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Risk Management Processes - 101 for Project Managers

Artur Olechowski d08c1359d2

07/07/2021 |

12 min read

Artur Olechowski

If every project was completed without any issues and every task went according to plan, life would be boring – wouldn't it? But this isn't the reality most project managers live in. The truth is that many things go differently than we planned or estimated because some things influence the project in an unexpected way. Every project manager knows this. 

These factors are called risks. 

Risks are events that haven't happened yet, but they're more or less likely to happen – and potentially impact the project. 

That's why it's critical for project managers to increase the probability of good events and reduce the likelihood of negative events like critical risks that might cause delays. 

In this article, we go over risk management processes used in software development by skilled project managers who are well aware of what could go wrong when building software and how to mitigate the most painful risks that end up costing other teams way too much.

 

  1. What is the risk management process?
  2. Risk management steps that every project manager needs to know
  3. First of all, try to reduce risk in your project

 

What is the risk management process?

 A risk management process is an ongoing process of identifying, assessing, treating, and managing risks. 

While it takes some time to set up and implement a risk management process, it's definitely worth it because it works like a fire alarm. It's here to help you when a fire happens in your project. You can sleep well at night because you know that your project is protected. 

Software development is riddled with different risks that might cause even the best idea for an app to crumble down. 

Here are some of the most common risks in software development:

  • missed deadlines,
  • unrealistic time and cost estimates,
  • frequent staff turnover,
  • low performance,
  • misunderstanding the project requirements,
  • frequent changes in the project requirements,
  • delay in providing permissions or creating accounts,
  • involving unstable technologies in the projects,
  • lack of customer management commitment or support,
  • delays in communication with customers,
  • misunderstood project scope or objectives,
  • inability to manage end-user experiences.

By identifying risks that might arise projects and developing a risk management process, your team gets to reap some pretty important benefits such as:

  • better resource planning by revealing previously unforeseen costs,
  • smarter estimates of project costs and more accurate return on investment,
  • improved awards of legal requirements,
  • more flexibility instead of panic when a challenge arises,
  • more effective prevention of physical injuries that might happen on the job.

A risk management process is usually composed of several steps. Read on to find out what they are.

 

Risk management steps that every project manager needs to know

Step 1: Risk identification

Anticipating possible challenges and problems within a project doesn't mean that you're becoming a pessimist. You're becoming a realist. 

Identifying risks offers your team a great opportunity to learn. 

Take advantage of the collective experience and ask team members to identify risks they have experienced before in similar projects. This process is amazing for teams and encourages cross-functional learning and greater collaboration. 

Nothing helps in identifying risks like a risk breakdown structure. This is how you create a landscape of potential risks to your project and organize them according to different variables. The idea is to recognize which risks are high level and which ones aren't a priority at all. Those that are most important should be at the top of your to-do list, while the more granular ones at the bottom. Visualize all of this for your team to help its members learn where risks might occur.

Once you compile a list of all the possible issues, you need to develop responses to them and come up with a risk monitoring scheme while the project is running. This is called a risk register – a key part of any risk management process. It's like a database listing all the potential project risks. 

It helps to manage current risks and serves as a valuable reference point for future projects as well. This is how you learn from your mistakes. By outlining the risk register with proper data points, your team will be able to quickly and correctly identify all the possible risks for your project. 

 

Brainstorming 

Other smart techniques are brainstorming, documentation, interviewing, and root causes analysis. A combination of brainstorming and root cause analysis is an interesting approach because it helps to identify the most complex and nonstandard risks. 

During brainstorming, you need to explore all the possible risks that you can think of. 

Here are a few questions to help your team with that:

  • What's the worst possible outcome of the project?
  • Imagine that you can look into the future – what newspaper headlines do you see that cover the failure of your project?
  • What would be the most successful outcome of the project – and what would be the worst ones?
  • How can the project fail without anyone being guilty? Could it be a change in the competitor landscape or a natural disaster?
  • How can team members contribute to project failure?
  • How can customers cause your project to fail?

Make sure that there's a dedicated person on your team during the brainstorming session responsible for taking notes about all the risk items. Create a comfortable space so that your team members aren't afraid to speak up and share even the craziest ideas. 

 

Root cause analysis

Once you have your list, it's time to think about the root causes of each and every scenario. As a result, you will get your risk registry. But this is not the end. 

You also need to estimate the probability of a risk occurring and the potential impact the risk might have on the project. 

Qualitative analysis is more descriptive and describes whether the probability of a risk occurring is low or high. Quantitative analysis – on the other hand – gives you numeric values of how the risk could affect the project's schedule, budget, timeline, team, and any other aspect.

 

Step 2: Risk analysis

This can already be part of the risk identification process, but it's important to pay attention to this step in your risk management process. Once you find all the possible issues that may occur during your project, it's time to take a closer look at them. Most importantly, you need to answer the question: how likely is this risk to occur, and if that happens, what will its implications be?

In other words, you need to estimate the probability and fallout of each and every risk. The goal here is to come up with a list of priorities, so your team is clear about which risks to focus on first if they happen. Take into account factors like potential financial losses, the severity of the impact, delays, and other factors. 

Examine each risk to discover common issues across the project and refine your risk management process for the future. 

Don't forget that the risk can also bring great benefits. That's why it makes sense to divide into two different types – threats and opportunities. While the former has a negative impact on the project, the latter a positive one. 

