Monmouth-based Management consultant George Rist has developed his project management skills over year working in energy security, sustainable development and operational excellence. Below he shares his expertise in understanding project management risks management.
Whether you’re implementing the Agile project management ethos or relying on more traditional project management processes, risk management is key to success.
Any project management professional must understand the potential impact of project risks. These can arise from many different factors and can ultimately dictate the overall project’s success or failure.
Managing risk is crucial for effective project management
Put simply, effective risk management processes allow project management teams or individuals to make intelligent and informed decisions that resonate all the way through the project cycle.
Good risk management means project managers – whether multiple project managers or singular – taking the time to analyse the project scope in order to find and fully understand potential risks. This, in turn, means that the team members can clearly understand future challenges so they can use resources well, flex the goalposts throughout the project life cycle and ensure workable strategies emerge.
Understanding project management risks
Various factors can potentially impact project management risks, all of which can change the trajectory of the project itself.
By mastering risk management processes, project management teams or individuals hugely increase the likelihood of reaching their objectives. At the same time, effective project management minimises adverse effects impacting the project.
Every project manager should first clearly understand the overarching project objectives as this will give them insight into risks and issues that could impact progress. This is where a structured approach to risk identification comes in, as it keeps detrimental impact of any issues to a minimum.
Anticipating and predicting potential problems coming down the line, and being ready with tailored strategies to counteract them is all part of successful project management. The types of risks a project manager should be on the look out for include potential uncertainties concerning the project budget, schedule and overall project scope.
And while the project manager and project team can strategise to mitigate many different kinds of risk, there are external risks that are beyond their control. These include economic and geopolitical changes that may affect the project outcome.
Other project management risks include those relating to communication, contract development, planning and other project management processes. In general terms, a ‘project risk’ is a problem that might arise, while an ‘issue’ is something that’s already happened.
Defining risk categories for project management
Every project manager should be familiar with the concept of risk categories – the high level classification of business risks that can be further broken down into smaller sub categories.
Risk categories cover both internal and external risks that could arise for the project team. The two main overarching categories are:
- Business-level risks to project management – these can potentially damage or otherwise adversely impact the overall operations of the business in question. Business-level risks include things like customer satisfaction levels, workforce risks, governance and project management prioritisation.
- Project-level risks to project management – these risks can potentially impact results at the project level. These include things like scheduling, budgeting and resource management.
These two overarching categories of risk can be further broken down into strategic risks, performance risks, external risks and financial risks.
Types of risks facing a project manager
An effective risk management and project management strategy will cover all potential risks.
Starting with project-level risks, these can be categorised into subsections as follows:
- Financial risks.
- Strategic risks.
- Performance risks.
- External risks.
These four project-level risks must be understood and mitigated for throughout the project management cycle. Let’s look closer at each one in turn.
Financial risks
Different project management methodologies use different budgeting strategies. Financial risks involve these financial/monetary factors, such as the cost of materials, unworkable budgets, the need for more labour than initially budgeted for or the failure to enough funding.
For example, the project team may find itself under-resourced and therefore struggling to hit milestones. This is a financial risk at the project level that must be addressed during the project management cycle.
Strategic risks
These risks revolve around the strategies initially decided on at the beginning of the project. Again, this can depend on the project management professional in charge, or the project management techniques that are being followed.
Strategic risks could include the project management methodologies themselves, or other project management processes and techniques, daily operations, employee satisfaction and retention rates, investing in necessary technology or any other project dependencies.
The biggest risk to a project life cycle is often the project manager or authority figure themselves. In order to be successful, planning and risk management processes must be in place.
Performance risks
These risks cover the whole performance of the project. For example, this can include undefined key performance indicators (KPIs), complex projects that are using outdated data or poor levels of project portfolio management.
Often, agile project management teams will find that requirements emerge and change. In these cases, there’s no possible way to line up every requirement at the very beginning of the project, but project stakeholders can stay on top by being flexible and reactive to changes along the way.
External risks
These types of project management risks are less predictable as they come from external sources. These kinds of risks can impact at business level and project level, depending on how severe they are.
Examples include major weather emergencies, market volatility, supply chain problems and employee illnesses.
