A well-thought-out risk management plan helps your project succeed.
Adele, a project manager, was always looking for ways to prove her worth by showcasing her capability of handling difficult projects. One day, she took on a project that most managers would have avoided. The project was complex and included several risk factors; there was a lot that could go wrong, but the potential reward was high. Adele was confident enough to make a strategic risk management plan, and thus she succeeded.
Every day, people in business take risks. Sometimes those risks pay off, sometimes they don’t. But what separates successful risk-takers like Adele from the ones who fail is their readiness for risk management planning.
Like Adele, if you’re a project manager who handles complex projects and wants to mitigate all potential risks, creating a project risk management plan is the way to go.
Not having a risk management strategy is a sure-shot recipe for disaster, but, at the same time, creating one may seem daunting. That’s why we’ve compiled five simple steps to help you create a risk management plan. We explain how these steps prevent potential issues from arising in the first place. But first, let’s learn the basics of risk management planning.
A risk management plan outlines the steps to identify, analyze, assess, and respond to risks. It also includes strategies to monitor risks and minimize their impact on projects, with the aim of maximizing positive project outcomes.
|Key components of a project risk management plan|
|Project risk background||This includes a description of the project, its objectives, and a list of all the stakeholders involved.|
|Methodology||This includes a description of the risk management process to be used, and the tools and techniques to be employed during the process.|
|Risk breakdown structure||This includes a breakdown of all project risks by type, such as technical, financial, or organizational.|
|Risk categories||This includes a thorough description of all the risk categories that are there, such as high, medium, or low.|
|Risk assessment matrix||This includes a table that lists all potential risk factors, their impact, and likelihood of occurrence.|
|Risk response plan||This includes a description of the actions to be taken when a risk event occurs, such as avoidance, mitigation, or transfer.|
|Roles and responsibilities||This includes a list of the people responsible for performing various tasks related to risk management.|
No project is without risk. By thinking through and planning for risks beforehand, you acknowledge that they are present and need to be addressed. With a well-thought-out risk management plan, you can avoid or mitigate potential issues before they become overwhelming obstacles.
Implementing proper risk management plans and taking the steps required for risk reduction ensure your projects stay on track and accomplish their desired goals. That’s why many recruiters, while hiring project managers, emphasize the ability to manage project risks and consider it one of the most important candidate skills.
A well-formed project risk management plan helps:
- Keep projects on track and schedule
- Avoid costly surprises
- Mitigate risks before they become big issues
- Facilitate communication among team members
- Protect the reputation of your company
By now, it’s clear that a risk management plan is a crucial part of any project. You can’t control the market, weather, or competitors, but you can always take necessary precautions to manage risks. Below, we have five easy steps to create an effective risk response plan for your projects.
The first step is to identify all the risks that could potentially affect your project’s goals. When performed early on in the project lifecycle, risk identification helps take the right steps to mitigate potential issues.
Master this step by brainstorming with your team; analyzing previous projects; and conducting a thorough analysis of your strengths, weaknesses, opportunities, and threats—known as SWOT analysis.
Once you have the "identified risks" in hand, add them to a risk register. A risk register is a document that lists all the risks, their potential impact, and their likelihood of occurrence. It is a vital tool that helps keep track of all risks and their status.
Risk assessment is a critical step in the risk management process. After you’ve identified and added all risks to a risk register, it’s time to start risk analysis. For each risk, you need to analyze impact and likelihood.
Impact is the potential financial or operational loss that could occur if the risk materializes, and likelihood is the probability that the risk will actually occur. Rate both impact and likelihood on a scale such as low, medium, or high. This will help you identify risks that need to be prioritized.
Now that you know each risk’s potential impact and likelihood, determine how to deal with them. Depending on the risk and its severity, you can develop a risk mitigation strategy, transfer the risk to another party, or accept the risk. The most important thing is to understand what the risks are and what you can do to mitigate them.
Make sure you choose a method that complements your project risk and helps drive your desired result. By doing so, you can keep project risks under control and minimize the chances of any unwanted surprises.
Once you have determined the right way to deal with the risks, you need to develop a plan for addressing them. This plan should be realistic, achievable, and tailored to your specific project.
It should include a timeline so you can track the progress of the mitigation steps. It’s crucial to remember that some risks can never be wholly eliminated; they can only be managed to minimize impact to a certain level.
Mathias Ahlgren, founder/CEO at Website Rating, spoke to Capterra about the significance of having a workable risk management plan and shared his viewpoint.
Since risk management is an ongoing process, it’s critical to continually monitor and review the risks. This will help ensure risks are being addressed adequately and the plan is still effective.
It’s also important to update the risk management plan as new risks emerge or mitigation steps are completed. By keeping a close eye on the risks, you can ensure your projects stay on track.
Capterra conducted the Emotional Intelligence in the Workplace Survey in December 2021 of 528 U.S.-based professionals who manage projects at their small to midsize business. Respondents were screened for employment status (full-time), size of business (2 – 500 employees), and involvement in project management (extremely involved).