Article originally published in The London Economic

Regardless of the methodology chosen, all successful project management involves judicious risk management. Project management risk arises from multiple different directions and, ultimately, dictates the overall success or failure of the project. All of this is why effective risk management is crucial for every project’s success.

Why is risk management so important?

Without effective risk management, project managers are flying blind. They aren’t able to make informed decisions for the entire project cycle, and will inevitably face chokeholds along the way.

Project managers should always invest time in thorough analysis of the project scope in order to understand possible risks and challenges. Coupled with effective communication, this gives the team the best chance to understand how to mitigate these risks and find workable strategies.

How to understand project management risks

There are many factors that can impact the risks facing a project. By properly understanding risk management processes, the team involved can greatly increase the likelihood of success.

Initially, the project manager must understand the objectives of the project. By taking a structured approach at this stage to identify risks, their potential negative impact can be minimised.

Successful project management goes way beyond the day to day completion of tasks. It’s about anticipating and predicting potential problems and coming up with mitigating strategies. The kinds of risks they should be on the look out for include challenges concerning the project’s schedule, scope and budget.

On top of this, there are external risks that aren’t in the direct control of the project manager. These include geopolitical and economic impacts on the project. Other risks include those related to planning, contract development and other processes.

Project management risk categories

Risk categories cover internal and external risks and can be further broken down into sub-categories. The two main categories are:

1. Business-level risk: this concerns the impact of overall business operations, such as levels of customer satisfaction, governance, workforce and management.
2. Project-level risk: this concerns lower level risks that impact the project such as budgeting, resource management and scheduling.

Breaking down the risks

A successful risk management strategy covers all possible risks. Beginning with project-level risks, these can be further sub-categorised as:

• Financial risks

These involve any risks linked to finances or monetary factors, such as material costs, budget costs or budgets that go over their limit, the need for more labour or insufficient funding.

• Strategic risks

These revolve around the strategies that were decided upon during the planning phase. Strategic risks could include the methodology used, various project management techniques, operational issues, employee retention rates, technology or any other dependency.

• Performance risks

These cover the entirety of the project cycle, from poorly defined KPIs to poor portfolio management. Project managers must remain flexible and able to pivot to successfully react to emerging challenges.

• External risks

Risks from external sources are less predictable and can hit at project or business level depending on their severity. Examples include market volatility, supply chain problems and major weather emergencies.

Project Management Body of Knowledge (PMBOK)

This sorts project management risks into the following three categories:

1. Operational – project-level risks usually more prevalent later on in the project cycle, involving the project deliverables.  
2. Short term strategic risks – impact project managers during the or shortly after the project lifecycle.
3. Long term strategic risks – linked to the project objectives of the project and the problem that the project is attempting to solve.

Major project management risks

If the following affect complex projects, then they can cause problems or even stop the project in its tracks.

• Budget risks

Project budgets are always critical when planning for potential risk, as they can dictate success or failure. Going over budget is all too easy and poor planning can lead to this.

Proper budget planning starts with research right at the start. By using data from previous projects and gathered from research, the project manager can make accurate assumptions. Some flexibility should always be built in to budget planning.

• Employee retention risks

The project team is always important and high levels of turnover creates significant risks to the project. Consistent employee churn gets in the way of creating a workable project plan. Therefore retaining employees and keeping them happy is essential to project success.

Ultimately, unhappy team members will cost the business in some way. Plenty of studies show that employees are happier when they’re listened to and properly compensated.

• Production and procurement risks

For any projects that manufacture products, materials are key. If the project manager fails to source the necessary materials, the project plan will never work. This is a difficult part of project risk management as it’s difficult to be accurate or to predict how costs will vary.

By including flexibility in the project plan allows for alternative materials to be sourced if necessary. It’s important to mitigate these risks where possible to ensure customers remain happy.

• Resource management risks

Every project can be derailed by imbalance between financial and labour resources. Resource management processes help to mitigate these risks and every business needs to have processes in place to manage this.

Organisational changes present project risks

Leadership volatility has an impact on other business levels, including on projects. For example, previously well funded projects could be stopped by new management. This is obviously challenging, but can also present new opportunities for enterprising project managers.

Look out for these common project risks

Risks are scalable and not every risk will totally derail the project even if the worst does happen. However, it’s important to take all risks seriously. There are loads of common risks, ranging from poor project management to scope creep, IT problems and low sales.

While most of these can appear minor, it’s essential that the project manager works towards mitigation as they can quickly add up to become a bigger problem. Here are just some of the common risks to watch out for:

• Scope creep

This refers to the project’s scope changing and growing along the way. It is a challenge that faces every project manager regardless of the project size. Expectations can change after the planning is complete.

One way of dealing with this is through the flexibility offered by Agile project methodologies. But whatever process being used, it’s important to manage scope creep. Not doing so can derail the project entirely.

• Low sales performance

Low sales figures can force big changes to the project. Sometimes, this can mean total cancellation. It’s difficult to predict low sales but various methodologies should be introduced to mitigate the risks.

• External hazards

External hazards are unpredictable and include everything from fire, flood and illness to anything else that can impact at business and project level. It’s essential to put in place safeguards to minimize the impact of eternal hazards nonetheless, including a business continuity plan, for example.

• Technology and processes

Technology creates more and more risk as it becomes more complex. Critical mitigations include data back-ups and ensuring there are many trained employees able to manage data effectively.

The process of managing risks

Managing risk is about what might go wrong along the way and while project managers use different approaches to communication, risk management should be part of every project management plan.

