Risks are common but it is important how an organization is responding to the risks. The risk management process is a systematic approach to identifying, assessing, mitigating, monitoring, and reviewing risks throughout the lifecycle of a project.
We will try to cover the Risk Management process and major sources of risks in this blog post.
Sources of Risk
Risks are certain and chances of risks are everywhere whether we are working in an office on a project or dealing with a business. Those chances increase when we try something new on our project or business.
If someone is initiating a new project, or considering internal risk management processes, it helps to have a list as a starting point for the major sources of risk in projects. The project managers and teams can use that as a starting point for brainstorming what could benefit them throughout the lifecycle of the project.
There could be the following sources of risks on a project.
1. Size of the Project:
The size of the project is also one source of the risks of a project as it is important to know what is the size of the project, whether it is a large project or a smaller project.
Absolute size: We can measure it by Project Value, size of the project team, project duration, and project impact.
Relative size: This can be measured by similar factors as absolute size but by comparing them with other projects in the same organization or portfolio.
Overall, the larger project will have higher chances of risks as compared to the smaller project.
2. Project Uncertainty:
If we are not certain about a project then the chances of its failure increase. Because this uncertainty is driven by many things. Here are a few points to consider.
- The team is not clear on what it is they are supposed to be delivering or what the client wants.
- The team is not clear on how they are supposed to be delivering the work. This includes a lack of clarity around the project management
- There may be socio-political factors that affect the stability of the team and the project.
3. Project Environment:
The environment of a project also plays an important role in risks on a project. Organizational behaviour or management culture that lacks proper risk assessments and risk mitigation plans has more chances of failure than organizations with proper management processes in place.
For example:
- How is the organization and its resilience?
- Is there a culture of learning from mistakes and tolerance for experimenting with new approaches?
- Is there any project management methodology implemented?
- How well the organization is responding to risks?
Risk Management Framework
For every organization, the standard framework for the Risk Management Process consists of the following five steps.
1. Identify Risks:
Identification of risk is the first part of the risk management process. This is an important part to identify about nature of risks whether they are positive risks (opportunities) or negative risks (threats). If we can identify those items, then it would be easy for their mitigation and monitoring process.
Also, Risk Identification is something people think about in times of trouble/disturbance, but this should be an ongoing process for every team. The best way to deal with it is to properly manage risks through a risk management plan.
2. Risk Assessment:
Once risks for an organization are identified, we can analyze the situation to make sure it is fully understood.
Analysis and evaluation often happen in parallel and are taken to mean similar things. As part of your analysis, calculate the impact should the risk happen. The impact can be measured in financial, quality, time, or any other measure that fits into your categorization system.
The probability and Impact of those risks are also important. We have to evaluate the likelihood of each risk, whether it is low or high, and similarly the Impact of those risks. Sometimes, we can use the numbers as values for those risks to measure.
3. Risk Mitigation:
After Identification and Analysis of the Risks, we have to make a strategy to mitigate those risks. This mitigation is an essential part, otherwise, the Risk Management Plan will be of no use.
There are following five globally used strategies for mitigation of risks:
- Reduction
- Accept
- Transfer
- Avoid
- Share
We can also use a combination of these strategies.
Reduction: when we see a high level of risk and its mitigation is necessary, then surely we will implement the strategy of Reduction
Accept: When a risk has a chance of occurrence, and we don’t have any option to mitigate it, then we have to accept it only or Ignore the risk.
Transfer: When there is an option that certain risks can be transferred to other parts/departments/organizations, then we can use this strategy to minimize the impact on our side.
Share: Sometimes the risks can be shared with other parties and in this way, its overall impact can be reduced.
4. Risk Monitoring:
Next, we have to monitor that the action plan is there and carried through effectively.
The project manager should check in with risk owners regularly so that progress can be monitored. More importantly, the action plan implementation may take some time so all the team members and stakeholders have realistic expectations about risk mitigation deadlines.
5. Risk Review
We should have our risks under regular review. On a project, it’s the project manager and team who meet to discuss the risk log.
To check whether the risk management process is being carried out effectively and as per risk management standards, the risk governance process will At an organizational level, the risk governance process will help in this case and also in deciding who will review risk profiles.
Integrating Sustainable Practices in Construction Project Management for Enhanced Risk Management
An often overlooked aspect of effective risk management in construction projects is the integration of sustainable practices. Sustainable construction project management not only focuses on environmental responsibility but also significantly contributes to risk mitigation. This comprehensive article, on Sustainable practices in Construction Project Management, delves into how these practices can influence and reduce project risks.
For instance, sustainable practices often involve thorough planning and consideration of environmental impacts, which can preemptively address potential risks related to regulatory compliance, resource availability, and community relations. By adopting sustainable methods, project managers can foresee and mitigate risks associated with environmental factors, supply chain disruptions, and changing regulatory landscapes.
Moreover, sustainable practices promote a culture of innovation and continuous improvement within organizations. This culture is crucial in identifying and managing risks effectively, as it encourages teams to be proactive in their approach to risk management.
Conclusion
Managing risks is not easy but a systemic approach to identify, assess, mitigate, monitor, and review can help in minimizing risk effects. Risk Management should be a habit not practice on projects. Organizations with proper Risk Management Framework put in place have shown significant improvement at projects.