Project Management Body of Knowledge (PMBOK)
PMBOK is a way to sort project risks into three categories. The Project Management Institute summarises these as follows:
- Operational risks – these are project-level risks that are usually more prevalent in the latter stages of the cycle. They generally involve or affect the deliverables or products that are being produced as part of the project.
- Short term strategic risks – these impact project management owners during the lifecycle of the project or immediately afterwards.
- Long term strategic risks – these relate to the goals and objectives of the project and, in addition, the problem that the project is attempting to solve. These types of risks can also affect stakeholders who are removed from the project progress and processes themselves.
Types of major project management risks
All of these risks, if they hit complex projects, can cause problems at different levels. Some, however, can stop a project in its tracks.
The most problematic and impactful risks facing project management teams include workforce volatility, procurement or production issues, major budget problems, resource and scheduling problems and general organisational changes.
Major budget risks
Regardless of the project management methodologies chosen, budgets remain one of the most critical potential risks when planning a project.
Any project that goes way over budget could negatively impact the business itself. And in the worst case scenarios, could even affect its solvency.
Going over a planned budget is all too easy a risk to take. Bad planning can lead a project manager or the project team itself to overspend on all kinds of items, from sourcing materials and labour to spending on extras that were never even planned for in the first place.
Let’s look at an example of poor budget planning impacting the project. Assuming a project manager has accounted for its project expenses precisely down to the dollar. They’ve successfully anticipated every step of the project aside from one – emergency expenses.
Mid-way through the project cycle, the project team realises that an error was made and all of the completed milestones must be repeated. However, as there was no budget set aside for emergency contingencies, there’s no way to do this without incurring high costs. The project team can only meet the customer’s expectations by going way over budget and working longer hours.
Properly managing the budget of a project is a detailed process that starts with research and planning. The project manager should use this research to create the budget using data from previous projects, numbers crunched during the research and educated estimates. There should always be extra wiggle room in the budget for emergencies, and as the project goes non, the budget should be adjusted accordingly.
Successful project management isn’t possible without this risk being anticipated and mitigated for. Project management focuses on many aspects of the job at hand, but project success relies heavily on a successful budget plan.
Employee retention risks
Any project management professional knows just how important the project team is. Employees play the most critical role in any business, so they must be kept happy.
High levels of employee turnover is a significant source of risk to project progress. In fact, it can be the difference between project success and failure.
When employees are not happy, the business will find itself dealing with high levels of employee turnover. Ad this is a cause of workforce volatility.
Constant churns on the workforce make it extremely tricky to come up with a workable project plan. It impacts the project scope and schedule and impedes the project team members reaching the project goals.
Retaining and nurturing expertise and talent within the workforce is essential. Having one or two senior team members who know how to do everything and relying on them to train new employees is almost guaranteed t end in failure.
At some point, those experienced employees will move on, leaving the business in the lurch with no historical knowledge or skills to fall back on.
This is why a skilled workforce is a company’s most valuable asset. And it’s why employee satisfaction is so important when it comes to meeting project deadlines. A project plan cannot and will not work if the teams are constantly in a state of flux.
Ultimately, unhappy employees end up costing the business money. Whether it’s replacing them, training new team members or missing out on project objectives due to employees leaving, businesses will face a cost.
There are loads of studies that show employees are happier when they are well-compensated, well trained and listened to. It really is in the company’s best interests to work along these lines, and it has a trickle down effect from business-level to project-level.
Production and procurement risks
Any projects that manufacture products, the acquisition of materials is obviously key. If, as a project management team, you can’t source the materials you need, the project plan will never work.
This is a very tricky part of project risk. It’s often very difficult, if not impossible, to accurately predict the kinds of supply chain problems you might be facing.
For example, even if materials are easily available, their price may have shot up due to external factors, making them prohibitively expensive.
One way to tackle this is to include flexibility in the project plan so that, if necessary, alternatives can be sourced. Another way is to ensure a stock of materials is maintained at all times, although this can also be prohibitively expensive.
The knock-on effects of supply chain issues include a decrease in customer satisfaction levels. For a successful project, it’s essential to mitigate these risks by building space into the project plan for emergencies but also by being transparent and honest with customers along the way. This goes a very long way in buying more time to deal with any challenges that crop up along the way.
Resource management risks
Every project plan can be derailed by an imbalance between financial and labour resources. The ability to schedule projects while successfully managing resources is a key skill for any project manager.
