Project management

Risk management in the project - 7 approaches

"Nobody could have expected this!" Does this statement sound familiar to you in connection with projects? Risk management can help.
Risk management in the project - 7 approaches

As a project manager, you are familiar with this situation: a key resource in your project is unavailable at short notice, exceptional weather conditions delay construction progress or your customer's newly implemented document management system is not running on their outdated servers. Risk? Fate? Bad luck? Let's be honest: what project runs 100 per cent according to plan? As a project manager, you are undoubtedly familiar with the challenges that regularly render well-thought-out project plans obsolete.

Nevertheless, the question arises: What if some of these events had been avoided in advance? What if the project budget had not been exceeded? What if timely intervention could have prevented the project from failing?

These considerations are part of risk management in a project. The early identification, assessment and targeted handling of risks can in many cases prevent delays, budget overruns or even the failure of the project. In this blog, you will learn how you can manage the risk of your projects using 5 procedures.

What is risk management?

What does the term risk mean to you? Is it more related to time? Or economic? The Gabler Business Dictionary provides the following definition:

"Characterisation of the eventuality that with a (possibly low, possibly unknown) probability a (possibly high, possibly unknown in its extent) loss may occur in an (economic) decision or an expected benefit may not materialise."

The term risk management is easy to explain: Assuming that risks could have a negative impact on the achievement of your project objectives, risk management encompasses all measures to deal effectively with these risks:

1. identificationWhat potential risks could arise in the context of your project? What uncertain events could jeopardise the realisation of your project objectives?
2. analysisDo these risks harbour dangers? What consequences should you expect? Which risks should you focus on?
3. controlWhat strategies do you use to manage these risks? What measures can you take to minimise the risks?
4. monitoringHow do the identified risks develop in the course of your projects? What new risks could arise?

Why is risk management important?

Risk management is one of your essential tasks as a project manager. Nevertheless, it may sometimes seem ungrateful. The truth is: it is impossible to completely eliminate all risks. This raises the question of whether it makes sense to attempt this at all. Is the effort involved justified?

Absolutely! Even if a 100 per cent risk-free solution does not exist, skilful risk management at least makes it possible to prevent your projects from failing. So why should you bother with risk management?

Project protection through risk management

Your primary mission as a project manager is to successfully complete your projects, achieve the goals you have set and ideally also Satisfaction of your stakeholders ensure that risks are minimised. In this context, it is extremely useful to use specific methods to minimise the impact of risks that have already occurred or to reduce the likelihood of them occurring. This is where risk management comes into play: even if the project runs smoothly, risk management can help to ensure the realisation of your project goals and prevent the project from failing.

Responsiveness through risk management

Imagine the following: An unexpected problem arises during the course of the project and you have to act immediately. Wouldn't it be much more efficient if you had already thought about risks during project planning and even taken preparatory measures? So that you can react quickly to problems in case of doubt, it makes sense to take a close look at possible risks right at the start of the project.

Prevention instead of reaction

Some problems can either be reduced or even avoided altogether through early consideration and targeted countermeasures. And this is exactly what risk management is all about. If you drive outside peak times, you reduce the likelihood of being stuck in a traffic jam. Logical, right? By choosing certified suppliers, you reduce the possibility of inferior products. If unexpected risks arise during the course of the project, you as the project manager will quickly become the crisis manager.

Of course, unexpected situations can occur even with effective risk management. In most cases, however, the opposite occurs: As a project manager, you remain capable of acting because you have thought about possible risks before starting the project and are aware of the dangers. The not only promotes the success of your projectbut gives you a certain degree of security.

Risk management - 7 procedures

If you don't want your company or your projects to fail, it's not enough to look at the risks at some point and then do something about them. That's why you should see risk management as a cycle - as something you (have to) do again and again to make your projects successful. When it comes to risk management, it's usually the case that everyone knows it's important in some way. After all, risks lurk everywhere: in every endeavour, in every project and for every company.

