the foundation for the detailed plan to follow. Without this foundation, projects often experience the negative impact of risks that become reality, risks that might have been prevented or mitigated through contingency planning. This is reactive behavior, and you must live in the proactive world to be a successful project manager.

Always remember that proactivity is the project manager’s best friend.