Resource management processes will help to mitigate the risk of overusing resources, which include everything from materials and money to equipment and people.
Project management includes maintaining this careful balance throughout the lifecycle of the project. Every business should have methods already in place to accurately balance resources. However, the project manager should also implement project-level methodology.
Risks from organisational changes
When there are sweeping top level changes to leadership, there are often changes at other levels in the business.
Previously well funded projects may be swept away entirely under new leadership bringing in organisational changes.
While this can be challenging, often organisational reshuffles offer opportunities to clear out dead wood. Perhaps some projects have been draining resources without much to show, or there are better ways to do the same thing.
This can mean sacrificing projects, but this should obviously only happen if a detailed analysis has been carried out to determine the impact of losing the effort that has already gone in to it.
Common project risks to watch out for
Just like project management processes, risks are scalable.
Not every single risk will completely ruin a project, even if the worst happens. However, all risks should be taken equally seriously.
There are many common risks to look out for, from low sales performance, poor project management, IT risks, and scope creep.
While most of these can be considered relatively minor, the project manager should always work towards mitigation whenever possible.
This is because many smaller risks can quickly add up to become a much more serious threat to project progress and success. Below are a number of project management risks along with suggestions to mitigate them.
Risk: scope creep
As the name suggests, scope creep is about changing goalposts after the project has begun. It’s a very common risk facing every project manager, regardless of the size of their project.
Scope creep is where expectations for the project keep changing, even after all of the planning has been completed.
Agile project management methodologies offer one way of dealing with this, thanks to their flexibility and openness to change along the way.
Whichever project management tools are being used, it is always possible to mitigate the risks associated with scope creep with successful project management.
Poorly dealt with scope creep can totally derail the project success. It can end up with every stakeholder being unhappy with the results and the team scrambling to try and complete impossible objectives in impossible timeframes.
Scope creep is common in every industry sector and for businesses and projects of all sizes. It is the main result of poor planning and communication and causes all kinds of problems, from low morale to low stakeholder confidence and from feature creep to going over budget.
The answer is to create a thorough project plan that has lots of detail and includes flexibility for changes to the scope along the way. The project plan should always manage the expectations of stakeholders and team members alike.
Ultimately, it’s up to the project manager and sponsor to stick to the project plan to avoid scope creep and the risks it brings.
Risk: low sales performance
Another risk that affects every business is poor sales. Whether due to competition, poor demand or failing sales tactics, low sales figures can lead to big project changes. In some scenarios, it can lead to a project being totally cancelled.
It’s tricky to predict low sales, but there are strategies and project management tools that be implemented to mitigate the risk.
Thorough and effective market research prior to the start of the project can go a long way to mitigating the risk of low sales performance.
By understanding what has sold in the past and what works for the customer demographic, project goals can be met.
Risk: external hazards
By their very nature, external hazards cannot be predicted. These include illness, injury, fires and flood – anything that can impact at both business and project level.
While predicting external hazards isn’t possible, having safeguards in place to mitigate against the unexpected should always be part of the project goals.
For example, given the widespread fires that have decimated parts of Los Angeles, companies in this region should have a plan in place to anticipate something similar happening again.
This should include aspects like a business continuity plan, evacuation plans, strategies to move critical equipment somewhere safer and the flexibility to pivot when necessary.
External hazards can affect every part of a business and preventative investment is always recommended. Managing projects is about more than a solid project plan and following project management practices, it’s about planning for the worst case scenario in order to mitigate risks at all levels.
Risk: technology and processes
The growing complexity of technological processes create more and more risk events, specifically around data management, protection and storage.
Simple but critical chain project management mitigations include backing up data regularly and often, and ensuring that there is never a single employee with the expertise to release or analyse critical data.
Employees should be thoroughly trained on how to use all equipment and applications and given a place where they can gain answers to any queries that may come up during the course of their individual roles.
Project management approaches may differ, but the business approach to mitigating risks concerning technology should be overarching and thorough.
The process of managing risks associated with project management
Managing risk should focus on what may go wrong along the way. While this is important for proper management or all projects, it’s obviously even more important for complex projects.
Different types of project management may have alternative approaches to communication and reaching goals, but risk management must be part of every project management framework.