And yet: in many cases, risk management is only practised half-heartedly. Before starting a project, think about what the goal should be and what risks might arise. You may even define specific measures. But: Do you know whether your measures will be effective at all? Or what do you do if the risk situation changes? Risk management is a wheel that you should keep turning so that you don't come to a standstill. The following seven methods will help you do this:

7 measures for your risk management

Measure 1: Identify risks

In order to be able to develop measures for potential risks in the first place, you must first identify the risks. And this is exactly where step 1 of risk management comes in. At the start of every project, ask yourself the following questions: What could go wrong? What might have gone wrong in similar projects in the past and how did you react? If you already have a Environment analysis you may find indications of possible risks there. Important: You should not identify risks on your own. Involve the entire project team and your stakeholders! The more input you receive, the more comprehensively you can identify potential risks. But: Where are risks lurking? What potential sources of risk can you identify?

1. competing objectivesProject objectives ideally influence each other positively. However, there are also project objectives that can compete with or exclude each other. This can lead to risks for your current project.
2. project environmentThere are always factors in your project environment that can restrict the project, such as deadlines, regulations and weather. By asking yourself what happens if these factors are not taken into account, you can quickly identify potential risks.
3. stakeholdersYour stakeholders can contribute significantly to the failure of a project, especially if they have a high level of influence on your projects.
4. work breakdown structureThe WBS contains all the work packages that you need to complete during the course of the project. A glance at it often gives you insights into which work packages could potentially become critical.
5. flow chartsAll projects are fundamentally time-critical. The work packages listed in the WBS, which can be potentially risky, only become visible when you create a precise schedule for your project.
6. own experiencesListen to your gut when it comes to identifying potential risks. You may be able to identify potential risks from personal experience.

Use ZEP resource planning & maintain an overview of the project schedule

Measure 2: Assess risks

Once you have created a collection of all possible risks, you should Evaluate risks - i.e. prioritise. This will help you find out which risks are really important, because not all risks have an equal impact on your project. Focus on the most threatening risks and discuss them:

1. the probability of the risk materialising
2. what damage your project will suffer if the risk materialises
3. how high the financial loss could be

Risk assessment in project management is not difficult, as risks are generally assessed according to two criteria: the probability of occurrence and the scope. If you multiply these two factors, you have determined the risk value for your project. On this basis, you can now define possible strategies.

Measure 3: Define strategies

When it comes to developing strategies for individual risks, you should ask yourself the following questions:

1. which risks must be avoided at all costs? Sometimes it is appropriate to avoid risks altogether. You can achieve this by completely eliminating the cause of the risk. However, it may also be necessary to modify the project plan. This makes sense if you consider the risk to be particularly serious and a potential Threat to the success of your project fear.

2. which risks can be reduced? This strategy is used most frequently, as you can try to reduce the probability of the risk occurring or minimise the impact or damage if it does occur.

3. what risks can you pass on to others? Shifting risks is sometimes appropriate in situations where several parties are working together on a project. The focus here is not on bearing the risk yourself, but on transferring it to another project participant. But be careful: you should consider this method carefully, as transferring the risk does not necessarily lead to a reduction in the overall risk for your project.

4. what risks can you accept? You can ignore risks that only have a minor impact on the success of your project for the time being. However, caution is also required here, as risks can change over the course of the project. You should therefore take a closer look at seemingly minor risks from time to time.

Measure 4: Define measures

For all projects that you can neither ignore nor pass on to third parties, you must develop suitable measures yourself. If you cannot avoid risks completely, you should at least reduce them. There are two ways to do this: You reduce the probability of occurrence or the scope, i.e. the damage. In order to minimise the impact when the risks occur, you can take either preventive or corrective measures:

- Preventive measuresPreventive measures aim to prevent the risk from occurring in the first place. To be considered preventive, the measure must therefore target the cause of the risk. Preventive measures reduce the probability of a risk occurring and, under certain circumstances, can also minimise the impact or damage.
- Corrective measuresIf the risk has already materialised, you should resort to corrective measures. Instead of eliminating the cause, a corrective measure aims to reduce the damage caused. The probability of occurrence remains unaffected by the choice of this measure, as the cause is not (or cannot be) prevented.

