What is the benefit of a risk management plan for a project?

Effective risk management strategies allow you to identify your project’s strengths, weaknesses, opportunities and threats. By planning for unexpected events, you can be ready to respond if they arise. To ensure 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.

Planning for Success

Risk management plans contribute to project success by establishing a list of internal and external risks. This plan typically includes the identified risks, probability of occurrence, potential impact and proposed actions. Low risk events usually have little or no impact on cost, schedule or performance. Moderate risk causes some increase in cost, disruption of schedule or degradation of performance. High risk events are likely to cause a significant increase in the budget, disruption of the schedule or performance problems.

Communicating with Stakeholders

To ensure that projects run smoothly, effective project managers communicate their plan to the project sponsors, stakeholders and team members. This sets expectations to people who provide funding and are affected by the outcomes. It ensures that the project runs smoothly so one step proceeds to the next without disruption. By identifying, avoiding and dealing with potential risks in advance, you ensure that your employees can respond effectively when challenges emerge and require intervention.

Maximizes Results and Meet Deadlines

By defining risk management processes for your company, you make success more likely by minimizing and eliminating negative risks so projects can be finished on time. This enables you to meet your budget and fulfill targeted objectives. When you don’t have risk management strategies in place, your projects get exposed to problems and become vulnerable. Effective risk management strategies allow your company to maximize profits and minimize expenses on activities that don’t produce a return on investment. Through detailed analysis, effective leaders prioritize ongoing work based on the results produced, despite the odds.

Be Proactive Not Reactive

Having a risk management plan in place allow you to be proactive and take steps to mitigate possible harms before they arise, instead of constantly fire fighting. The project team can take the risk that have been identified and convert them to actionable steps that will reduce likelihood. Those steps then become contingency plans that hopefully can be aside. Should a risk event occur, the contingency plan can be whipped out quickly, reducing the downtime on a project.

 Evaluates the Entire Project

To evaluate your project’s success so you can use the best practices on your next project, assess the impact of your activities on mitigating exposure to problems and exploiting opportunities that capitalize on your company’s strengths. For example, if you develop and deliver a training program that creates awareness about internet security, including phishing, viruses and identity theft, measure the number of help desk calls received about these problems. If they go down, you can reasonably assume your risk management initiatives have contributed to success. If not, revise your training program.

Risk is often perceived as a potential hazard or something that should be better avoided. However, we all know that the road to success is fraught with risk, as it’s often associated with new opportunities that lead to better results. The process of managing projects is always accompanied by a certain degree of uncertainty and risk. While uncertainty is something unmanageable and not so easily taken under control, risk management is one of the necessary components of a successful project. So, why is risk management important? What challenges is it associated with, and how can they be addressed? We’re going to dwell upon these issues in this article.  

Before considering the benefits of project risk management, let’s take a look at the definition of project risk: according to PMI, risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives. Project risks usually refer to a project’s scope, budget, time, resources, technology, or any unpredicted situations that nobody’s insured against. What is also worth our attention here, is that risk is associated with a certain degree of uncertainty, but its outcomes can be predicted and taken into account in case this anticipated situation occurs. What cannot be avoided, should be managed in order to reduce the negative impact of unfavorable events. This fact highlights the importance of purposeful project risk management.  

As stated in the PMBOK Guide, “Project risk management includes the processes of conducting risk management planning, identification, analysis, response planning, and controlling risk on a project. The objectives of project risk management are to increase the likelihood and impact of positive events, and decrease the likelihood and impact of negative events in the project.” Managing risks doesn’t mean none of the risks will be avoided: risk response strategy involves avoiding, transferring, mitigating, accepting, and escalating project risks. 

The diagram below illustrates the risk management process.

Except for mitigating negative outcomes of risks, what are the other benefits of risk management?

The most obvious: your project is less likely to get out of control. 

For example, if a piece of necessary equipment goes out of service, it will be much less harmful for a project in case responses to technology risks have been planned beforehand. The same can be said about the project’s scope, time, resources, etc. 

Comprehensive overview of the whole project.

The development of a risk management plan requires identifying the project’s strong and weak points as well as potential opportunities and threats. 

Better predictability of a project’s outcomes. 

