What would risk management best define
Risk Management in Projects - How to Properly Proceed
+++ Tasks in active risk management in projects +++ risk identification, risk analysis and risk measures +++ measures for risk management +++
Antje Lehmann-Benz, PMP, PMI-ACP, PSM
There are many methods of risk management in projects. But only a few of them are actually used. At the same time, the press keeps talking about failed major projects.
Perhaps you yourself experience failures in your own day-to-day project that could have been avoided with better risk management?
What is risk management all about?
In this article, you will learn some techniques from the risk management toolbox. You will also find a few important practical tips that you should consider here.
But first we start by considering why risk management is important in the project at all. Have fun while reading.
Definition of risk in the project
The global professional association Project Management Institute (PMI) defines “risk” as events with an uncertain occurrence. In addition to threats, this also includes opportunities.
A project is a one-time, time-limited endeavor. In other words, it inevitably involves certain risks.
When we normally go by Risks however, we mean possible negative events. And then the following applies: Those who start projects accept certain risks. This is connected with the hope for advantages that outweigh all negative in the long run.
So far, so important. Without accepting certain dangers, there is no profit. As a project manager, however, you shouldn't be too timid.
What is risk management in the project?
Risk management is intended to increase the chances of achieving the project goals. At the same time, the risk of project failure should be minimized. Professional risk management is an iterative process. This requires the constant review of realities, re-evaluation and adjustment of measures and plans.
The following risks in projects need to be managed:
- economic losses
- Damage to the company's reputation Danger to life and limb for users of a product
- Schedule shifts
- Technical problems
- Definition of project scope
- Scarcity of resources
- Quality problems etc.
However, the opposite effect can occur very quickly in day-to-day project work: Potential serious risks remain undetected, are forgotten, and ignored. Better not to think about what can happen.
Do you know that?
Practice shows us that this is dangerous - even if risk management is not mandated by the organization. It can become dangerous, for example, when life and limb, monetary factors or the company's reputation are at stake in a project.
Good project managers therefore always try to identify risks and plan how to deal with them. The well thought-out structure of risk management helps to lead projects to success.
Good project managers try to identify risks and plan how to deal with them.
The extent to which project managers actually implement measures and which they decide on depends, among other things, on the industry and their own corporate culture.
By the way: The uncertainty associated with a project can also be a risk factor.
What do risk attitudes in companies mean for projects?
You can ask yourself: As a project manager, am I more:
- risk averse (Avoiding risks)
- risk tolerant (not thinking too much about risks)
- risk-conscious (Consciously taking risks)?
Studies have shown that many project managers are generally more risk averse - unless they have to navigate their project through a crisis. Time and pressure to succeed often do the rest.
In principle, nothing speaks against acting cautiously. But the great opportunities must not simply be missed.
It is better, however, to have analyzed the risks as precisely as possible before making a decision on how to deal with them.
“Are we not rolling out the new software company-wide just because we are uncertain about the effects? Or have we carefully examined the risks and drawn up a corresponding schedule - in other words, do we know what we are doing? "
Our tip: Make yourself aware of your own risk attitude and that of your company. You should do this before planning your risk management. And communicate any deviations from the standard procedure actively and with well-founded reasons for the respective project situation.
Requirements for operational risk management and importance in various industries
Of course, the industry also plays a major role in risk management. Highly regulated and often high risk environments like the financial industry will always be a little more cautious. You must also require specific procedures from your project managers.
Sectors in which users' lives could be at stake in projects, such as aviation, the automotive industry, or in some cases the construction industry, are often associated with calculated risk management for this reason alone. The responsibility here is so great.
Even projects with a high risk of damage to the company's reputation are carried out more carefully than those in which the good reputation is not necessarily at stake.
What is active risk management? Why is it important?
Often, unwanted long-term effects lurk in the dark, even with supposedly manageable project risks.
- Actually, the project to redesign customer satisfaction surveys wasn't a big deal. But later it turned out that important questions had been forgotten and data for evaluation were missing ...
- The form creates errors and more frustration than joy for customers. Therefore, they are increasingly turning away ...
Such risks might have been avoided with a more vigilant attitude in advance.
That is why there are means and methods for effective risk management. With their use, the success of the project can stand or fall in some cases.
What are the tasks with active project risk management?
Project managers who want to deal with risks professionally must first of all ensure that they have a full toolbox. We present some of the techniques at this point.
1. Risk detection
To identify risks, we need techniques that stimulate creative thought processes. We can review our project documents, convene meetings with stakeholders and experts or brainstorming sessions or create checklists.
If that is not enough and there is a suspicion that some important risks may still be undetected, this may help Delphi method:In the Delphi method, the project manager questions a group of experts independently and anonymously. If the answers differ significantly from each other, they will be communicated to everyone. This should enable a discussion. The procedure is repeated until the statements no longer diverge so much.
The benefits of the Delphi method: With this you can ensure that everyone expresses their opinion openly, that nobody is influenced too much and that nobody holds back because others make a dominant impression.
Nominal Group Technique: There are similar reasons for using the Nominal Group Technique: It works like brainstorming. But instead of everyone shouting out their ideas, they write them down on pieces of paper. These are then collected. In this way you can ensure that quieter voices in your team are also heard.
SWOT analysis:If you are working on a project with high levels of uncertainty and breaking new ground as a team, it may be worthwhile to analyze the Strengths, weaknesses, opportunities and Threats (SWOT analysis). Based on the four dimensions, consider what you are good at as a company or as a project team and where you still see potential for improvement. From this you derive risks for your project.
