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Project Risk Management Methods Part 1

Paul Naybour Paul Naybour

Published: 14th March 2011

A major part of project management for any project is identifying and assessing the risks likely to occur that will affect the success of the project. Project managers need to be aware of all potential risks in order to be prepared for their occurrence and have plans in place to either avoid them initially or mitigate them if they occur.
In small, in-house projects it is relatively easy to identify where the risks are likely to occur but in large, complex projects factors outside the control of the project manager can contribute to risks. Risks in complex projects can come from within a project team or department, but they can also come from outside the organisation for which the project is being run. So it is important not only to identify these internal and external risks but also to assess them, categorise them and prioritise them. The importance of a risk is usually much higher if it is an external risk as the factors that may contribute to the risk occurring are not so easily managed and controlled.
It is also important that the project manager can recognise and distinguish between risks that are genuinely likely to affect project success and those that are not, so that risk management does not become too dominant a part of the overall project, absorbing time and effort that are outweighed by the benefits. It is not, for example, worth considering in any great depth the project’s staffing issues if skill sets are easy to replace. However, it is necessary to manage staffing issues if the skill sets are highly specific and staff with those skills are difficult to replace.
Internal Project Risks
internal project risks can arise from budget and cost issues. If the project starts with a tight budget and very little contingency then this risk is, obviously, a major one. Similarly with the schedule – a business-driven deadline that has taken no account of realistic estimates will pose a high risk to meeting the deadline.
Key members of staff with specific skills can pose a risk with unexpected absences or by leaving the company altogether, but if the department in question typically has a low rate of absenteeism and turnover then this is a low risk scenario.
Equipment and infrastructure risks may or may not be internal risks depending on the project. If necessary equipment is being manufactured by another company then that is an external risk or if software and IT services/support have been outsourced then that again is an external risk.

External Project Risks

It is much more difficult to anticipate and manage risks that are outside the project manager’s own organisation simply because the project manager knows less about the other company and has much less control over that company. A Due Diligence Report or a Service Level Agreement can go some way to mitigating potential external risks but they are not a panacea. It is very likely that the project manager will have no detailed knowledge of the financial state of the other company but the financial state of that company could be a major risk factor.
And, of course, even the most reliable of suppliers can be affected by factors such as natural disasters, war and economic upheaval. Such events can seriously affect the project’s success but are almost impossible to predict unless some of the project work is being carried out in a country with an unstable regime. So it would not usually be worth expending time and effort assessing risks for such situations.
So identifying and evaluating internal and external risks is a critical part of project management but what are the best approaches for doing this. Well, there are many risk management software tools available to assist you but they all basically cover the five general methods listed below.
• Informal Assessment based on the project manager’s experience
• Reference to risks that occurred in previous, similar projects
• Brainstorming sessions with a range of project representatives
• SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats)
• Probability modelling of budget and estimates
Whatever risk management approach you take it must suit your organisation’s working culture and be suitable for your particular project. Read more about the advantages and disadvantages of these different methods in Part 2 of this article.

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