The Importance of Risk Management in Project Management
Risk management affects the essential factors to the success of your project such as your schedule, the scope, budget, communications, stakeholder engagement, agreed quality of the deliverables, and more. When an unforeseen event happens and there is no risk planning that has been done, it is difficult to manage the situation and might contribute to the failure of the project.
Although risks are generally known as negative, they can also be opportunities for the project team to grow by learning more from the experience.
There is no assurance that these possible events or risks will happen and if they will, they can happen any time. There is a need to identify these risks, discuss and monitor on them, as well as involve everyone.
It is important that all team members learn everything in managing risks and estimate when they could possibly happen. They must agree on the strategies to do for every risk and undertake actions to prevent negative events from happening.
Project risk management is not just developing the plan, recording these risk strategies on file and sharing it occasionally. Risk management is an undertaking wherein it is important that members know how to deal with them when they happen.
To manage these project risks, the procedure always starts with planning then identifying the possible risks that might happen. The next step is to perform qualitative and quantitative risk analysis. Plan how to respond when they happen and when they do, always monitor to control them.
Effective risk management strategies allow you to identify your project’s strengths, weaknesses, opportunities and threats. By planning for unexpected events, you can be ready to respond if they arise. To ensure your project’s success, define how you will handle potential risks so you can identify, mitigate or avoid problems when you need to do. Successful project managers recognize that risk management is important, because achieving a project’s goals depends on planning, preparation, results and evaluation that contribute to achieving strategic goals.
(i) Planning for Success: Risk management plans contribute to project success by establishing a list of internal and external risks. This plan typically includes the identified risks, probability of occurrence, potential impact and proposed actions. Low risk events usually have little or no impact on cost, schedule or performance. Moderate risk causes some increase in cost, disruption of schedule or degradation of performance. High risk events are likely to cause a significant increase in the budget, disruption of the schedule or performance problems.
(ii) Communicating with Stakeholders: To ensure that projects run smoothly, effective project managers communicate their plan to the project sponsors, stakeholders and team members. This sets expectations to people who provide funding and are affected by the outcomes. It ensures that the project runs smoothly so one step proceeds to the next without disruption. By identifying, avoiding and dealing with potential risks in advance, you ensure that your employees can respond effectively when challenges emerge and require intervention.
(iii) Maximizes Results and Meet Deadlines: By defining risk management processes for your company, you make success more likely by minimizing and eliminating negative risks so projects can be finished on time. This enables you to meet your budget and fulfill targeted objectives. When you don’t have risk management strategies in place, your projects get exposed to problems and become vulnerable. Effective risk management strategies allow your company to maximize profits and minimize expenses on activities that don’t produce a return on investment. Through detailed analysis, effective leaders prioritize ongoing work based on the results produced, despite the odds.
(iv) Be Proactive Not Reactive: Having a risk management plan in place allow you to be proactive and take steps to mitigate possible harms before they arise, instead of constantly fire fighting. The project team can take the risk that have been identified and convert them to actionable steps that will reduce likelihood. Those steps then become contingency plans that hopefully can be aside. Should a risk event occur, the contingency plan can be whipped out quickly, reducing the downtime on a project.
(v) Evaluates the Entire Project: To evaluate your project’s success so you can use the best practices on your next project, assess the impact of your activities on mitigating exposure to problems and exploiting opportunities that capitalize on your company’s strengths. For example, if you develop and deliver a training program that creates awareness about internet security, including phishing, viruses and identity theft, measure the number of help desk calls received about these problems. If they go down, you can reasonably assume your risk management initiatives have contributed to success. If not, revise your training program.