Risk is inevitable in a business when undertaking projects. We need to ensure that risks are kept to a minimal. Risks can be mainly divided into two types, negative impact risk and positive impact risk.
Not all the time we would be facing negative impact risks as there are positive impact risks too. Once the risk has been identified, we need to come up with a mitigation plan or any other solution to counter attack the risk.
Project Risk Management
Managers can plan their strategy based on four steps of risk management which prevails in an organization.
- Risk Identification
- Risk Quantification
- Risk Response
- Risk Monitoring and Control
Managers face many difficulties when it comes to identifying and naming the risks that occur when undertaking projects. These risks could be resolved through structured or unstructured brainstorming or strategies. It’s important to understand that risks pertaining to the project can only be handled by the project manager and other stakeholders of the project.
Risks, such as operational or business risks will be handled by the relevant teams. The risks that often impact a project are supplier risk, resource risk, natural calamities risk and budget risk. Supplier risk would refer to risks that can occur in case the supplier is not meeting the timeline to supply the resources required.
Resource risk occurs when the human resource used in the project is not enough or not skilled enough. Budget risk would refer to risks that can occur if the costs are more than what was budgeted.
Risks can be evaluated based on quantity. Project managers need to analyze the likely chances of a risk occurring with the help of a matrix.
Using the matrix, the project manager can categorize the risk into four categories as Low, Medium, High and Critical. The probability of occurrence and the impact on the project are the two parameters used for placing the risk in the matrix categories. As an example, if a risk occurrence is low (probability = 2) and it has the highest impact (impact = 4), the risk can be categorized as ‘High’.
When it comes to risk management, it depends on the project manager to choose strategies that will reduce the risk to minimal. Project managers can choose between the four risks response strategies.
- Risks can be avoided
- Pass on the risk
- Take corrective measures to reduce the impact of risks
- Acknowledge the risk
Risk Monitoring and Control
Risks can be monitored on a continuous basis to check if any change is made. New risks can be identified through the constant monitoring and assessing mechanisms.
An organization will not be able to fully eliminate risks. Every project engagement will have its own set of risks to be dealt with. A certain degree of risk will be involved when undertaking a project.
The risk management process should not be compromised at any point, if ignored can lead to detrimental effects. The entire management team of the organization should be aware of the project risk management methodologies and techniques.
Continues checks and frequent risk assessments are the best way to minimize the damage from risks.