What is Risk Management in Projects?

    2=Planning, 4=Control

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Risk management comes in many flavors – enterprise, operational, and strategic risk management. But what is risk management in projects? How can we integrate risk management with project management, resulting in greater project success?

project risk management image

Hand in Glove Relationship

Project risk management fits into project management like a hand-in-glove. Project managers can use it to achieve their project objectives and goals. How?

Good risk management always starts with clear project objectives and goals. That is to say, project managers who manage risks without project objectives as the basis are simply playing games. These individuals are merely going through the motions.

Good risk management always starts with clear project objectives and goals. —Harry Hall

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Allow me to illustrate. First, imagine Bill, the project manager, who asks the project team to identify threats and opportunities without reference to project objectives (the objectives may not even exist). The responses will be based on each team person's project perspective. And many times, team members see the project differently.

Second, imagine Sue, a project manager, who has worked with the project sponsor and key stakeholders to develop a project charter. Furthermore, the project charter includes clear project objectives and goals. 

Rather than asking the team open-ended questions to elicit threats and opportunities, Sue lists each project objective/goal. She asks what may help or hinder the team's ability to achieve each objective. See how this works? Hand in glove.

Objective. Something toward which work is to be directed, a strategic position to be attained, a purpose to be achieved, a result to be obtained, a product to be produced, or a service to be performed. 

PMBOK® Guide, Seventh Edition

The Purpose of Project Risk Management

Every project has risks—uncertain events or conditions that, if they occur, have a positive or negative effect on one or more of the project objectives. So, the purpose of project risk management is "to increase the probability and/or impact of the opportunities and decrease the probability and/or impact of the threats" (PMBOK® Guide, Sixth Edition, Page 395).

Project objective: To decrease the cycle time of a process from an average of 14 days to 5 days by the end of the year

Consider a project that is undertaken with the objective/goal of decreasing the cycle time of a process from an average of 14 days to 5 days by the end of the year.

The project team identified the following threats:

  • Project team misunderstood the requirements. Rework may be the result, causing adverse impacts on the schedule and budget.
  • Users are resistant to changes in the current process. The requirements process may take longer than expected, and the "to-be" process may not support the 5-day cycle time objective.
  • The technology components aren't fit for the purpose. The project team may be unable to reduce the cycle time to 5 days. Furthermore, the process may not support the required exception handling.

Now the project manager assigns a risk owner to each risk. The risk owners develop and execute the risk response plans. These activities reduce the probability and/or impact of these threats, ultimately leading to the achievement of the project objectives.

Are you unclear about the priorities in your projects? Not sure if you and your teams know what matters most? Discover how to evaluate your project risks quickly in the Perform Qualitative Risk Analysis online course. 

Project Risk Management and Other Knowledge Areas

Project managers should integrate project risk management in all aspects of their projects—schedule, budget, quality, procurement, communications, stakeholders, scope/requirements, and resources. Let's look at three integration examples.

  1. Early in my projects, I interview key stakeholders. And when I do, I ask about their concerns about the project. These concerns are often indicators of risks. 
  2. Think about scope management and your WBS exercises. After developing a WBS with your project team, walk through each work package at the lowest level and ask the team to identify risks. Furthermore, you may perform quantitative risk analysis and develop a contingency reserve.
  3. Another example? When creating a communications plan, ask your team members to help you determine what may or may not happen. How can you and the team communicate more effectively?

Some people view risk management as an extra layer of work that provides little value. Performed correctly, risk management will reduce the overall effort and propel the project to success. If not, rethink your risk management. The benefit should always exceed the cost.

Not sure if you are on the right track? Here are 12 Sure-Fire Ways to Improve Project Risk Management.

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