A risk should be thought of as a potential event that impacts achieving specific project objectives. It can be perceived negatively (downside risks and threats) and positively in the form of opportunities.
The project manager should ensure that all risks are clearly identified before going on to ensure risk analysis is carried out. The entire process of managing risk is indicative of the fluid and dynamic nature of project management.
A project manager should use a risk register to capture risks, the analysis of the risks and the best response.
Explaining risk analysis
Risk analysis is used by the project manager to root out the biggest potential vulnerabilities throughout the project.
Of course, this does mean that risk analysis is largely perception-based. This means it’s even more important for the project manager to work with stakeholders from the start to identify possible risks.
Given that this kind of analysis is perception drive, it’s vital to communicate potential risks clearly. For example, causes should be separated from evens that might occur in the future and again from impacts on the project itself.
Effective risk analysis leads to effective contingency planning and, by the end of the project, more or less all the time factored in having been used.
Risk analysis helps the project manager to understand the probability of hitting the project milestones and costs, informs decision making and agrees the level of contingency planning necessary.
Managing human error
Traditional approaches to risk management often ignore one crucial risk factor – human error. By focusing only on commercial and technical risk factors of project management, a key part of the dynamic is missed.
Planning for potential human error is vital for project success. Put simply, people are driven by their emotions, even in the workplace.
When problems occur when managing projects, often it turns out that it was caused by human error. Therefore, for effective project monitoring, this possibility needs to be factored into the risk analysis.
Understanding behavioural risks
When people involved in the project lifecycle don’t behave as expected, the project manager is faced with ‘behavioural risks’. And, like all other risks associated with every project phase, his can impact everything from project costs to project deliverables.
There is a wide range of possible human error that could occur throughout the project timeline. This includes people feeling under pressure and acting accordingly, or people ignoring project management best practices and evidence that don’t want to deal with.
And, while everyone is different, interestingly we all tend to reach to certain circumstances in similar ways. For example, if team members feel disrespected, they’re likely to disengage and pay less attention to their work.
Broadly speaking, there are three reasons that people can fail to engage or work as well as they could. The project sponsor or project manager should always be on the look out for the following:
- Not being aligned – members of the project team may feel they have different priorities or overall objectives than the stakeholder or project sponsor does.
- Not being engaged – this obviously leads to lower commitment levels, a lack of creativity and, in worst case scenarios, deadlines or milestones being missed completely.
- Not having resilience – regardless of the management tools used or the project management principles followed, people often feel under pressure from repeated deadlines. This can lead to higher stress levels and higher commitment of errors.
Mitigating behavioural risk factors
Communication is key for project managers who want to monitor and mitigate for behavioural risk. The easiest way to do this is to find ways to identify the risk and the go on to monitor it.
For example, creating a feedback tool to collect relevant data can help to identify the problems. Smaller amounts of data collected over time will give the project manager a broader overview of any risks.
Questions could be posed to ascertain the levels of engagement, resilience and alignment among team members across different layers of the project, including its complexity, resourcing and communications.
This kind of data can be worked into a report that offers action points aimed at addressing behavioural risks that could impact the project delivery process.
Some ways to manage project risk factors
It’s clear that risk identification, mitigation and management is absolutely crucial for effective project management.
As such, managing risks shouldn’t be seen as an add-on. Rather it should be an integral part of the overall project management and planning from the start.
The only way to effectively deal with the possible negative impact of all the risks outlined above, is to use data and information to predict their likelihood and then have a mitigation plan in place.
What a project manager doesn’t want to do is bury their head in the sand and assume that there are no risks that need to be considered. Dealing with the impact reactively is bound to cost far more time and money in the long run.
Some project management approaches to effectively managing risk include ramping up solid communication methods, using project management software where necessary and operating within defined parameters.
Best practices for effective project execution
Strong project management skills are needed for the project manager, and best practices should come under these.
Various project management methodologies are on offer, all of which have various different ways of reaching the desired outcome for the project.
Ideal best practices to follow for managing risk and improving project performance are:
1. Adopt Agile project management methodologies
When selecting the appropriate project management strategy, it’s worth considered Agile methods. The Agile approach is all about effective risk management.
This makes it a great choice for a project manager faced with higher-than-average risks. This could mean simply that it’s a new kind of project or perhaps the team members are inexperienced or new.
