Risk ManagementProgram & Project Management

4 Risk Management Strategies for Successful Project Execution

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Written by:
Jennifer Cameron - Guest Contributor

Published | Updated on
8 min read
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With a risk management strategy, you’re better equipped to handle unexpected project risks.

Picture this: A promising project lands on your desk. You rally your team, devise a comprehensive plan to meet the deadline and allocate resources to achieve the client's vision. You assign specific goals to team members, but a few weeks in, an unforeseen circumstance forces a key team member to take extended leave, bringing your project to a standstill. This unexpected risk might seem overwhelming, but you're not alone.

Many project managers strive to evade such unforeseen risks, yet they often encounter them. The reality is, that every project carries a risk of failure, regardless of the preventive measures taken. Project risk management is a challenging task, and unexpected risks can emerge at any time. Instead of blaming yourself, prepare for these risks in advance to prevent your project plans from derailing.

If you're new to project management or recently promoted to a leadership role without formal project management training, the concept of risk management strategies might seem daunting. So, what exactly is a risk management strategy?

Here, we cover four risk management strategies to help increase your project's chances of success. But first, let’s understand the basics of risk management strategies and why it’s important to have them in place.

What is a risk management strategy?

A risk management strategy is the process of proactively identifying, assessing, and responding to project risks before they cause any serious issues or impact the project completion timeline. This process also involves regularly updating and revisiting the risk assessment based on new information or actions taken.

As a project manager, you create strategies to manage risks effectively, and for that, you need an enterprise risk management plan to identify, evaluate, and control risks. By monitoring risks closely, you can develop mitigation plans to lessen the potential impact of risks.

Why is having a risk management strategy important?

Knowing risk management techniques is important for several reasons:

  • It protects against threats and uncertainties.

  • It supports better decision-making.

  • It promotes legal and regulatory compliance.

  • It gives stakeholders confidence.

A risk management strategy is a fundamental best practice in business. Solid strategies to manage risk lead to greater preparedness, smarter planning, adherence to rules and regulations, and builds stakeholder trust.

Who is responsible for developing a risk management strategy?

The development of an organization's overall risk management strategy is a collaborative effort between the Chief Risk Officer (CRO), the risk management team, and senior leadership roles.

The risk management team takes the lead in initiating the risk assessment process, identifying key risks within the business, analyzing the likelihood of these risks and their potential impact, and formulating mitigation strategies. 

The legal team oversees regulatory, legal, and compliance risks and helps shape the risk management framework to align with these requirements.

The auditing department offers periodic, independent reviews of your controls, policies, and processes to manage identified risks.

The Board reviews findings from assessments and mitigation strategies, asks the tough questions, and challenges assumptions to ensure nothing has been overlooked.

Once key risks are identified, the CRO's team takes the lead on researching mitigation tactics, quantifying risk likelihoods and impacts, and outlining the overarching enterprise risk management plan. Senior leadership and key stakeholders provide input to make sure the strategy is actionable within different business units while meeting compliance and board oversight standards. It's a synchronized effort to develop a comprehensive strategy.

What are some common project risks that managers face?

Some of the most common risks that project managers routinely face include:

  • Scheduling

  • Budgeting

  • Resource allocation

  • Project scope

  • Product quality

  • Cybersecurity and technology

  • Supply chain

  • Compliance

What are the four methods of risk management?

The project management involves project planning, execution, monitoring and control, and closure, and using software to help streamline processes. In fact, a recent survey showed that 26% of respondents cited tracking and managing risk as main reasons they use project management software.*

When it comes to risk management methods, experts advise including them during the initial stages (i.e., planning) because there's still time to make adjustments and fine-tune things. This allows for a more proactive and efficient response to any risks that may emerge.

1. Risk avoidance

Is a plan employed to prevent any possible risks from occurring in the first place. A risk avoidance plan typically includes changing the project timeline or scope or hiring more staff to manage issues. This strategy reduces the likelihood of any significant risks arising during the project tenure.

2. Risk reduction

Is a strategy used to minimize the negative effects of risk on a project. A risk reduction plan includes establishing clear procedures and protocols, developing a backup plan for unforeseen risks, and identifying and mitigating potential risks early on in the project planning stage.

3. Risk transferring

As the name implies, it's the process of transferring risk from one entity to another. This is usually done through contract negotiations, insurance policies, or other means. By transferring risk, organizations hope to protect themselves from potential related losses.

