Risk management in projects is an unavoidable reality. Uncertainty is something that cannot be avoided. Risk management can help project designers and managers to anticipate the potential risks before the beginning of the project and therefore, avoid being hit with shock and panic when something unexpected happens.
This article will explain the process of risk management, its use in projects, its plan, software, tool, risk assessment procedure and analysis and management. Throughout, you will learn about just how effectively online project management with Sinnaps can help you and your team to manage risk using its risk assessment software.
The Risk Management Process
You may be wondering what is risk management process and what are the risk management activities in terms of project management. Risk is managed by project managers and team members on a daily basis. Through the implementation of a systematic risk management process your projects can run more smoothly and the experience can be more positive for everyone involved.
A risk is an uncertain event with whose occurrence can have a positive or negative effect on the project and its goals. Yes, that’s right! Risks can have positive effects. Don’t fall into the trap of believing they are solely negative. Risks can create opportunities and therefore have a positive effect on the overall project through making it smarter, more profitable and streamlined. ‘’Accept the inevitable and turn it to your advantage.’’ Risk doesn’t have to be wholly negative, but should be anticipated and prepared for.
Uncertainty is the main aspect of risk. You are unsure if it will happen or not. Apart from that, you may even be unsure as to what the consequences would be if the if did occur. The likelihood is the probability that the risk will occur. Consequence is the impact of the event. These two components comprise and characterise the scale of the risk.
A risk management process is essential to have implemented in your organisation and follows the following five risk management process steps, all of which can be carried out with the support of Sinnaps:
Step 1: Identify the Risk. This step involves finding and listing all potential risks that could occur and have an impact on your project. In this step both the project and team members are involved. ‘‘Two heads are better than one’’ and in this way more people can identify more risks.
Step 2: Analyse the risk. After identifying all the risks, the likelihood and consequence of each risk can be determined. This step allows you to develop an understanding of the risk and prepare for its potential effect on your project’s goals.
Step 3: Evaluate and Rank the Risk. In this step, the magnitude of the risk is evaluated and it is ranked in a list relevant to its likelihood and consequence. Physically, this can be done by putting together a risk management chart. Decisions can be made about whether the risk is acceptable or whether it needs specific treatment.
Step 4: Treat the Risk. This is done in the case that the risk needs treatment. After the assessment of the highest ranked threats, a risk plan is set out to treat or modify them and to achieve acceptable risk levels.
Step 5: Monitor and Review the risk. This step is quite important in the risk management process. The risk is continuously monitored and the preventative measures reviewed in order to establish effectiveness or ineffectiveness for the future.
With the help of implementing a clear framework around the uncertainty of risks, you are effectively ‘de-risking’ your project. This means that your project can run more confidently and smoothly.
Through the identification and management of a comprehensive list of risks, unpleasant surprises and bottlenecks can be reduced and opportunities discovered. The process also aids in the resolution of problems if and when the occur due to the fact that the plans to treat them have already been developed and agreed. A risk management diagram could help you to clearly see how threats were avoided or effectively dealt with.
Risk Management in Projects
Risk management is prominent and essential to projects. It comprises the identification, analysation and response to any risk that arises over the running of the project to help it stay on track and reach its goal. It is not solely a reactive process but rather part of planning and anticipation so that the team knows how to control a risk if it occurs.
A risk is a potentiality, a possibility. In the event that it becomes a reality, it will be an issue that the team will need to address. Risk management, therefore, helps to analyse, identify and prepare a plan of how to deal with these potential issues before they arise. In this way, the issues cannot cause as much harm to the project as when they are unprepared for because you and your team will have a risk plan.
Risk management can differ depending on a variety of projects. The larger and more complex a project, the more extensive the planning of the risk management strategies are. For smaller-scale projects, the risk management is simpler, comprised of a prioritised list of high, medium and low priority risks.
Risk Management Plan
A risk management plan is a document prepared by a project manager to help foresee any risks, estimate their impact and to plan responses to issues that could occur. Also contained in the document is a risk assessment plan.
A risk is inherent with any project and should be assessed and planned for continually. The risk management plan contains the analysis of potential risks, both high and low impact, along with mitigation strategies to allow the project not to be derailed if an issue arises. The plans should be reviewed from time to time by the project team to keep them up to date and relevant showing a truly potential project risk.
The most crucial part of a risk management plan is the risk strategy. Generally, there are four potential strategies that can be chosen from. Projects can choose to:
Avoid the risk: Plans within the project can be changed around in order to avoid the risk occurring completely.
Control/Mitigate the risk: This describes when steps are taken to reduce the risk’s potential impact and/or likelihood.
Accept the risk: This is when teams simply accept the risk and what effect (positive or negative) it could have on the project. The fact that the risk is identified is enough preparation for it in this strategy.
Transfer the risk: This can be done by transferring the risk to a third party that can manage its outcome. This can be done through insurance companies or outsourcing an activity that carries a high risk.
Risk management plans are used in many projects and serve as a visualisation of what could happen and what actions are to be taken in certain situations. The scope of the risks is defined and tracked by means of documentation.
Risk Management software
Apart from simply outsourcing a risky activity, there exist many different online risk assessment software to help your team or organisation with risk management. You must remember that not every risk can be outsourced! For example, a team member falling ill or an environmental occurrence. You cannot outsource for such risks and must prepare for and manage them yourself.
This is where software comes in. Taking into consideration the various software that exist, Sinnaps is the best one for your team and your project! The online software helps to minimise risk and make your project less stressful to run. The impacts of risks are calculated and given automatically.