Naturally, opportunities don't bring any danger to your project. So, let's focus our attention on threats. To understand the likelihood of a risk, use values such as: 

  • high,
  • high/medium,
  • medium,
  • low/medium,
  • low.

What about impact? Here are a few values that can be helpful: 

  • catastrophic,
  • significant,
  • moderate,
  • mild,
  • insignificant.

Now you're ready to create a heatmap where you can place all the risks you came up with in addition to their values. 

Risks that have a high probability of happening and high impact are the worst and need to be addressed first. Next, you will be looking at risks where the probability is medium or impact isn't that significant. 

If you manage to reduce the number of important risks to a minimum, you'll be ready to start the project. You can't get to that without addressing these risks first and preparing for them. 

Lastly, you have risks that come with low probability and low impact. In general, if anything happens at all, it will be easy to overcome. Don't be afraid to have a lot of risks listed in this section because they're not going to impact your project very much. 

Naturally, every project manager has their own gradation level and stricter rules for classification. You can take into account other factors such as budget, scope, quality, and schedule. So, a certain risk can be mild by schedule scope and quality but quite significant for the budget. If so, then you can classify it as a significant risk.

 

Step 3: Risk prioritization

When prioritizing risks, factor in both the likelihood of a risk happening and its potential effect on the project. Prioritization is an essential step in the holistic view of the project that you're about to realize. 

It instantly gives you an idea of where your team's focus should be when working on the project. Moreover, it gives you a chance to come up with workable solutions for each risk. 

That way, you decrease the chances that your project gets interrupted or delayed significantly during the development stage. The treatment stage will be much easier because you're already prepared for the potential risks that might come your way.

 

Step 4: Plan your risk responses

Once you have all the information about potential risks in one place, you can divide all the risks into a few groups depending on your potential response. Your team will focus their energy on the most critical ones that might happen in your project. 

There are a few things you can do when facing a risk – you can: 

  • avoid it,
  • accept it and move on,
  • transfer it somewhere else,
  • or work to reduce it.

Let's take a closer look at these 4 strategies.

 

Avoidance

How do you avoid having the risk at all? Is it possible to change a framework or stop doing something? Can you outsource the entire functionality or part of it to avoid risks? Or maybe you can remove a feature from the product? 

 

Retention or acceptance

Some risks are very unlikely or come with a very low impact. So, you can just embrace them and not do anything about them when they show up. Another thing you can do is come up with a contingency plan to overcome the potential consequences of such risks. For example, you can increase your budget or find scope to be able to fight the consequences of the risk. 

 

Transferring or sharing risk

Another idea is to simply move the risk to someone else. For example, you can hire a subcontractor to carry out the specific type of work for you or outsource an entire part of your project – for example, customer support. 

 

Reduction or mitigation

In this strategy, your job is to reduce the costs of loss due to the risk or its probability of happening. This is the most popular approach for handling risk. How you do with it will differ depending on the risk at hand. 

For example, if you'd like to reduce the risk of a person leaving your project, you can introduce a rule that at least two people are familiar with one area at the same time. When one person leaves, you can continue the development without any interruptions. This is quite common in software development, where staff turnover might happen often.

 

Step 5: Risk treatment

When the worst happens, and a risk emerges in your project, it's time to dispatch your treatment plan. Sure, you can't anticipate every single risk. But your risk management process should help you to deal with whatever comes your way. 

Make sure that your team starts with the highest priority risks. They can either try to solve it or mitigate it so that it's no longer a threat to the project. By treating and mitigating risks, you will be using your team's resources more efficiently without derailing the project. 

With time you'll build a large database of knowledge and become more capable of anticipating possible risks. That way, you'll develop a more proactive rather than reactive approach to risk management.

 

Step 6: Risk monitoring

Potential threats will be popping up all over your project. It's essential that your team and all the project stakeholders can communicate clearly about this and have ways to monitor risks in an ongoing manner. Once you have your process and risk register, keeping up with all these risks will become much easier.

 

First of all, try to reduce risk in your project

Developing and implementing a risk management process is a priority for every project management out there. That's especially true if they work on a software development project that has a lot of moving parts that are difficult to coordinate. 

After you identify, analyze, and prioritize all of the risks, you need to plan some actions. But that's not the end of your job. You also have to update your project plan accordingly. For example, you might have to add some more time, money or even rethink the development process because of a change. 

Make sure to keep track of your identified risk so they can be monitored and analyzed. Pay attention to trigger conditions for contingency plans and review the execution of your planned risk responses. 

At this point, you won't have to dedicate so much time to this as during the project planning phase. And remember that with every close project, you'll be learning more about how to handle risks and refine your risk management process.

 

WRAP UP

Building a risk management process is a smart move to make during project planning. We hope that the article helps you in taking all the critical steps in risk management to boost the chances of your project's success. 

If you're looking for more expert advice on project management in IT, keep a close eye on our blog. Our experts share their tips and insights to help teams build digital products faster. And if you’d like to work with us – don’t hesitate to contact us!

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Artur Olechowski d08c1359d2

Artur Olechowski

Managing Director at Codete. Master of Law, a graduate of postgraduate studies at the University of Economics in Krakow. In his daily work, he masters the combination of business strategy and technology.

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