Project managers should use risk registers to successfully capture risks and then conduct risk analysis.

What is risk analysis?

Risk analysis us used to work out the biggest potential risks facing the project. It’s essential for the project manager to work with all stakeholders to get a broad perspective. Communication is obviously vital here and successful risk analysis informs good decision making and mitigation planning.

What about human error?

Traditional risk management tends to ignore a crucial factor – human error. This is a key dynamic and shouldn’t be overlooked. Simply put, people are driven by emotions and often mistakes tend to be caused by human error and this must be factored in to the risk analysis.

Behavioural risks occur when team members don’t behave as initially expected. From people feeling under pressure and making mistakes to ignoring best practices, there are lots of potential human error examples that can happen throughout the timeline of any project. Broadly, there are three reasons that people stop engaging in the project:

1. Not being aligned – people in the team may have different priorities to the project manager or other stakeholders.
2. Not being engaged – leading to lower levels of commitment and missing deadlines or milestones.
3. Not being resilient – high stress levels can lead to errors.

Mitigating these risks involves ensuring communication is successful. The simplest way to do this is to identify the risk and continually monitor it while adjusting responses along the way. Gathering data from the team itself is also a useful way to offer different ways to mitigate the risk.

How to manage project risk

Risk management should not be seen as an optional extra and should always form an integral part of project planning and management. The only practical way to mitigate the risks outlined above is to use data to predict their likelihood and then to implement a mitigation strategy.

Part of this includes sharing best practices. There are a number of project management methods and best practice methods to choose from, including the following:

• Agile project management

Agile is all about risk management, making it a logical choice for project managers faced with higher than average risks. Agile and Scrum help to manage risk by splitting the project into smaller, more manageable ‘sprints’. This gives team members more flexibility to deal with their deliverables and mitigate the potential adverse impact or risks.

• Be proactive

Risk analysis should form part of the initial planning process. By taking this proactive approach, there is more time to communicate with those involved to ensure that mitigation can be implemented. The earlier the risk is identified, the less they cost the project in the long term.

• Work within the project’s means

One of the simplest ways to mitigate risk is to take fewer risks along the way. Part of this is remaining strictly within the barriers of the resources available. This depends on who has the final say, but it’s a good approach to remain within the lines from the start. This makes it easier to keep costs down and manage stakeholder expectations.

• Quantify the impact of the risks

Where possible, the project manager should work out the quantifiable impact of possible risks to project success. Different risk types come with different costs, so by attaching real time data, it’s simpler to prioritise the risks in order to mitigate.

This strategy also makes it easier to communicate with stakeholders regarding the risks, as they won’t all be involved in the details of the project on a day to day basis.

Some stakeholders will want to stick to a high level overview, but it’s always a good plan to provide proof of data to underscore decision-making.

• Always work on better communication

Communication is such a major part of successful project management, and it needs to work at every level. Honest, open and free flowing communication can make the difference between successful projects and making errors that impact the final result.

Team members must feel able to communicate with project managers in an honest way. They must be able to bring problems or challenges to the project team with the knowledge that they will be listened to and problem solving will be actioned.

Poor project managers will shut down team members who flag issues as they just don’t want to deal with it, but this is obviously the wrong way to deal with any project. It’s important to encourage team members to report on emerging risks as they are much closer to the pipeline. This is important information that must be taken seriously and mitigated.

Key stakeholders and leadership team members must also be included in communication so that everyone is clear on what’s happening every step of the way.

• Maintain project visibility

Ensuring good visibility practices are in place right from the beginning is very important. Everyone involved must be able to quickly understand both the granular details and the overview of the project. Efficient project management can only occur with no obfuscation and with clear visibility at all levels.

Effective risk management

Mitigation is the aim, but without proper analysis and identification of risks in the first place, this can’t happen. So this is absolutely key to project management.

However, the best project managers understand that risks are not solely about detrimental impact to the project – they can also be viewed as opportunities to make positive changes. For example, it’s always possible that risk management strategies will present more efficient ways to deliver the project’s objectives.

Without the initial risk analysis and a coherent strategy, risks only present detrimental impacts. With it, it’s possible to lower costs and speed up deliverables.

Stay flexible at every level

Flexibility is as important as analysis. Every project is liable to face emerging changes and challenges. So the risk management analysis and process must have space built in so that changes can be made along the way.

Furthermore, risk analysis must be constantly updated along the project pipeline, particularly for the most complex projects.

Risk management is an integral part of project management and should not be siphoned off as a separate entity. It should be part of regular activities of the project manager and the project team.

In summary

Consider the following when devising your risk management strategy.

• Document risks

Create a detailed risk log covering everything from a full description of the risk, who’s responsible for its mitigation, its potential impact and what needs to be carried out for mitigation. This needs to be regularly updated and detailed enough to be useful.

• Prioritise risks

In order to prioritise risks, it’s essential that the project manager properly understands the types of risks that may impact the cost, scope and time spent on the project. An impact and probability rating can help to do this.

• Properly plan the risk response

For each risk that has been identified, it’s necessary to mitigate the risk and decide on the best action to take to do so. And the most important point – make sure that every mitigation is properly implemented. Without proper follow up, the entire risk management process becomes redundant, when it can be an important gateway to a successful project.

About George Rist

George Rist is a Monmouth-based Management Consultant, dedicated to helping organisations achieve transformative change through strategic, sustainable, and measurable solutions. With expertise in digital transformation, project management, and operational excellence, George is passionate about making a positive impact across industries.