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The Importance of Risk Management in Project Management

Strategic goals in a project can only be achieved through planning and preparation. As part of an ongoing program, evaluating results — and considering risk mitigation strategies — enables continual incremental process improvement. A lack of risk management strategies leaves projects, programs and portfolios vulnerable to the unknown.

Southern Illinois University Edwardsville's online MBA program with a Project Management Specialization includes a course on Project Procurement and Risk Management. The course covers risk identification, analysis, response planning and control strategies along with their importance to the success of individual projects and to an organization's ongoing approach to project, program and portfolio management.

Why is risk management so critical in project management? It helps to look at the steps involved.

Categorize and Understand Risks

Projects do not always go according to plan, and when they do not, the risk management plan helps to account for and reduce the impact of potential consequences. To do this, project managers list the possible risks into categories which may be internal and external; readily apparent and not; technical and non-technical; and organizational and project management-related.

Analyze Probabilities of Occurrence, Impact Rating, and Level of Exposure

Each risk is recorded in the risk register on a centralized server and assigned a probability of occurrence. The risk level may be high, medium-high, medium-low or low. Then each is assigned a risk impact: high, medium or low. Considerations for risk impact ratings are how important the specific customer is, whether the customer is already aware of the potential risk, and whether the project is critical to the relationship's development. Companies use mathematical systems to quantify and analyze probabilities, potential impact and levels of exposure.

Set Stakeholder Expectations

Now that risks have been charted and accounted for, project managers communicate their plans to various stakeholders including contributors, sponsors and customers. This ensures that everyone who stands to be impacted by the project's outcome understands the risks and how they are being mitigated to keep the project on track, and to ensure it meets its intended objectives. This step enables stakeholders to own their respective risks and prepares them to take necessary actions in the event of a risk becoming a reality. Ultimately, the project manager is responsible for managing the aggregated project risks.

Document Risk Triggers and Develop Risk Response Plans

Risk events are potentialities that impact a project's time and expense, and undermine its success. In order to minimize these impacts and ensure a project's ultimate goals are met, first the symptoms or warning signs of the risks should be noted. Then a risk response should be planned for each possible risk event, with the highest risks given the most consideration. Responses should be aimed first at eliminating the risk altogether, or else lowering the probability of occurrence and/or the impact on project objectives.

Maximize Efficiency and Profits

The previous management steps enable project managers to meet budget requirements and fulfill project objectives. Without these measures in place, many projects would veer off course without solutions to keep them on schedule and on track toward objectives. Risk management strategies not only reduce or eliminate these vulnerabilities, they also maximize project management efficiency and profits over the long haul. In addition, they enable continuous monitoring and incremental improvement over time, so that the company's projects become increasingly productive and profitable.

Risk management is about understanding and learning from mistakes — from small errors to catastrophic crises. It is an ongoing process that requires a patient, studious approach. If you enjoy detailed, cerebral work, this phase of project management may be one of the most rewarding aspects of your career.

Learn more about SIUE's online MBA program with a Project Management Specialization.


Sources:

PMI.org: Risk Analysis and Management: A Vital Key to Effective Project Management

Chron: Why Is Risk Management Important to Project Success?


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