Project Management

What Is Project Risk Management? Here’s Everything You Need To Know

By | 8 min read | Published

In this expert guide to project risk management, learn how to mitigate risks and ensure project success.

We all tend to look for possibilities of failure whenever we start (or think of starting) something new. This scenario also holds true for project managers.

Projects can be risky endeavors, and if not managed properly, they can quickly go off the rails. Without proper risk management, projects can have time or cost overruns, resulting in missed deadlines, unbudgeted expenses, and ultimately failure.

If you’re a project manager, the best way to deal with risks is to prepare for them beforehand and implement risk management strategies to mitigate them. That’s why today, the “ability to manage project risks” is an essential skill employers look for when hiring project managers.

the ability to manage project risks is one of the most important skills for project managers

In this guide, we explain everything you need to know about project risk management. Dive deep and learn how to reduce risks to keep your projects on track! But first, let’s understand the nitty-gritty of project risks.

What is project risk?

Project risk is any potential issue that could negatively impact the successful completion of your projects. Risks could be due to internal or external factors. For instance, a key supplier going out of business and a key team member leaving your organization—both qualify as project risks.

What is project risk management?

Project risk management is the process of identifying, assessing, and responding to unexpected risks that might affect your project’s goals and progress.

Simply put, project risk management is a process that aims to reduce project risks that have already occurred, are occurring, or are likely to occur in the future. It focuses on risk reduction by identifying the root causes of risks and minimizing their impact, if not completely eliminating them.

Why do you need project risk management?

As a project manager, identifying and assessing risks is an essential part of your job. It helps prioritize your project management efforts. If a risk assessment indicates that the impact of a particular threat will be severe, you should take necessary steps to avoid or mitigate that threat in advance.

For any project, there are many risks to consider, but the most influential ones are related to project schedule, cost, quality, technology, and resources.

Schedule risk Possibility that the project will not complete on time.
Cost risk Possibility that the total project cost will exceed the budget.
Quality risk Possibility that the project quality will not meet the defined standards.
Technology risk Possibility that the selected project technology will not perform as required.
Resource risk Possibility that team members won’t have sufficient time or skills to complete the project.
Pro tip
Leverage integrated risk management (IRM) software to determine potential project risks early on, prioritize high-impact risks, and improve decision-making by consolidating risk management processes and data analysis.

Common types of project management risks (with examples)

Let’s go through some of the most common types of project risks that you may encounter. We’ve also added examples to explain the risks better.

  • Individual project risks: These are individual risk events that, if they occur, can affect the quality, cost, time, and/or scope of a project. Examples include not having enough resources for a job and having to deal with sick leaves or employee time-off during peak season.
  • Overall project risks: These risks refer to the impact of uncertainty on the overall project. Overall project risk comprises an aggregate of individual risks plus all other sources of project uncertainty. Examples of such uncertainties include natural calamities, wars, and changes in government policies.
  • Variability risks: These risks are associated with fluctuations or inaccuracies in demand, supply, quality, price, etc., that can impact the project outcome. Examples include varying raw material prices and changing the supplier of a crucial product component.
  • Ambiguity risks: These risks stem from the lack of clarity in project requirements that can lead to misinterpretations or mistakes. Examples include inaccurate requirements gathering from clients and different interpretations of the project scope among team members.

5 steps to manage project risks

Risks are an inherent part of any project. While it’s impossible to eliminate all risks, it’s indeed possible to limit their impact by managing them. The following steps will help you competently reduce and control all potential project risks.

1. Identify potential risks

The first step is identifying all potential risks that could affect your project’s timeline or goals. It includes closely analyzing the overall project plan and determining any potential issues that could arise.

One way to ace this step is by scheduling brainstorming sessions with your project team and stakeholders. Once you identify the risks, put them into a risk register. This will help you track all the risks along with their details such as duration, impact, priority, and status.

2. Analyze the identified risks

Once you identify the risks, start analyzing them to understand how and to what extent they can impact your project. Focus on quantitative and qualitative risk analysis. Quantitative risk analysis assigns a numerical value to risk probability, while qualitative risk analysis is used to identify and assess risks that can’t be quantified. Both help identify risks that need your immediate attention.

When assessing risks, consider three key factors: risk probability (likelihood of a risk event occurring), risk impact (consequences of a risk event occurring), and risk vulnerability (extent to which a risk event can be controlled). These will help you understand the overall project risk level and plan mitigation measures accordingly.

3. Create a response plan

Now that you have a better understanding of potential project risks, it’s time to develop a response plan. The response plan should include how you’ll address each of the identified high-priority risks. The plan should also be achievable, practical, and tailored to fit your project’s specific needs.

Transfer, mitigation, avoidance, and acceptance are four different ways to respond to risks. Based on your risk tolerance, create a response plan to either transfer, mitigate, avoid, or accept potential project risks.

Pro tip
Leverage project management software to accurately respond to risks. A project management tool with risk management functionality helps create a centralized repository for all risks-related project data, allowing you to develop a better risk response plan.
What is project risk management

4. Implement the response plan

After developing a response plan, it’s time to implement it. This will require close coordination between team members and stakeholders. Make sure everyone involved in the project is aware of the risks and knows what they need to do to mitigate them.

To execute the plan effectively, designate someone to be in charge of each step so there is continuity and no confusion. As the project progresses, keep a close eye on the risks and make changes to the response plan as needed.

5. Monitor and evaluate risks

Risk management is not a one-time activity; it’s an ongoing process that should be revisited regularly. And that’s why you should never stop monitoring and evaluating project risks. Continuous monitoring will allow you to track the progress of mitigation measures, ensure they are effective, and make necessary adjustments when required.

Tips for successful project risk management

When it comes to ensuring project success, here are a few risk management tips to follow:

  • Have a clear understanding of the risks involved in your project. Doing this will allow you to develop a mitigation plan that’s unique to your project needs.
  • Assign the responsibility of managing each risk to a project team member. This will help ensure each risk is properly managed and monitored.
  • Put together a plan to manage each identified risk. This will help your project stay on track and avoid any potential issues.
  • Monitor risks throughout the project lifecycle and make adjustments to your response plan as needed. This could be the difference between a successful project outcome and an unsuccessful one.
  • Be prepared to take action if a risk event does materialize. By having a plan in place, you can quickly and effectively deal with any problems that arise.

Project success depends on well-timed risk management

Remember, a well-conceived risk management plan will lead your projects to success.

Timely risk management helps projects succeed by identifying and mitigating potential risks before they become actual issues. By taking a proactive approach to risk management, you can avoid common pitfalls and costly delays that may lead to project failure. Revisit the risk management process throughout the project lifecycle and make your project a big hit. Cheers!

Survey methodology

Capterra’s Emotional Intelligence in the Workplace Survey was conducted in December 2021 among 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 to 500 employees), and involvement in project management (extremely involved).

Capterra’s Project Management User Survey was conducted in March 2021 among 422 U.S.-based project managers, 367 of which are project management software users. The qualified respondents are decision-makers or have significant involvement with the day-to-day project management at their organization. We worded the questions to ensure that each respondent fully understood the meaning and the topic at hand.

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

About the Author

Shubham Gupta

Shubham Gupta

Writer @Capterra, emphasizing small business market trends, software needs, and all things tech. E-volunteering for Breakthrough India (a human rights organization) as a social change actor. Love the aroma of coffee, deep conversations, and jotting down the fortuitous feelings on my blog site/social media. When I am not working, you can find me with my dog - walking, talking, and having fun.

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