Or, perhaps resources are limited – there may be a smaller than ideal team available or a limited budget. Whatever the risk factor, Agile and Scrum helps to manage the risk by splitting the project into manageable ‘sprints’.
Scrum gives team members the freedom to tackle specific deliverables and to be flexible should problems arise along the way. This kind of lean project management strategy can go a long way to mitigating the potential adverse impact of various internal and external risks.
2. Take a proactive approach
Include risk analysis in the initial planning for the project. This allows plenty of time to identify potential risks and to communicate these with team members.
The earlier problems can be identified and dealt with, the less damage they do. For example, by identifying bugs in early code, the overall costs can be kept as low as possible. In other words, don’t wait for risks and their impact to find you.
This is what makes project management important at every level of the project and, ultimately. for the business itself.
3. Only work within the means available
One of the easiest ways to avoid adverse impact from risks is to take fewer risks at every stage of the project. In other words, when it’s clear exactly what resources are available, whether in the form of team members or in funding, keep strictly within these confines.
This does depend, to a great extent, on the level of control the project manager has. It may be that program management is from another body and that both internal and external parameters fluctuate.
However, even with these risks, it’s a good plan to at least focus on remaining within the lines from the get go. This makes it easier later on to keep costs reasonable and to communicate with stakeholders to manage their expectations.
The first steps to working like this is to really understand the business’ overall capabilities and adjust within these means.
4. Quantify the potential effects of risks
If and when possible, project management should include determining the quantifiable effects of potential project risks.
Different types of risks come with different costs, so if the project manager can attach real-time data to them, it’s easier to analyse which needs to be dealt with first.
This kind of risk management strategy also makes it simpler to communicate these risks to stakeholders who may not be familiar with the ins and outs of the project.
While some stakeholders may only want to hear about broad strokes, it’s advisable to present actual data where possible to inform decisions and mitigation strategies.
5. Keep pushing for better communication
Part of consistently effective project management is to encourage communication. It must flow both ways and be honest and open. So, team members should feel able to communicate with project managers and other stakeholders.
Too often, those running projects punish team members for bringing up issues that may cause problems down the line. It’s essential to encourage this kind of reporting so that risks can be managed and mitigated before any damage is done.
Key leadership and stakeholders should also be included in communication, so that everyone knows the core. This not only helps to solve problems in a cohesive way, but it also manages expectations in a tangible way and creates an ownership mindset among all individuals involved.
6. Ensure project visibility is maintained
Putting good visibility practices in place from the start means that everyone involved can quickly gain an insight into both the details and the overview of the progress so far.
There should be no obfuscation of progress or problems for effective project management.
Dealing effectively with risk
Identifying risks is as important as mitigating them. The ideal way to manage risks is not only to mitigate the treat they might pose to the success of the project, but also to turn them round in order to offer new opportunities.
For example, perhaps a better deliverable option will emerge from the risk mitigation strategy. Or perhaps costs could be lowered and delivery sped up. Without the initial risk analysis and knock-on strategy to deal with the risk, these opportunities may not have been spotted.
Staying flexible at every level
Remaining flexible is also very important – remember that all projects are liable to change as they progress. This means the risk management process must also be ready to pivot as and when necessary.
Risk should be reanalysed and assessed from time to time, particularly for complex projects.
Don’t treat risk management as a separate entity
Risk management is an integral part of project management and so should be part of the regular activities of the project manager.
Project management templates can help, of course, but being totally honest in approach is probably the most important thing to remember. Without this approach to risks, there will always be unrecognised issues and potential problems.
Summary
To keep on top of risk management processes, tick off the following:
1. Document risks
Create a risk log with a full description, delegation of responsible person, the potential impact and the actions that must be taken to mitigate each risk. Bear in mind it needs to be regularly updated but also needs have enough data to be useful.
2. Prioritise risks
To properly prioritise the risks, the project manager needs to understand the types of risks that may occur and their potential impact on cost, time and scope. Using a probability and an impact rating can help to do this effectively.
3. Plan risk response
For every separate risk identified, decide how to mitigate the risk and the action to take should it occur. This helps to prepare to deal with it.
Finally, ensure that the risk mitigation responses are fully implemented. With no follow through, then risk management becomes redundant when it can be a gateway to new opportunities and a successful project.