A frequently misunderstood example of this is taking out insurance. This is taken out in advance, but does not count as a preventive measure. Why? Insurance is always a corrective measure, as it does not reduce the probability of occurrence, but is designed to minimise the damage once the risk has occurred. But shouldn't you always aim to tackle the causes and prioritise preventive measures? Not necessarily. Corrective measures make sense if the costs and effort for preventive measures are very high or the risk has a very low probability of occurrence.

Measure 5: Implement measures

As soon as you have defined suitable risk management measures for your project, it's time to implement them. Implementation is primarily about establishing work packages for each individual measure. Why? The implementation of each measure should be the responsibility of one person or team. They are responsible for the correct implementation of the measure. If you as the project manager do not implement the measures yourself, delegate them to suitable team members.

Measure 6: Check effects

In many project-orientated companies, risk management ends with the implementation of all suitable measures. And who checks whether these measures have the desired effect? Only if you track and review measures can you determine whether your risk management was successful at all. This evaluation also plays an important role in reporting to your customer. You should be able to answer the following questions in this phase of risk management:

- Were the defined measures implemented at all?
- Were the measures taken successful?
- Were risks avoided or reduced by implementing the measures?

If you do not address these three questions at this point in your project, you are effectively flying blind and all your previous work will have been in vain. Because without reviewing the measures, you can hardly change anything if risks materialise or your project fails.

Prioritise tasks and maintain an overview with ZEP

Measure 7: Monitor risks

It is essential to keep an eye on potential risks throughout the course of the project. As you know, risks are usually not static structures, but dynamic elements. But why should you carry out regular risk monitoring or continuous risk monitoring?

1. general conditionsThere is certainly no project that operates in a completely static environment from the outset. Each of your projects is affected by external influences that you should take into account. You have carried out the initial risk analysis under certain assumptions. As soon as these assumptions change, you will inevitably have to rethink the potential risks.
2. probability of occurrenceThe risk analysis that you started at the beginning of a project is based on the information available at the time. However, this information can change at any time during the course of the project. A risk that you initially prioritised as very unlikely can suddenly become more relevant. The opposite is also possible. So if the probability of occurrence changes, this also has a direct impact on the measures you have defined. So stay flexible.
3. monitor measuresYou have defined suitable measures to minimise project risks? Very good! However, risk monitoring also includes checking whether the measures have been successfully implemented. Even if you have transferred this responsibility to one of your team members, as the responsible project manager you should continue to monitor progress.
4. monitoring the effectsEven if all measures have been implemented as planned, this does not mean that the risks have actually been reduced. And: What happens if the measures do not have the expected effect? Or if the project influences have changed? As part of risk monitoring, you should always check whether the effects of the measures taken are in line with your expectations.

Risk management - an ongoing process

As a project manager, you should consider the seven steps of risk management as a guiding framework for systematically dealing with risks in the project. It is not only important to go through all the steps, but also to understand risk management as a continuous process that extends to the completion of the project.

Importance of risk analysis

A risk analysis may not always be perceived as pleasant, but it is one of the indispensable tools of a project manager. Despite the seemingly detailed nature of the steps described, you should adapt the amount of work involved to the size of the project. Even for mini-projects, 30 minutes may be sufficient. The most important thing is to be aware of the extent to which neglected risks can jeopardise the project - and that countermeasures can be taken in most cases.

Continuous risk monitoring

Risk analysis is crucial, but continuous monitoring of risks until the end of the project is just as valuable. In line with the motto "Nothing goes as planned anyway", you should always bear in mind that framework conditions can change constantly and planned measures can work better or worse than expected.

Ongoing process and time recording

Even after going through the 7 steps of the risk management process, the work is not finished. Rather, you go through a continuous cycle throughout the entire duration of the project. In later project phases, the assessment of risks may change, priorities may shift, risks may disappear or new risks may arise. The integration of a Software for project time recording such as ZEP This is essential in order to track the progress of the project and ensure that the set time frames are adhered to.

Tanja Hartmann CEP

Tanja Hartmann

Content Marketing Manager at ZEP

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