Knowing how to respond to possible risks reduces uncertainty and provides all the project participants with more confidence.  

Enhanced communication between all the project participants.

Developing a risk management plan involves a lot of discussion of possible scenarios with stakeholders, project team, customers or suppliers. And effective communication in turn makes it possible to keep everyone on the same page and avoid a number of project management issues.  

Timely detection of problems arising in project flow. 

When there is a risk management plan, everyone knows that all the issues should be reported to responsible people as soon as possible. So when something goes wrong, this information is more likely to be communicated on time, and necessary actions can be taken.   

Benefits for future projects. 

The experience of managing risks in a current project can be taken into account for further projects.

To sum up, let’s look at the formula demonstrating the importance of risk management:

Lack of Project Risk Management = Surprises + Crisis Management = Failure to meet project objectives 

Read more: Fighting Uncertainty in Project Management: Arm Yourself with the Right Tool

What Are the Challenges of Implementing Risk Management?

Like any other project management practice, the process of risk management can be accompanied by challenges, too. Let’s take a look at the most typical of them.

Difficult to identify project risks

Sometimes, project managers may stumble over stakeholders’ or senior management’s unwillingness to identify project risks, as they are too optimistic about the process of project implementation and/or they don’t consider it as something important and worth time and effort.

Possible solution: communicate with stakeholders and explain the importance and benefits of managing risks; present different scenarios of a project’s outcomes to illustrate the necessity to develop and implement a risk management plan. 

Unengaged leadership

This challenge has something in common with the previous one, however, it refers to responding to risks: e.g. a team member has reported that an unfavorable situation occurred, but no actions have been taken on the part of leadership or those who make important decisions. 

Possible solution: having identified project risks, senior leaders should assign those who will be accountable for responding to issues if they occur. 

Considering a risk management plan as a formality

The other sort of issues arise when a risk management plan has been developed, but the process of risk management itself is not given proper consideration and therefore is not implemented.  

Possible solution: assign employees who’ll be responsible for dealing with risks: monitoring them, reporting, and responding. 

Managing risks in a multi-project environment

Obviously, working on multiple projects is much more difficult than managing a single project, so risk management process in this case becomes much more challenging and requires prioritization of projects and corresponding risks. 

Possible solution: use multi-project management software to control all the active projects; prioritize risks to be able to respond to those that are the most important at a particular moment. 

How Does Epicflow Help in Managing Risks?

Epicflow, the multi-project management software, provides assistance in managing risks. Obviously, no PM software can replace the whole process of risk management performed by people, but it will be definitely useful to take control over a project’s timeline, budget, scope, and resources, as well as to trace certain bottlenecks if they occur. Here are some of the examples. 

Monitor the state of all your projects in the Pipeline

In the Pipeline, you get a clear view of all your projects. What’s important is that the projects are prioritized automatically, so you always know what to focus on first off. Also, there is the Future Load Graph, whose purpose is to demonstrate how loaded your resources will be in the future depending on the tasks they have at present. In such a way, you can prevent future issues with resource availability and manage them beforehand. 

Make sure the project won’t go beyond the schedule with Gantt Chart

Gantt Chart is one of the most used PM instruments. It presents a project schedule with tasks and their dependencies, so it’s always clear what tasks you should focus on, what employees are responsible for delivering these tasks, and what are necessary conditions for completing them. Epicflow’s Gantt Chart is interactive – this means that you can edit the schedule, set dependencies, edit milestones, assign resource groups, etc. Also, you can track the project’s progress and see what tasks need most attention.   

Be prepared for unexpected situations with What-If Analysis  

Once a potential risk has been identified, you have an opportunity to try various scenarios of responding to this situation (e.g. to move due dates, reassign resources, even add or remove other projects). What-If Analysis feature will show you what consequences your current actions will have in the future, so it’s much easier to make decisions concerning risk response. 

Thus, knowing the ways of coping with the challenges of implementing project risk management as well as applying reliable software tools will give you upper hand in managing external and internal risks to a project, and, as an additional benefit, will make you more confident as to its flow and outcomes.

Have you ever had any challenges when implementing risk management? How did you handle them? Share your experience with us. 

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