To manage projects effectively you need to be able to recognize and manage risk. Risk is the possibility that you may not achieve your product, schedule, or resource targets because something unexpected occurs or something planned doesn’t occur. All projects have some degree of risk because predicting the future with certainty is impossible.
In other words, anything that can cause you either to fall short of or to exceed your established project targets, if it occurs, is considered a risk. While some approaches for analyzing and responding to both types of risks are similar, this chapter presents approaches for identifying, evaluating, and managing negative risks. In this chapter, the term risk always refers to a negative risk or threat, unless otherwise noted.
Risk management is the process of identifying possible risks, assessing their potential consequences, and then developing and implementing plans for minimizing any negative effects. Risk management can’t eliminate risks, but it offers the best chance for successfully accomplishing your project despite the uncertainties of a changing environment.
Take the following steps to determine, evaluate, and manage the risks that may affect your project:
- Identify risks: Determine which aspects of your plan or project environment may change.
- Assess the potential effects of those risks on your project: Consider what can happen if those aspects don’t work out the way you envision.
- Develop plans for mitigating the effects of the risks: Decide how you can protect your project from the consequences of risks.
- Monitor the status of your project’s risks throughout performance: Determine whether existing risks are still present, whether the likelihood of these risks is increasing or decreasing, and whether new risks are arising.
- Inform key audiences of all risks involved with your project: Explain the status and potential effect of all project risks — from the initial concept to the project’s completion.
4 Types of Risks Involved in Project Management
- Scope Risk
This risk includes changes in scope caused by the following factors:
- Scope creep – the project grows in complexity as clients add to the requirements and developers start gold plating.
- Integration issues
- Hardware & Software defects
- Change in dependencies
- Scheduling Risk
There are a number of reasons why the project might not proceed in the way you scheduled. These include unexpected delays at an external vendor, natural factors, errors in estimation and delays in acquisition of parts. For instance, the test team cannot begin the work until the developers finish their milestone deliverables and a delay in those can cause cascading delays.
To reduce scheduling risks use tools such as a Work Breakdown Structure (WBS) and RACI matrix (Responsibilities, Accountabilities, Consulting and Information) and Gantt charts to help you in scheduling.
- Resource Risk
This risk mainly arises from outsourcing and personnel related issues. A big project might involve dozens or even hundreds of employees and it is essential to manage the attrition issues and leaving of key personnel. Bringing in a new worker at a later stage in the project can significantly slow down the project.
Apart from attrition, there is a skill related risk too. For instance, if the project requires a lot of website front end work and your team doesn’t have a designer skilled in HTML/CSS, you could face unexpected delays there.
Another source of the risk includes lack of availability of funds. This could happen if you are relying on an external source of funding (such as a client who pays per milestone) and the client suddenly faces a cash crunch.
- Technology Risk
This risk includes delays arising out of software & hardware defects or the failure of an underlying service or a platform. For instance, halfway through the project you might realize the cloud service provider you are using doesn’t satisfy your performance benchmarks. Apart from this, there could be issues in the platform used to build your software or a software update of a critical tool that no longer supports some of your functions.