What is the Project Risk Management Process?

Estimated reading time: 5 minutes

Project Risk Management Process

Projects involve many risks such as cost risks, schedule risks and resources risks. Hence as a project manager, you need to be aware of any and all risks that could affect your project. Risk management is not a reactive approach, but a proactive approach that should be part of the project planning process. It involves figuring out the possible risks and how to control that risk if it occurs.

Effective risk management strategies enable you to identify your project’s strengths, weaknesses, opportunities and threats. By planning for unexpected events, you are prepared to respond quickly if they arise. To guarantee your project’s success, define how you will handle potential risks so you can identify, mitigate or avoid problems when you need to do. Successful project managers recognize that risk management is important, because achieving a project’s goals depends on planning, preparation, results and evaluation that contribute to achieving strategic goals.

Project risk management process include the following:

1. Risk identification
2. Risk analysis
3. Risk evaluation
4. Risk response planning
5. Risk monitoring

Step 1: Risk identification

The first step is to identify and describe all potential risks that might affect your project’s success. While there are several ways to identify risks, project managers usually opt for a combination of these techniques. For example, the project team may review a checklist in one of their weekly meetings and review assumptions in a subsequent meeting.  Examples include interviews, brainstorming sessions, checklists, assumption analysis, cause and effect diagrams, nominal group technique (NGT) or by an affinity diagram.

Step 2: Risk analysis

Once risks are identified, define the likelihood and consequence of each risk. You develop an understanding of the nature of the risk and its potential to affect project goals and objectives. As risk occurs at varied levels, conducting an analysis for each risk is important to understand the cause of each risk, as well as the impact it has on the project. The information gathered in a risk analysis will provide valuable insights in your project and the necessary input to find the appropriate risk mitigation response.

Step 3: Risk evaluation

Next, you evaluate or rank the risk according to the level of the risk magnitude, which is the combination of likelihood and consequence. You decide if the risk is acceptable or whether it is serious enough to warrant treatment.

Step 4: Risk response planning

This step involves identification of the highest ranked risks and setting out a risk mitigation plan for them, aimed to achieve acceptable risk levels. How can you minimize the probability of the negative risks as well as enhancing the opportunities? Mainly, this step involves risk mitigation strategies, preventive plans and contingency plans in this step. The 4 most common risk mitigation strategies are risk avoidance, risk sharing, risk reduction and risk transfer.

Step 5: Risk monitoring

Lastly, risk monitoring involves the close monitoring and tracking to the risks daily. Risk tasks may be carried out to identify or analyze risks or to generate, select and implement responses. The daily effort of integrating risk tasks keeps your project focused on the current situation of risks and helps you stay on top of their relative importance.

By defining risk management processes for your company, chances of project success are higher as negative risks are minimised and eliminated. Not only does this allow your project to be finished on schedule but meet your budget and fulfil targeted objectives as well. If you do not have risk management processes in places, your projects are exposed to huge risks. Effective risk management strategies allow your company to maximize profits and minimize expenses on activities that do not produce a return on investment. Through detailed analysis, effective project leaders prioritize ongoing work based on the results produced.