"Pre-Mortem" approach: Another interesting exercise has proven itself in agile projects: In “pre-mortem”, teams imagine that their project has already failed and ask themselves what might have happened and why.
In contrast to post-mortem, i.e. project obduction after failure, they do this at the start of the project. From this, they then derive recommendations for action. This is to prevent the project from failing as much as possible.
Neuroscientists have been able to demonstrate that the change in perspective (we imagine we are already in the future and look back) ensures that those involved Play through scenarios in a much more concrete and creative way than with pure predictive brainstorming.
Image: Fictitious pre-mortem exercise for a new television set at the Agile Game Night in May 2018 in Munich: Red entries play through negative scenarios
Our tip: Whichever method you use in individual cases: At the end you should have a risk register, i.e. a list of the identified risks in your project.
But be aware that there may still be undetected risks at any point in time. You cannot foresee everything. Use the risk register document e.g. for communication with stakeholders. Or use it to reduce the risk of losing sight of project risks.
Do not forget to review and update the risk document at regular intervals. It should also contain strategies for each of these risks.
Our tip: An analysis of the root causes is worthwhile so that you do not plan redundant measures. You may find a common cause for some of the risks that you can address and address some of the risks at once.
2. Risk analysis and visualization
The next possible step is the qualitative risk analysis.
You evaluate and weight the identified risks. In this way, you then determine the urgency, possible effects and priority in each case.
Image: Qualitative risk analysis in a trend diagram: Which risks remain consistently high and must be kept in view most of the time?
You can further analyze what you consider to be the greatest dangers for your project.
There are some for that more detailed diagram techniques how:
- The Tornado diagram for the visualization of the estimated impact
- The Monte Carlo simulation for playing through scenarios with a random generator
- Decision trees for the limitation of possible measures
Quantitative risk analysis with tornado diagram (in this example, not only threats but also possible opportunities are listed)
- The Risk matrix visualizes the active risks in a colored matrix of impact versus probability. The risk table simplifies communication within the project team. This tool can also help you to clearly show the project sponsors or the steering committee the risk situation in the project. The graphic display of the risk matrix supports the project manager in setting priorities and developing response strategies to the risks, as described below.
A risk matrix using the example of the TPG Risk Chart App for easier communication of project risks
Monetary risk analysis for the creation of reserves
In the case of risks, it is particularly important to keep an eye on possible financial losses and to cushion them if necessary. In general, there is the possibility of calculating the expected monetary value of risks using the following formula:
Expected monetary value = probability of a risk (%) * expected financial impact.
From this you can possible Risk premiums derive, i.e. reserves set up for identified and analyzed risks.
In contrast, will Reserves held in reserve by management more generally for all that could occur and have not yet been recognized.
Our tip: The earlier you encounter a risk in the project, the cheaper and more effective the solution is usually. So take care of the risk issues right from the start if a project is of great importance to your company.
3. Planning of risk measures in case of risk acceptance
The creation of reserves and reserves are forms of active risk acceptance. The risk is accepted, but not without taking precautions. If the risk does not materialize, the reserves are released again.
What measures are there for risk management in projects?
Which type of measure is suitable for which project risk results from the analysis and the specific possibilities in a situation.
Common types of risk measures are:
- Avoidance / Prevention (eliminate or avoid the danger)
- Mitigation (reduce the probability of occurrence or the extent of damage)
- transmission (Transferring responsibility to a third party, such as an insurance company)
- Active acceptance (Set up risk premiums and reserves)
- Passive acceptance (do nothing)
- escalation (ask management for help)
Passive acceptance (pure acceptance without action) can be an adequate response for some risks. Others may need reserves, insurance, management involvement, or other action.
It is important that you use the Decision on how to deal with risks on a well-thought-out basis felling. To do this, you need to identify, analyze and assess the risks in advance.
And, almost more importantly, it is not enough if you only deal with risks once at the beginning of the project. Professional risk management is an iterative process, which requires constant review of realities, reassessment and adjustment of measures and plans.
Our tip: Think regularly about the possible risks in your projects. Just not enough at the beginning! For risks with a high impact and a high probability of occurrence, you should always have specific measures planned and communicated openly. And also check regularly whether the measures are still appropriate.
Summary - Risk Management in Project Management
In this article, you learned why active risk management in the project of use is and what dangers it helps to avoid. It can become dangerous, for example, when life and limb, monetary factors or the company's reputation are at stake in a project.
You also learned some methods of risk identification and assessment, including agile techniques.
Professional risk management can be done if you know a few tricks and tweaks. And it is worth it: Anyone who actively recognizes, analyzes and communicates their risks, regardless of the industry and risk tolerance, can in many cases book more project success for themselves.
Dare to approach this topic! It will surely pay off for you as soon as a risk jumps from the level of theory and suddenly hits reality.
Can you add something on the subject of risk management? What do you have stomach ache with? We are happy to reply to your comment below!
Antje Lehmann-Benz, PMP, PMI-ACP, PSM expert / trainer for agile methods
Antje Lehmann-Benz, PMP, is a trainer for project management with a special focus on agile topics and Scrum seminars. She also has experience in software trainings (JIRA, Confluence) and consulting. In addition to teaching frameworks and theoretical content, she has experience in the application of agile games and practical exercises to deepen the content learned.
As a trained expert for languages and media, she has five years of training experience and 11 years of active project experience, five of which in agile environments at large companies such as Infineon and Bosch.
She has also been active in the PMI Southern Germany Chapter e.V. for 11 years in the areas of communication and social media, among others.
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