Just like any business presents risk that need to be managed, as their realization can lead to losses, every project also has risks, which involve uncertainties and losses, that can threaten plans and result in delays and increased costs.
Risk management is fundamental in any area, as well as in projects, allowing for the assessment of the probability and impact of uncertainties that may affect the project in question, so that planning can be devised to address the risks and ensure their effectiveness.
Proactive management can increase the probability and impact of positive outcomes, i.e., opportunities, and minimize the probability and impact of negative outcomes for the project, which are its threats.
Continue following along and understand how it's possible to guard against and overcome events that could threaten your project's success.
What is a risk in projects?
Risk is that component of uncertainty that can influence the final project outcome in a positive or negative way. This means that both threats that can hinder project execution and opportunities that may arise and help promote better performance are considered risks.
Even though risk is not a certainty, it does not mean it is impossible to predict it. On the contrary, it is possible to determine its probability and impact through quantitative and qualitative analyses, with the aim of preparing for the eventuality of its realization.
Thinking about project risks is not just a concern about the dangers it is subject to, but rather a way to manage and guard against the uncertain elements that are part of its execution.
How to do risk management?
As is to be expected, the first step is to plan risk management, as guided by the PMBOK. The purpose of planning is to define how risks will be addressed, who will be involved, and what methodology will be used.
Only after defining the teams, techniques, and tools is it possible to move on to the next stage, which consists of identifying risks, through a list of uncertainties that may influence the project's outcome.
The third stage is risk qualification, which is done through two types of analyses:
1- Qualitative analysis
This type of analysis is used to prioritize the risk, in other words, dedicate more attention to those that are more likely to materialize or those that could cause greater impacts to the project.
Qualitative analysis is generally performed based on reliable data, such as historical statistics or conversations with experts.
It is also possible to determine the “risk score,” known as ES, obtained with the following formula: ES = P*I, where P is the probability, established as a percentage value, and I is the impact, described in a currency and representing the financial damage or gain from the risk.
It's worth noting that this type of analysis is subjective, even when supported by expert opinions and real data.
2- Quantitative Analysis
Used to demonstrate the financial and time impact that risks cause to the project, this analysis provides numbers, such as days and hours, as well as values, such as the costs the company will incur if the risks materialize.
Quantitative analysis typically covers the risks prioritized by qualitative analysis, involving scenario simulations and more precise numbers, which can demand resource investment.
When previously identified risks are not significant, or in cases where the project has a small scope or low complexity, quantitative analysis may not be performed.
After these steps, execution can begin, as long as there is monitoring to verify that everything is proceeding as planned. It's also important to remember that new risks may arise during project execution and must be managed.
How to monitor and control risks?
After identifying and qualifying risks, it's valid to think about a response plan for them, remembering that each one requires different treatment.
A good practice is to look for ways to avoid risk without direct costs or consequences to the bottom line; another strategy is to mitigate the risk, meaning to reduce the probability of it occurring or the value of its impact should it happen.
When attempting to mitigate risk doesn't pay off financially or the impact is low, an option for the project manager is to accept the risk. The idea of risk management isn't to predict the future exactly, but to prepare for eventualities in order to seize opportunities and avoid losses.
More than planning responses to risks, managers must also establish ways to control and monitor these risks to avoid unpleasant surprises. As we saw, the biggest risk for a project is not thinking about its risks.
If you want to learn a little more about project management, be sure to check out our article that shows How to manage procurements in projects.
