What Are Project Risks & How to Combat Them Through Risk Management

This will ensure the team is up to speed, thereby reducing the chance of delays due to a learning curve.

One common thing I keep hearing is – What should I do if the risk is due to the client itself?

Well, that can happen for different reasons. One common example would be if there is a risk of project delays due to potentially slow client approvals. You can mitigate this by scheduling regular update meetings with the client to expedite decision-making processes.

Acceptance

“Make the choices that make you nervous. If you make the choice that’s the easy way out, that wasn’t the big vision or big choice to make.” 

– Eileen Burbidge, Founding Partner, Passion Capital.

Sometimes, avoiding or mitigating certain risks might be impossible or not the most cost-effective option. What do you do in such cases? 

Well, I think it’s more practical to simply accept such a risk than to spend resources trying to avoid or mitigate it. 

For example, if there is a minor risk of delays in delivering a non-critical part of the project, the team may choose to accept it without action, considering the low impact. However, that only applies if you think the risk has a very low likelihood of impacting the project’s success.

5. Transference

WAIT!!! Is there a way you can literally transfer (like, throw away) your project’s risks to someone else?

You know, certain terms can be deceiving. So, let’s get clarity into what “risk transference” means. 

Here’s a simple definition from the Project Management Institute (PMI) –

“Transference of risk involves shifting of the consequence and impact of the risk to a third party. This can include the use of insurance, as well as performance bonds, warranties, guarantees, or fixed price contracts.”

But here’s the thing—risk transference doesn’t eliminate the risk itself; it simply transfers the responsibility of managing it (and potentially the financial consequences) to another party. Therefore, carefully evaluate the cost-effectiveness before implementing such a strategy.

Escalation

Let’s say you identify a critical legal compliance issue during your software development project that requires significant design changes. 

This poses a high-impact risk to the project’s timeline and budget. While your team can develop mitigation strategies to address the issue, senior management might decide how to proceed (e.g., delaying the launch, seeking legal counsel, etc.).

Through risk escalation, you formally document the risk, its potential impact, and proposed mitigation strategies and then elevate it to the appropriate decision-makers for timely intervention. This ensures critical risks receive the necessary attention and resources to minimize their impact on the project.

What Are the 3 Types of Project Risks?

Project risks can be categorized into three main types: known, unknown, and unknowable. Understanding these categories helps project managers prepare and respond effectively. Here’s a closer look at each type with practical examples:

Known Risks

These are risks that have been identified, analyzed, and understood during the project’s planning phase. Known risks are predictable and can often be managed proactively.

I’ll give you an example to help you understand –

In a construction project, known risks might include delays due to weather conditions. Since weather patterns can be forecasted to some extent, project managers can plan for these delays by building buffer time into the project schedule.

Unknown Risks

These are risks that were not identified during the planning phase but are still likely to occur based on past project experiences. Although these are unpredictable, they are generally understood to be possible.

For example, an unknown risk could be the sudden resignation of a key team member. While the exact timing and individual cannot be predicted, project managers can prepare for such eventualities by cross-training team members or having contingency plans in place to quickly fill critical roles.

Unknowable Risks

“Unknowable risks are “black swan” events—that is, those that cannot be identified in advance.” 

– CFA Institute.

Quite naturally, these risks are impossible to predict or prepare for. While they are typically rare, unknowable risks can have significant impacts when they occur.

I mean, who could have predicted a natural disaster like an earthquake or something like a COVID-19 pandemic? These events can disrupt supply chains, halt project progress, and require a complete re-evaluation of project timelines and resources.

How Do You Use Risk Management Software to Prepare Your Team?

Modern projects often employ risk management software to streamline and enhance the effectiveness of their risk management processes. Here’s how you can utilize such a software solution –

1. Risk Identification: Here, you use the software’s collaborative features, like tagging users, adding task comments, file sharing, etc., to facilitate brainstorming sessions with the team and capture potential risks in one location.

(Image source: ProProfs Project)

2. Determine the Likelihood and Impact of the Risk: Once risks are identified, the software can help analyze the likelihood of each risk occurring and its potential impact on the project.
3. Find Solutions for Each Risk: Utilize the platform’s discussion boards to brainstorm mitigation strategies and assign action items to team members.
4. Monitor Your Risk Assessment Regularly: Leverage the software’s reporting tools to track the status of each risk and monitor its likelihood or impact as the project progresses. Schedule regular reviews within the platform to update mitigation plans and ensure their effectiveness.

(Image source: ProProfs Project)

Combat Project Risks With Effective Risk Management Software

Project risks are inevitable. And this is something you and I both know. However, with proper project risk assessment strategies and a definite software system, you can prepare beforehand and tackle them immediately to avoid negative impacts. 

Talking of software, nowadays, project risk management tools come in plenty. Say, for example, ProProfs Project. Its detailed reports and team collaboration features give you a lead over project issues.

Hear what María Franco Avalos (Geographical Information Systems Specialist, UNDP) has to say about the platform –

“We immediately saw an increase in the number of progress reports on activities. Our main partners had up-to-date information and motivated them to learn more about specific project issues. Accountability has also improved for our implementation partners: Government, civil society, and international cooperation.”

Still in doubt whether you need such a software solution? Why don’t you try it out? ProProfs Project is free for small teams (yes, with all premium features). Give it a go today!

Learn More About Project Risk Management

How many types of project risk are there?

There are generally four types of project risks –

• Technical Risks: Issues related to technology, technical feasibility, and performance.
• Management Risks: Problems with project management, team coordination, and resource allocation.
• External Risks: Factors outside the project team’s control, such as regulatory changes, market shifts, or environmental factors.
• Operational Risks: Risks associated with day-to-day operations, including process inefficiencies and system failures.

How do you identify project risks?

Project risks can be identified through –

• Brainstorming Sessions: Gather the project team to discuss potential risks.
• Expert Interviews: Consult with experts who have experience in similar projects.
• SWOT Analysis: Evaluate the project’s strengths, weaknesses, opportunities, and threats.
• Risk Checklists: Use pre-existing lists of common risks for similar projects.
• Past Project Reviews: Analyze risks that occurred in previous projects to anticipate similar issues.
• Root Cause Analysis: Investigate underlying causes of potential problems.

What does a project risk include?

Project risk includes anything that can create an unexpected variance in a project’s planned outcome. This includes –

• Scope risk: This involves changes or misinterpretations of the project’s scope.
• Budget risk: It is where actual costs exceed projected costs.
• Schedule risk: This refers to timing delays and their cascading effects on the project’s timeline.
• Quality risk: This could mean the deliverables don’t meet the necessary standards or expectations. 

Each of these areas requires careful consideration and monitoring throughout the project lifecycle to ensure they are managed effectively.

Who should identify project risks?

Usually, project risks should be identified by –

• Project Manager: Oversees risk management and ensures comprehensive risk identification.
• Project Team Members: Provide insights based on their specific expertise and roles.
• Stakeholders: Offer perspectives on external and organizational risks.
• Subject Matter Experts: Bring specialized knowledge relevant to the project’s scope.
• Risk Management Experts: Apply their experience and methodologies to uncover potential risks.

However, risks can be identified by anyone else in the organization.