4. Risk acceptance

This strategy refers to the decision made by the project manager to either accept or reject risk. The choice is made for various reasons, including (but not limited to) the risk isn't worth taking action on, it's low probability and big impact, and there's no known way to reduce it.

When should these risk management strategies be used?

Risk management strategies are essential for businesses of all sizes, but they’re only as effective as their application. So, when should you use each risk management strategy we’ve outlined?

When to use risk avoidance

As a small to midsize business owner, you should consider risk avoidance when you can identify a potential risk that could significantly disrupt your operations or project outcomes. For example, if you're planning a major software upgrade and you know that a particular component has a high failure rate, you might choose to avoid the risk by using a different component or delaying the upgrade until a more reliable option is available.

When to use risk reduction

You should use risk reduction when you can't completely avoid a risk, but you can take steps to lessen its potential impact. For instance, if you're launching a new product and there's a risk that it might not be received well by the market, you could reduce this risk by conducting thorough market research and testing the product with a small segment of your target audience before the full launch.

When to use risk transference

This strategy is particularly useful when you're dealing with risks that could result in significant financial losses. For example, if you're a construction business owner and there's a risk of damage to your equipment, you could transfer this risk to an insurance company by taking out an insurance policy. Similarly, if you're outsourcing a part of your operations, you could include clauses in the contract that transfer certain risks to the outsourcing partner.

When to use r​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​isk acceptance

Risk acceptance is a strategy you might choose when the cost of mitigating the risk outweighs the potential impact, or when the likelihood of the risk occurring is low, but its potential impact is high. For example, if you're a tech startup launching a revolutionary product, you might accept the risk that the product could fail in the market, considering the high potential returns if it succeeds.

Remember, the choice of risk management strategy depends on multiple factors, including the nature of the risk, your business objectives, and your appetite for risk. It's important to assess each risk individually and select the strategy that best aligns with your overall goals and capabilities. Implementing these strategies effectively requires a thorough understanding of your potential risks and a proactive approach to managing them.

How can I effectively monitor and update my risk management plan throughout a project?

Effectively monitoring and updating a risk management plan during a project requires you to:

Conduct regular risk review meetings.

Set up recurring meetings with key project stakeholders to identify new risks, monitor existing ones, and evaluate whether risk response strategies are working. Meet monthly or quarterly depending on the project length and complexity.

Re-evaluate risks after major project milestones or changes.

Significant events like finishing a major deliverable, changing scope, bringing on a new vendor, etc. can alter the risk profile. Reassess the risks after such events.

Set risk tracking metrics.

Identify specific metrics that give insight into how critical risks are progressing. This could be cost variance, schedule variance, product defects, etc. Monitor these on an ongoing basis.

Document all risk activities.

Log identified risks, assessments, response plans, risk owners, etc. in a risk register. Also record the outcomes of response strategies. This history informs future risk planning.

Update documentation accordingly.

If risks change based on the tracking activities above, update them in the risk management plan and ensure stakeholders are aware of the current top risks and responses.

Hold people accountable.

Ensure there are owners assigned to mitigate high priority risks. Check in with them frequently on progress.

Focus on identifying new risks too.

While tracking existing risks, also actively seek out new ones that may arise during project execution. Scan for early warning signs.

Use risk management software for successful outcomes

Every project is different and will carry its own unique set of risks. Therefore, you must tailor your risk management plan to fit the specific needs of your project. While there is no one-size-fits-all solution, these four strategies provide a good starting point. By understanding these strategies and knowing when to use them, you can ensure a successful outcome for your project.

You can use risk management software to implement these risk management strategies. The software helps identify and address all project threats in a timely manner.


Methodology

*Capterra’s 2023 AI in Project Management Survey was conducted in May 2023 among 320 U.S. respondents to learn more about AI adoption as it relates to project management software. Respondents were screened for employment at U.S. businesses (with 1 – 1,000 employees) that use project management software. All respondents indicated active involvement with their company’s project management operations.


Looking for Risk Management software? Check out Capterra's list of the best Risk Management software solutions.

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About the Author

Headshot of Jennifer Cameron

Jennifer Cameron is a writer/editor and business process analyst specializing in sales, marketing, and eCommerce topics for B2B and B2C clients. Her work has helped small and midsize business owners on sites such as Capterra and various Fortune 1000 technology vendors.

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