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Project Risk Management Best Practices
Governance, Risk and Compliance
Modified April 11, 2022 By Resolver
Project risk management identifies potential risks within a project and the development of plans to counter these risks. Successful project risk management will help determine the probability of a particular risk happening and its impact on the company, project or process.
In big companies with various objectives, projects can be significant risks. In many organizations, projects will not meet target requirements in a satisfactory manner or will run over in terms of budget and time constraints. Threats that go unchecked can derail these projects, costing businesses significantly. As the University of Nebraska Lincoln notes, the success or failure of these projects depends on a number of different variables.
Potential Project Risks
There are several threats that project risk management should seek to address. Any one of these could easily hinder the progress of a project and should be addressed in a timely fashion.
The integration of new projects is bound to have some issues. These initiatives could lack the right amount of resources or have poor company buy-in (management or other employees questioning the value of projects) and unclear goals.
The scope is another issue that can threaten a project because of how it can change. Company expectations may grow as a project continues, or additional components can be tacked on depending on the progress. Also, poorly defined requirements will frequently necessitate a project's scope to be modified.
When companies think of projects, the top concern is generally resources - how much money will it take to see a project through to completion? However, time is frequently a more significant threat to the success of a project. The longer a company has people working on a specific project, the more money this will cost. This can lead to initiatives going significantly over budget. Potential risks include timeline alterations, errors in estimates, and environmental changes (new legislation is passed or a new competitor enters the market).
That said, the cost is still a critical consideration. Over the course of a project, the cost can impact progress in several ways. Loss of funding can lead to lacklustre results, errors in cost estimates can create complications, and unforeseen price changes may also affect. Inadequate productivity and contingency planning are always issues to be wary of.
Other risks could invariably threaten the progress of a project as well. This is why it's so important that organizations develop a project risk management plan.
What Is Project Risk Management?
The University of Nebraska Lincoln describes project risk management as an approach that will "Eliminate or minimize specific risks associated with individual projects through a systematic process of planning, identifying, analyzing, responding to, monitoring and controlling the areas or events that have the potential to cause unwanted change."
TechRepublic suggests the best practice for successful project risk management is creating it in advance. Project management procedures should note specifics - how teams manage issues, change of scope, risk, quality, communication, cost, timeline, etc. - before projects are approved. A clear project management plan ensures all the stakeholders understand how any given initiative will be carried out.
"Once the project has been planned sufficiently, execution of the work can begin," TechRepublic adds. "In theory, since you already agree on your project definition and your workplan and project management procedures are in place, the only challenge is to execute your plans and processes correctly."
As any veteran business owner can attest, things seldom go exactly as planned. This is when the company will be challenged to test its project risk management. Along with tracking and monitoring tools, Keen business knowledge is crucial for ensuring projects don't get derailed by unforeseen circumstances.
Companies need to review their work plans regularly to ensure everything is progressing in terms of schedule and budget. At these regular meetings, look for activities that could have been finished before the deadline and determine whether the issue was the fault of the people in charge or if it was genuinely unavoidable.
Additionally, it's essential to monitor the budget. Projects tend to be executed because of their cost-efficiency. If an initiative goes over budget, companies will need to determine whether it's worth it to keep working and invest more.
Warning Signs of Trouble
Proper monitoring will help companies prevent a project from becoming a full-blown meltdown, but noticing subtle warning signs is key to maximizing the security of a project. As TechRepublic notes, these warning signs could include:
- "A small variance in schedule or budget starts to get bigger, especially early in the project," the source suggests. "There is a tendency to think you can make it up, but this is a warning. If the tendencies are not corrected quickly, the impact will be unrecoverable."
- Activities that should have been completed but aren't. The specifics can change from project to project, but completion failure is always a sign that something isn't running smoothly under the hood.
- Declines of integrity. Long projects take their toll on everyone, from upper management to the actual team working on them. After developing a project for months, it's easy to stop focusing on quality standards (ranging from deliverables to service) and simply strive toward completion. This approach can create additional issues for projects and their long-term value to companies.