All successful project managers have one crucial ability in common, which ensures their projects never get derailed or end in disaster: effective risk management. This essential aspect of managing projects involves identifying, assessing and responding to potential project risks. Mastering risk management can improve your project management skills overall by guaranteeing your project is delivered on time and on budget, every time.
Looking to take your project management skills to the next level? Start with understanding project risks. Project risks are any elements that might affect your project. Although these risks could potentially have positive implications, they are generally associated with being negative. These risks can lead to any number of problems for your project, from your team not having the manpower or skillset required to complete a task, to critical raw materials not being available in the timeframe required.
Unchecked risks also can result in larger issues with following your schedule, meeting quality requirements or staying on budget. If not managed correctly, project risk can make it harder, or even impossible, to successfully deliver your project.
So how can you safeguard your project from disaster and keep it on track for success? The answer lies in creating a risk management plan. Read on for five steps to establishing a flawless risk management plan to set up your project for greatness.
Step 1: Identify the Risk
The importance of identifying and tracking risks cannot be understated. Building awareness of as many risks as possible will heighten your chances of successfully avoiding or managing risks. Creating a risk register, or list of potential project risks, can help you get a step ahead of all potential risks before they become problems. Your risk register forms the basis of your risk management plan, establishing an ongoing list of any risks that might impact your project. Hint: Lessons learned from past projects can be used to inform current risk registers. This list also should be maintained throughout the project lifecycle, as risks can appear and disappear as your project progresses.
Step 2: Assess the Risk
Once risks have been identified, you must determine the associated cost of risks compared to the cost of mitigation efforts. This requires estimating how much a potential risk could cost the organization based on its probability, detectability and severity. Measuring risks in this way can ensure that everyone involved has a clear idea of what might happen, and what might be lost, if any of these risks arise.
Step 3: Plan Responses
What if these risks do arise? You should have an appropriate response plan in place for each potential risk.
Generally, there are four response categories that all risks fall into, which determine what you can do to address and manage a project risk. They are:
- Avoid: Change your plans to dodge the risk entirely.
- Transfer: Outsource the risk to a third party to manage the issue.
- Mitigate/Reduce: Reduce the impact or likelihood of the risk.
- Accept: Take the chance of a risk occurring.
Although unlikely, it is possible that some of your risks might have positive outcomes. For example, you might be at risk of selling so much of your product that a capacity issue arises. While this does have positive implications, it is best to plan for this type of situation in advance to avoid any related issues.
In the event that such a positive risk occurs, potential responses include:
- Exploit: Ensure that the risk occurs to realize its positive benefits.
- Share: Work together with a third party to achieve an opportunity associated with a risk.
- Enhance: Increase the chance of a risk occurring to achieve its benefits.
- Accept: Take the chance of a risk occurring.
Based on these categories, you can decide which response is best suited for the risk at hand. For example, you might decide that the risk of a bus driving into your office is something you’ll simply accept, as it isn’t very likely to happen. However, the risk that food poisoning takes out half of your workforce is something you will have to actively mitigate by ensuring all catering staff is properly trained.
Once the response is established, risk owners can be appointed to carry out each risk management action plan. Completion of this step demonstrates that you have thought through all potential risks and put plans in place to reduce uncertainty on the project.
Step 4: Implement Mitigation
Now that risk owners have been appointed, they can be held responsible for completing the necessary tasks for managing any open risks.
Reporting on the mitigated risks will help your management team see that you are serious about future-proofing your project against problems, while also providing mitigation plans to look back on if similar risks arise in the future.
Step 5: Risk Monitoring
Once the risk management plan is finished and put into place, with risk owners, plans and risk registers actively at work, you will have to continually monitor all results throughout the duration of your project. These reports also can be used as communication tools to keep all involved personnel aware of risk management outcomes.
Risk management can help any project run smoother, while further enforcing your creative and strategic capabilities as a project manager. By determining risks and actively managing problems before they happen, you can set yourself apart as a successful project manager and ensure you are prepared for any problem that might be thrown at you.
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Lean Program Manager
Roger has been a Program Manager in The Center’s Lean Business Solutions program for 18 years. He has trained and mentored hundreds of Michigan manufacturers in the entire portfolio of Lean strategies and methods (e.g., Kaizen events, Standardized Work, 5S/Workplace Organization, Value Stream Mapping, Total Productive Maintenance, Culture Change, Team Building, operations management and process re-engineering). In addition to his training and consulting work, Roger has over 20 years of experience in manufacturing management.
Since 1991, the Michigan Manufacturing Technology Center has assisted Michigan’s small and medium-sized businesses to successfully compete and grow. Through personalized services designed to meet the needs of clients, we develop more effective business leaders, drive product and process innovation, promote company-wide operational excellence and foster creative strategies for business growth and greater profitability. Find us at www.the-center.org.