10 Best Rules of Project Risk Management

The benefits of risk management in projects are very big, so it's very important to use it. You can make a lot of money if you deal with project events that aren't clear ahead of time. In the end, you'll be able to keep risks from hurting your project and take advantage of opportunities that come your way. This lets you finish your project on time, on budget, and with the quality results, your project sponsor wants. Also, your team members will be happier if they don't have to fight fires to fix things that could have been done better.

This article tells you how to use risk management in your project the right way. It gives you the 10 golden rules. They are based on the personal experiences of the author, who has worked on projects for more than 15 years. As well, the huge amount of literature on the subject has been cut down in this article.

Risk management should be part of your project from the start, says the first rule:

Rule 1 :

The first rule is very important for project risk management to work. In order to get the most out of risk management, you need to make sure that it's a part of your project from the start. You can find a lot of bad ideas in businesses. Some projects don't use any kind of risk management at all. They either don't know how to run a project or they think there will be no risks in their project (which of course will happen). Some people don't think twice about the project manager, even if he or she looks like an old soldier who has been fighting for two decades. Make risk management part of your daily work and include it in project meetings and the training of your staff.

Rule 2: Find Risks Early in Your Project.

To start with, you need to figure out what risks your project has. This requires an open mind that thinks about what might happen in the future. People and paper are the two main ways to find risks. People are the people on your team who each bring their own experiences and knowledge with them. If you need help with your project, you should talk to experts from outside your project. They know how to do the kind of project or work you're having. They can tell you about some traps you'll run into or opportunities you didn't know about. Risk brainstorming is the most common way to find out what people are afraid of. It's not the same with paper. Projects tend to make a lot of (electronic) documents that talk about project risks. They might not always be called that, but someone who reads very carefully (between the lines) will find them. These three things are good places to start. Other categories are old project plans, your company Intranet and specialist websites.

Are you able to find all project risks before they happen? There's a good chance. However, if you use a lot of different ways to identify things, you're likely to find most of them. If you deal with them the right way, you will have enough time for the risks that come up.

Rule 3: Tell People About the Risks

Failed projects show that project managers in such projects were frequently unaware of the big hammer that was about to hit them. The scary thing was that often, someone in the project organization saw the hammer, but didn't tell the project manager about it. As a project manager, you should be aware of risk communication.

A good idea is to make risk communication a part of every job you do. If you have a meeting with your team, make project risks part of the default-agenda. They should not be the last thing on the list, though. This shows risks are important to the project manager and gives team members a natural moment to discuss them and report new ones.

Another important line of communication is that of the project manager and project sponsor or principal. When you talk to your boss or customers, make sure you don't surprise them or your boss! It is also important to make sure the project sponsor makes decisions about the top risks, because sometimes the project manager doesn't have the authority to deal with some of them.

Rule 4: Take into account both threats and opportunities.

Negative: Project risks are the bad guys that can harm your project. They are the people who can stop your project from going well. However, modern risk management methods also look at positive risks, such as the chances for a project to go well. These are the things that could happen that are good for your project and your company. These good guys make your project faster, better and more profitable.

Unfortunately, a lot of project teams struggle to cross the finish line, being overloaded with work that needs to be done quickly. This creates a project where only bad risks are important (if the team considers any risks at all). It doesn't matter how long it takes you to deal with the chances in your project. The chances are that you will see a couple of opportunities with a high payoff that doesn't require a big investment of time or resources.

Rule 5: Clarify Ownership Issues

Some project managers think they are done once they have created a list of risks. However, this is just the beginning. The next step is to make clear who is responsible for what risk! Someone has to feel the heat if a risk is not taken care of properly. Make a risk owner for each one you find. There is a person on your team who is in charge of this risk for your project. This person has to make sure that this risk is as low as possible. The effects are really positive. At first, people usually feel uncomfortable that they are actually responsible for certain risks, but as time passes they will act and carry out tasks to decrease threats and enhance opportunities.

Ownership also exists on another level. If a project threat occurs, someone has to pay the bill. This sounds logical, but it is an issue you have to address before a risk occurs. Even if your project has a lot of people from different parts of the business, departments, and suppliers, it's important to know who will have to pay the price and who will have to pay for the consequences. Line managers start paying more attention to a project when there's a lot of money at stake, which is a good thing. The ownership question is just as important as project opportunities. Fights over (unexpected) revenues can become a long-term pastime of management.

