What do project managers look at when planning for projects?
Funny enough, one of the first things project managers look at is: what could go wrong! Doesn’t seem like the most constructive way to approach planning, or life in general :P, but there’s no denying that issues always come up. So instead of running around clueless as disaster unfolds, you can prevent problems from happening in the future by putting risk management strategies in place.
“Ok, great… but how can I work on resolving a problem that is imaginary” you might ask? Well, there are practical steps you can take to put together a strategy that looks into potential risks and how to track them, and that's what we call Risk Management.
What is Risk Management?
Every organization faces unexpected risks; be it a pandemic (look at us now!), injury, loss of funds, and so on; and all of that costs money! Risk Management is all about identifying, analyzing and responding to risk factors throughout a project, to make sure your project stays on track. It’s a proactive (as opposed to reactive) planning process that identifies risks and how to handle them.
The purpose of risk management is to:
- Identify possible risks
- Reduce them
- Be able to explain why you’re handling risks the way you are
- And plan better, and more realistically
For a more in-depth look at risk management and how it's done, here's a glossary article you'll find useful.. or just watch the video bellow 👇
What is Agile Risk Management?
The overall process for doing risk analysis in Agile is generally the same as in a traditional (plan-driven) project. But of course (as Agile would have it) it's not as disciplined. Risks go hand in hand with uncertainty in projects, which is why an Agile approach can give you the flexibility to adapt to uncertainties as the project progresses.
Agile is all about collaboration, which naturally implies more transparency and communication. Teams regroup quite often, which allows them to react to changes and adjust when needed. Alignment is a continuous process in Agile; so if you’re a software development company, you'll probably end up with higher quality products and a quicker move to market.
Why is Risk Management important?
Say, you’re launching a new version for an application. The schedule says 2 months to be ready for deployment, but based on your experience as a project manager, and taking everything into consideration, you think 3-4 months is more probable. If your team is proactive, then a contingency plan can be put in place to account for changes in deadlines. On the other hand, if everything's happening as a reaction to a situation, then you're probably going to wait for a problem to come along before you look for a solution.
Now, imagine working at a big company with thousands of employees; and you use Jira server. Atlassian announced they're discontinuing server in 3 years which gives you very little time to figure out new solutions, evaluate them, create new processes, migrate, train people on the new system, and so on. What do you do? Do you move to cloud right away? Do you pick an alternative? Do you stay with Jira for now, then move?
This is where you'll want to assess the risks for all your options and quickly; because some mistakes are simply too costly to make! And, according to dear Wikipedia, "ideal risk management minimizes spending (or manpower or other resources) and also minimizes the negative effects of risks".
Distinction: risks and issues are not the same thing
Keep in mind this distinction: risks are not the same as issues. Issues are things you’re expecting to deal with; you might even know when they’ll appear in your project. For example, your team’s scheduled vacations or an increase in demand around a specific time of the year. Risks, on the other hand, are events that might happen; and you probably won’t be able to tell when. Say, a major component in your product is scheduled to arrive but it’s two weeks late. It would be lovely if you're sort of pre-prepared for such a scenario.
Also, there is such a thing as positive risk in project management.
How to manage risk?
While developing risk management strategies, a project team goes through a problem solving process to come up with a plan to put in place quickly if the need were to arise. We manage risk with a risk management framework that does more than just identify risk. Your framework helps quantify your risk so you can predict the impact on your project. You can then either accept the risk or not; based on your tolerance level for risk.
What is a risk response?
Different project managers will respond differently, but there are 3 ways in which they usually handle risk:
- Avoid the risk altogether by eliminating the cause in the first place
- Mitigate by reducing the probability of your risk happening, which means cutting monetary losses
- Accept the consequences by developing a contingency plan should the risk occur
What are the sources of risk in projects?
There are many reasons and ways in which risks come up; after all, life can be quite unpredictable which is precisely why it’s so magical! Now, people who like to plan might disagree with me here, but then again, we simply can’t seem to figure life out which is why risk management is so important!
I’ll name a few reasons (out of many) why risk can make it to your project:
- Top management is not recognizing something as part of the project
- Commitments are hard to keep at the moment
- There isn’t one person responsible for the whole project
- Problems with team members (could be so many factors)
- Project priorities are conflicting
- Planning is unrealistic
- The wrong person is the project manager
- And so on, and so forth…
What are the 6 steps in the risk management plan?
We follow a Risk Management Framework when dealing with risks. I’ll briefly mention the steps here but will go over them in more detail in another article.
1. Identify the project risk
Risk identification is the process of listing all your potential project risks and what their characteristics would be. This is basically where you’d collect your findings in what they call a “risk register”. It’s an iterative process meaning that it goes on throughout the project lifecycle and it’s collaborative given your team might see possibilities you don’t.
2. Analyze the risk
This is hard. Let’s be honest; there’s rarely enough information to be able to assess properly but with experience, it starts to make more and more sense. Here you want to try and determine the probability of a risk happening; rate each risk with high, medium or low probability.
3. Prioritize the risk
Here, you evaluate your risk to know what resources you need to resolve it when it happens. Also, you need to know which risks have the biggest impact on your project’s outcome which is why you should rate your risks from high to low impact.
4. Assign the risk owner
Someone has to oversee the risk, so it’s good to assign a risk owner at the beginning while you’re still identifying your project risks.
5. Respond to the risk
Once you’ve identified a risk, you need to know whether it’s a positive or negative risk. Is it a risk you could make use of to make your project better?
6. Monitor the risk
Whoever is the risk owner is responsible for tracking progress. They’ll need to stay updated at all times so they can have a good idea of progress and be able to identify and monitor new risks.
Why do I need a structured risk management framework?
Project teams might handle risks in different ways, but without a risk management plan, you’ll probably end up with an incomplete evaluation of the impact of your risk. That means losing your understanding of the overall impact of your risk on objectives like scope, time, cost and quality.
This could also mean losing the ability to identify new risks as they arise. Plus, the lack of transparency will create a communication gap within the team, and in relation to stakeholders.
The perks of an effective risk management framework
Project Risk Management ensures your risk identification and management are a conscious process for starters. Project progress then happens with the least amount of wavering, and in line with the organization’s objectives. Also, it’s an effective team building tool.
Life is full of surprises, and even as you map out every milestone and take every little thing into consideration, project risk is still around the corner. And though you can’t predict the future, an agile risk manager can properly prepare for risk so that handling change as it comes along is a little smoother. And more enjoyable, that's for sure!
For more on Project Management, check out this glossary article!