Let’s face it, however confident you are that your project will be a success, there is always a chance that something might go wrong. The things that might go wrong are called project risks, and a wise project manager identifies them early at the beginning of the project so that he or she can do something about them. Of course, risk management is an ongoing activity, so you should carry on identifying and recording new risks as they come up.
Creating a list of risks is a good starting point, but it isn’t enough in itself. You also need an action plan per risk in order to be able to manage them effectively.
There are 5 main ways to manage risk: acceptance, avoidance, transference, mitigation or exploitation. Here’s a detailed look at each of them.
1. Accept The Risk
Accepting the risk means that while you have identified it and logged it in your risk management software, you take no action. You simply accept that it might happen and decide to deal with it if it does.
This is a good strategy to use for very small risks – risks that won’t have much of an impact on your project if they happen and could be easily dealt with if or when they arise. It could take a lot of time to put together an alternative risk management strategy or take action to deal with the risk, so it’s often a better use of your resources to do nothing for small risks.
2. Avoid The Risk
You can also change your plans completely to avoid the risk. avoid riskThis is a good strategy for when a risk has a potentially large impact on your project. For example, if January is when your company Finance team is busy doing the corporate accounts, putting them all through a training course in January to learn a new process isn’t going to be a great idea. There’s a risk that the accounts wouldn’t get done. It’s more likely, though, that there’s a big risk to their ability to use the new process, since they will all be too busy in January to attend the training or to take it in even if they do go along to the workshops. Instead, it would be better to avoid January for training completely. Change the project plan and schedule the training for February when the bulk of the accounting work is over.
3. Transfer The Risk
Transference is a risk management strategy that isn’t used very often and tends to be more common in projects where there are several parties. Essentially, you transfer the impact and management of the risk to someone else. For example, if you have a third party contracted to write your software code, you could transfer the risk that there will be errors in the code over to them. They will then be responsible for managing this risk, perhaps through additional training.
Normally transference arrangements are written up into project contracts. Insurance is another good example. If you are transporting equipment as part of your project and the van is in an accident, the insurance company will be liable for providing new equipment to replace any that was damaged. The project team acknowledges that the accident might happen, but they won’t be responsible for dealing with sourcing replacement kit, moving it to the right location or paying for it as that is now the responsibility of the insurance company.
4. Mitigate The Risk
Mitigating against a risk is probably the most commonlymitigation of risk used risk management technique. It’s also the easiest to understand and the easiest to implement. What mitigation means is that you limit the impact of a risk, so that if it does occur, the problem it creates is smaller and easier to fix.
For example, if you are launching a new washing machine and the Sales team then have to demonstrate it to customers, there is a risk that the Sales team don’t understand the product and can’t give good demonstrations. As a result, they will make fewer sales and there will be less revenue for the company.
A mitigation strategy for this situation would be to provide good training to the Sales team. There could still be a chance that some team members don’t understand the product, or they miss the training session, or they just aren’t experts in washing machines and never will be, but the impact of the risk will be far reduced as the majority of the team will be able to demonstrate the new machine effectively.
You can mitigate against the impact, like in this example, and you can also mitigate against the likelihood of it happening. Sometimes the actions will be broadly the same; sometimes you’ll have to have some tasks to reduce the chance that the risk happens and some separate tasks to make the impact of the risk smaller if it happens.
5. Exploit The Risk
Acceptance, avoidance, transference and mitigation are great to use when the risk has a negative impact on the project. But what if the risk has a positive impact? For example, the risk that the new washing machines are so popular that we don’t have enough Sales staff to do the demonstrations? That’s a positive risk – something that would have a benefit to the project and the company if it happened. In those cases, we want to maximize the chance that the risk happens, not stop it from happening or transfer the benefit to someone else!
Exploitation is the risk management strategy to use in these situations. Look for ways to make the risk happen or for ways to increase the impact if it does. We could train a few junior Sales admin people to also give washing machine demonstrations and do lots of extra marketing, so that the chance that there is lots of interest in the new machine is increased, and there are people to do the demos if needed.
These are the 5 risk management strategies that you can use to manage risk on your project. You’ll probably find yourself using a combination of techniques, choosing the strategies that best suit the risks on your project and the skills of your team. However you decide to approach risk, make sure that you log the action plan in your risk log and keep it up to date with the latest progress towards managing your risks.