Rule 6: Prioritise Risks

A project manager once told me, I treat all risks equally. This setup makes project life really simple. However, it doesn't deliver the best results possible. Some risks have a higher impact than others. Therefore, you better spend your time on the risks that can cause the biggest losses and gains. Check if you have any showstoppers that could derail your project. If so, these are your main goal. The other risks can be ranked based on how you feel or, more objectively, on a set of rules. Most project teams look at the effects of a risk and how likely it is that it will happen. It doesn't matter what you use to put things in order. Always use it and focus on the big risks.

Rule 7: Analyse Risks

Understanding the nature of a risk is a precondition for a good response. Therefore, take some time to have a closer look at individual risks and don't jump to conclusions without knowing what risk is about.

Risk analysis occurs at different levels. If you want to understand a risk at an individual level, it is most fruitful to think about the effects that it has and the causes that can make it happen. Looking at the effects, you can describe what effects take place immediately after a risk occurs and what effects happen as a result of the primary effects or because time elapses. You can see the order of magnitude effect in a certain effect category, such as costs or lead time. Another way to think about risks is to think about the things that happen before a risk happens, or the risk causes. List the different causes and the circumstances that decrease or increase the likelihood.

Another level of risk analysis investigates the entire project. Each project manager has to answer the same questions about how much money the project will cost or when it will be done. If you take risks into account, you can do a simulation to show your project sponsor how likely it is that you finish on a given date or within a certain time frame. There is a way to do the same thing for project costs.

The information you get from a risk analysis will give you valuable information about your project and the information you need to come up with effective ways to minimize the risks.

Rule 8: Decide how to deal with risks and plan how to do it.

It's the part of your project that actually adds value by putting in place a risk response. A threat isn't going to happen, or the negative effects aren't as bad. It's important to get the job done here. The other rules have helped you to map, prioritize, and understand risks, so now you know what to do. When you do this, you'll be able to come up with a good risk response plan that focuses on big wins.

In the event that you are dealing with threats, there are three ways you can choose to deal with them: avoid, minimize, or accept. If you want to avoid risks, you organize your project so that you don't have to deal with a risk anymore. This could mean switching suppliers, adopting new technology, or ending a project if there is a risk that is too big to handle. The idea of spending more money on a project that isn't going to work isn't a good one.

The most common type of response is one that reduces the chances of having an accident or getting hurt. You can try to stop a risk from happening by changing the causes or lessening the negative effects that could happen, or you can do both. There will be a lot of things you can do to change it if you follow rule 7 (risk analysis). A last thing to do is to take a chance. In this case, the project's effects are small or it's hard to change it or it costs a lot to do so, so this is the best option. Check to see if it's a conscious choice that you want to take a certain risk.

In the case of threats, people react the same way to risk opportunities. They will try to find risks, maximize them, or ignore them (if opportunities prove to be too small).

Rule 9: Make a list of project risks.

If you don't want to stop reading now, this rule is about bookkeeping. A risk log lets you see how things are going and make sure you don't forget about any risks. It is also a great way to communicate with your team and your investors. It tells them what is going on (rule 3).

Risk descriptions, who owns them (rule 5), and basic analyses of causes and effects are all important parts of a good risk log (rule 7). Doing your bookkeeping when it comes to risks is a good idea, especially when there are a lot of risks. Others don't want to record risks because they don't want to be blamed if things go wrong. However, that is not true. If you write down project risks and how you responded to them, you build up a record that no one can dispute. Even if a risk comes up that stops the project. It's risky to do projects.

Rule 10: Keep track of risks and tasks that go with them.

Because of rule 9, you will be able to track risks and the tasks that go with them. It's a job for every project manager to keep track of tasks. The easiest way to do this is to make risk tasks a part of your daily routine. Risk tasks can be done to find or analyze risks, or to come up with, choose, and put into action responses to them.

Tracking risks is different than tracking tasks. When it comes to risk, it focuses on what is going on now. These are the risks that are more likely to happen. There has been a change in how important risks are. To make sure your project is worth what you want it to be, answer these questions.

Finally, this is how it goes:

The ten golden risk rules above show you how to use risk management in your project in a way that will work well for you. Keep in mind, though, that you can always improve. So, rule number 11 would be to use the Japanese Kaizen method: measure the results of your risk management efforts, and keep making changes to make them even better, like they do in Japan.