What is project risk | smartsheet (2023)

Project riskis the potential that a circumstance could arise that changes the outcome of a project for better or for worse. Project risks affect results, schedules and budgets. They can cause a project to fail if not properly managed.

Project risks can be caused by political, environmental, economic, social, technological or legal factors beyond the scope of the project. More local factors such as internal restructuring or illness can also be the basis for risks. Some basic examples of project risk are poor project management practices, supply chain delays, unexpected employee illnesses, emergencies and expenses,scope creep, and major weather events. For more examples of the different types of project risk, see our guide.

ThePMBOK® Guide describes risksas “an uncertain event or condition which, if it occurs, will have a positive or negative impact on the goal of a project. The key element of this definition is that the impact of the uncertainty, if it occurs, can be positive or negative on the objectives of the planned endeavor.” Project managers use risk mitigation practices to identify potential risks as early as possible, take action to avoid them, and create a plan to control risks as they encounter them.

"The more complex, the more risky," says Robb Pieper, certified Scrum trainer and CEO ofAppealing advisors. “Associating with new people, products, or anything over which you have no control increases your risk. When you scale down your projects and deliver value faster, you can mitigate risk faster and fix problems faster without doing any heavy lifting.”

project risksare a specific risk category of events and circumstances affecting the outcome of projects. Many categories of risk are associated with running a business and managing projects, including individual risk, business risk, operational risk and risk events.

In the following sections, we explain how project risk relates to each of these other risk categories.

Individual risk vs. overall project risk

Project risk vs. business risk

Project risk vs. operational risk

Risk event vs. project risk

in project management,Riskrefers to the possibility of events that may affect the outcome of a project. Project managers must anticipate risks and put processes in place to mitigate or manage them when they arise.

Project risk event flowchart

This flowchart shows how a project manager might approach project risk management. When they identify a risk event, the manager determines the probability of its occurrence. If it is unlikely and will have little impact on the outcome of the project, they will monitor the risk and mitigate as necessary. If the risk event has a high probability of leading to an adverse outcome, the project manager will take action to avoid it completely.

"Risk management is the process of identifying, evaluating and managing risk," said Catherine vanVonno, President and CEO,20Vier7VA. “This includes both proactively identifying risks that could potentially impact the business and reactively responding to risks already identified. Risk management reduces the likelihood of a drastic failure and allows for a proactive approach to problem solving.”

Implicit risk management addresses the overall project risk and is generally covered by that of an organizationRisk management plan. Implicit risk is generally tied to factors and decisions made at the project management level and relates to issues of scope definition, proper timing and accurate budgeting. Explicit risk management focuses on the risks for a specific project and unique risks that the team may encounter on that project. Explicit risks are associated with the day-to-day operation of processes in a specific project or the way external factors affect them.

Risk management is limited by the fact that it is impossible to anticipate every risk or prepare for every situation that may arise. However, it is important to organize your people and processes in a way that makes it as easy as possible to identify and mitigate risks, thereby minimizing the impact on a project.

The best way to identify project risks is to implement risk management in your daily processes. Encourage project managers and their teams to adopt risk factor mitigation practices. They should also look ahead to see and anticipate new opportunities.

“Always assess and plan ahead,” suggests vanVonno. “By being proactive and taking the time to plan and reassess the strengths, weaknesses, opportunities, and opportunities (SWOT) of a particular decision or project, you can save your organization a great deal of time, money, and stress in the long run. ”

To identify project risks, ask yourself the following questions before starting a new project:

• What risks have we encountered in similar projects?
• What circumstances might arise that are unique to this project?
• What is the probability that each circumstance will occur?
• How would these circumstances affect the outcome of the project?
• What can we do to lessen the impact of these circumstances?

Simple SWOT matrix template

Download a simple SWOT matrix template
Microsoft Word|Smartsheet

Use this SWOT matrix template to conduct a basic risk analysis of the conditions and decisions in your organization. List the strengths, weaknesses, opportunities, and threats associated with the decision you're making to organize your thoughts and identify what risks might arise if you move on.

find othersSWOT matrices in this collection of templates.

Not all risks are negative. Positive risks are the potential of a circumstance to positively change the outcome of a project. This type of risk can include policy and technology changes, favorable environmental conditions, positive customer response, and more.

Pieper describes a positive balance of the risks associated with the switch to working remotely. “We had to change our entire business structure,” he explains. “We only offered in-person training and courses and essentially had to switch overnight. We took the opportunity to host training virtually, which in turn eliminated many of the risks associated with in-person meetings and boosted our business. It shows how important it is that organizations are willing to adapt.”

“One of the biggest risks we took was introducing our customers to the idea of ​​a virtual construction assistant,” explains vanVonno. “We knew this was a new and innovative idea, but we also knew it had the potential to change the construction industry forever. We took the risk and it paid off. Virtual Construction Assistant position is expected to be one of the most popular services in our list, helping our clients save time, money and stress. As a result of this outcome, we are constantly looking for ways to improve our workflow and take risks to innovate the construction industry.”

residual riskis the level of risk remaining after actions have been taken to reduce the likelihood of risk events occurring. It is practically impossible to eliminate all risks from a project. A residual risk always remains.

An example of residual risk is continuing to use older technology beyond the support lifecycle rather than spending the money to upgrade. The technology may have been implemented to simplify processes and reduce the risks involved. Over time, however, the residual risk of the technology increases; Parts may be unavailable or more expensive if machines break down and support for troubleshooting or repairs is no longer available.

Pieper describes how risks exist in a company even if they are not directly related to a project. "We work with a lot of customers who have a high turnover rate," he says. “We see that companies cannot fill positions as quickly as they need to be successful. It all stems from not making your people happy. A great way to future-proof your business is to develop strategies that make your employees happy. The loss of qualified employees is the greatest risk a company can face.”

The goal of a project manager is to ensure that projects are completed successfully. A large part of this job is identifying risks, avoiding them when possible, and mitigating their impact when they are unavoidable.

Project managers use project risk identification strategies to locate potential risk triggers and risk analysis to determine their impact. The most effective way to control project risk is to plan for it. Project managers should implement processes early in the project lifecycle to anticipate potential risks and mitigate their negative impact when they arise.

The project sponsor takes ultimate responsibility for the success or failure of a project. They are responsible for building competent teams and empowering managers to manage project risks.

Risk management practices are multi-pronged approaches, but they all start with putting competent people in leadership positions. They must identify risks early on to ensure projects remain within acceptable risk levels and remain fruitful for their sponsors.

Project sponsors should ensure their managers are aware of the risks involved in project management. They should be available to advise their managers and provide feedback when needed. Sponsors should provide a safe space for project managers to raise concerns about potential issues, listen, and make changes if necessary. A project manager is only as good as the support he receives.

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