Simulations are saved and previous successful risk management remembered giving you the option to reapply. In terms of trying to stop or prepare for a threat, Sinnaps understands that we want it to cost as little and to take as little time as possible.
Risk Management with the Test Mode
Risk Management Tools
Risk management tools and techniques are the supporters of risk management software. They are what help the software to function in a way that helps us to manage the risk within a project efficiently and effectively. Tools such as the SWOT analysis, failure mode and effects analysis help to uncover any project risk, while scenario analysis helps with potential future risks. These are common to most software. Sinnaps goes the extra mile to ensure properly managed risk.
Test mode is a specific tool that allows project managers to try out certain changes before actually implementing them. This is for the purpose to see how certain changes may affect the project and its critical path and whether they are viable.
Sinnaps is an online line project planning and management app that utilises several tools to manage risk effectively. One of these tools is Sinnaps simulator. With the help of this risk management tool, questions which directly affect the control of future predictions will be answered and demonstrated.
As the project unfolds, each phase will be monitored and controlled to make sure that everything is going as planned. During this step, a tool called Earned Value Management (EVM) is the support. The set of metrics in it will advise the team and project manager on the running of the project based on the established objectives. The measurement is carried out in an instant and is continuous throughout the running of the project so that you and your team will constantly know how your project is running.
Risk Analysis Methods
You may wonder, ‘what is risk analysis?’. Risk analysis is the study of the causes of possible risks as well as their potential causes and damages. Essentially, it is a risk assessment procedure. The process is systematic. Sinnaps is a risk analysis method in itself. It plans, identifies, analyses, responds to and monitors each project risk.
The hardest part of risk analysis is the identification of the setbacks in the project and their respective probability of occurrence. Sinnaps eases this steps through its clear identification of explicit bottlenecks. Some of your workload is taken off your shoulders! Now it is time to focus on the risks that are most likely to occur and that have the greatest impact on the critical path of the project.
There are several different risk analysis techniques:
- Run through a list identifying all possible risks to see if any of the threats are relevant.
- Think about the systems, processes, or structures that you use, and analyse risks to any part of these. What are your vulnerabilities or weaker spots?
- Don’t be afraid of an outside perspective! As the saying goes, ‘two heads are better than one’ and it’s true! If you’re leading a team, ask for input from your people, and consult others in your organization, or those who have run similar projects. You’ll be thankful for the useful tips and advice you pick up along the way and it will also serve as a motivational factor for those involved.
- Conduct a ‘What if?’ analysis to identify any opportunity that could arise from a risk by simply asking ‘what if’’ and visualising what advantage could potentially come out of a risk.
- You may choose to carry out quantitative risk analysis or qualitative risk analysis.
Once you’ve identified the value of the risks you face, you can start to look at ways of managing them.
Projects can fail for many different reasons such as the lack of communication, reporting, good leadership, funding, conflict, unrealistic goals and simply poor planning. Risk is reality. It will always exist. What is most important is its identification. Know what’s going on in your project and its surrounding environment!
Knowledge and awareness will allow project managers and team members to establish viable preventive and corrective measures through inputting the information into Sinnaps. The impact of each risk will be simulated focusing on two key features: time and cost. It will all be registered in a large contingency chapter for a correct risk assessment for your project.
“There is nothing quite so useless as doing with great efficiency something that should not be done at all.”
—Peter Drucker, austrian-born american management consultant.
Risk Analysis and Management
Risk analysis is an essential tool when designing any project. Sinnaps understands exactly that and helps you to identify and understand the risks concerning your project and in turn, help to manage them and their impacts on your plan, making your risk assessment procedure clear and effective.
Detailed information is needed to perform an effective risk analysis as it can be quite complex. You may need to refer to financial data, security protocols, previous project plans etc., but it is worth it as it saves time, money and even reputations in the long run.
Risk analytics help you to move onto the next stage which is managing and monitoring the risks themselves. Threats can come from different sources such as human, financial, technical, natural, political, structural, operational and even reputational. Every project risk is different. It is important to take into consideration the whole environment surrounding your project.
Avoid the Risk: One strategy could be to avoid the risk altogether. This occurs in certain situation and comprises of not getting involved in anything that could trigger the risk’s occurrence. This management strategy is a good idea when the involves no benefit to your team or when the cost risk analysis shows that addressing it is not feasible.
Share the Risk: This is when the potential impact of the risk upon occurrence is not solely directed at you and your team, but rather shared with other teams, organisations or third parties such as insurance or joint ventures, for example.
Accept the Risk: In some cases, a team can simply accept the risk. This is normally the strategy when there is nothing that can be done to prevent or mitigate the risk. Usually, in these cases, the potential loss is less than taking action against the risk.
Before accepting any risk, conduct an impact analysis with Sinnaps EVM tool or even Test Mode. It is important to be aware of and understand fully the consequences that accepting the risk will have on your project. After this, if you are satisfied, you can move onto controlling the risk and trying to reduce its impact.
Accepted risks can be controlled with the help of a number of approaches. Business experiments or Sinnaps’ Test Mode will allow Project Manager’s to see how the risk would play out in different scenarios before making any decisions. Preventative action such as specific training can also be taken. Detective action with the help of Sinnaps allows for the identification of where something could potentially go wrong in a process.
Overall, risk is inevitable to business and risk management to any project. It may seem long and tedious, searching for something that hasn’t happened or might not even happen at all, but you will be very thankful for carrying the process out if and when a threat occurs. Sinnaps understands the often volatile environments in which projects exist. Incorporated into its software are clear risk analysis techniques to help your project run as smoothly and as confidently as possible.
Types of Business Risk of a Company