Risk management is one of the most important pillars of project management. It is impossible to implement a project without confrontation some risk through process of the project. It is necessary to develop a clear methodology to manage these risks in the right way to achieve the objectives of the project.
In this article, we will talk about many points related to risk management in projects, including: definition of risk management in projects, its importance, and types of risk. In addition to the steps of risk management in projects.
What are the risks?
Risk is defined by the PMI as an "uncertain event or circumstance, and if it occurs, there is a positive or negative impact on the project objectives." These events include unforeseen circumstances, situations, and threats that affect the project's progress in the desired manner.
If you go back to the previous definition, you will find that the risks are not limited to the negative impact on the objectives of the project, but sometimes have a positive impact, which is absent from some because most people link the word "risks" to the negative results only contrary to reality.
Examples of positive risk are the completion of the project before the specified date, getting better results than planned, and not use all resources allocated to the project.
How do you deal with positive risks?
The way to deal with positive risks differs from the negative ones. The risk of responding to negative risks is often avoided after determining the extent of its impact on the project, unlike the positive risks that managers seek to achieve because of its good impact on the project. One of the best ways to deal with it is to exploit it and increase the chance of it happening.
Types of risks The types of risks vary depending on the project area, among these types:
- Financial risks
- Legal risk
- Operational risk
- Strategic risks
- Technological risks
What is project risk management?
After we know what the risks are in the projects, let's go and know what to do before they happen.
- What if the project duration exceeds the specified time?
- What if project needs exceed budget?
- What if you do not come up with the expected results from the project?
- What if you encounter operational risks during project implementation?
All these questions and the like should be asked to yourself during the writing of the project proposal, and then analyze and find ways to deal with it when occurs. Management of these risks is a planned and organized process that helps the project team to make the right decision at the right time by identifying and analyzing the risks. Then managing them in a way that prevents it from occurring or limits their effects. Projects are inherently risky because they are specific on the basis of the project proposal and assumptions, and are subject to external influences.
Potential risks can affect the achievement of project objectives positively or negatively, involving both opportunities and threats, both of which must be managed through the risk management process.
According to Bahamid et al., 2017, risk management is defined as "an organized and comprehensive approach designed to organize, identify and respond to risk factors in order to achieve project objectives", allowing for an understanding and proactive management of unforeseen events before they occur, reducing the likelihood of threats and increasing opportunities.
Why risk management in projects?
The importance of risk management in projects is to prevent unexpected events that eventually lead to the achievement of the objectives of the project as required. Other benefits include:
- Contribute to making appropriate decisions
- Reduce potential threats
- Create a safe and convenient environment for the project
- Ability to evaluate project success logically
- Rapid response to emergency events
What are the stages of project risks of management? The risk management process in the project goes through six main stages:
- Risks identification
Risk can be identified by collecting data on the risks that are expected to occur during the project, based on previous experience and the study of previous projects similar to the project. Some tools and techniques can be used in data collection:
- Consult experienced owners in the field
- Use SWOT analysis
- Risks analysis
After knowing the risks that the project may face, you should analyze each risk separately and know the likelihood of each risk and its impact on the success of the project.
- Risks measurement
Risks measurement includes:
- Measurement of quantitative risk
Is a systematic process for estimating the probability of unforeseen hazardous events and express about it quantitatively.
- Measurement of qualitative risks
Is a systematic process for estimating the probability of unexpected hazardous events and expressing qualitative results such as phrases such as very high, high, moderate, low, very low.
- Arranging risks by priority
At this point you will find that you have collected a good number of risks, but they will not be the same priority. Some of them will need an urgent response if they occur, such as those that greatly affect the success of the project, some will be less important and you will not need to waste time dealing with it. To properly manage these risks, you should prioritize them.
- Risks response
The risk response varies depending on the size and type of risk. After ranking a list of expected risks, you will need to develop a risk plan for each risk. Risk response methods include:
First: Negative risks
- Risk prevention: Eliminating the threat in full and this is done in the risks that greatly affect the success of the project.
- Risk transfer to a third party such as project consultant.
- Reduce the effects of risk.
- Acceptance of risk, which refers to risks that do not significantly affect the success of the project.
Second: positive risks (opportunities)
- Exploitation of risk
- Promote the occurrence of this risk
- Accept risk
- Risks assessment
The objective of this phase is to determine the success of the Risk Management Plan in the face of risks and to take advantage of this in the planning of future projects.
To learn more about project risk management, enroll in the RMP Professional Risk Management course offered by Bakkah Learning.