5 Tips to Reduce Project Risk

risk management Feb 21, 2021

No matter what project management methods or project life cycles you are using, risk management is an important component. While there may be some nuances for different circumstances, some elements are universal.

It's important to note that risk is unavoidable - no environment is completely risk free. But do scale your efforts accordingly. A very complex project, projects with large budgets and timelines, and projects with mission critical deliverables should have more care than smaller, simple projects with small budgets and schedules, and more flexibility in producing the project results.

It is also important to get started. If you have been avoiding doing risk management for your projects, 2021 is a good time to get started. Take notes and compare with past projects so you can see the difference good risk management will make toward your success.

Much of project risk stems from an inability to properly manage and respond to risks, so with that in mind, here are five tips to better reduce and manage project risk through better risk management overall:

Have the right amount of risk management planning. If you do nothing else, it is an important first step to do the right amount of planning. Start by creating a risk profile for your organization and stakeholders. Be sure to look at the risk appetite (amount of risk they are willing to take), risk tolerance (the amount of variance to the risk appetite that exists in the organization), and risk threshold (the amount of acceptable risk). After that, start documenting a basic plan and improving on it from project-to-project.
Carefully characterize identified risks and their responses. In agile projects and other methods that discourage complete documentation, it is important that risks recorded in the risk log or register be carefully documented for understanding. One or two word descriptions such as "burst pipe" may be meaningful when you first identify the risk, but are quickly forgotten or misunderstood as the list of risks grows and the the project progresses. Better to say "burst pipe may destroy water-cooled prototype"; it has an entirely different meaning than "burst type may flood office and cause closure."
Keep the risk register up-to-date. From week-to-week it is essential to have a focus on the top 5-10 risks that are likely to occur in that time period. As the project unfolds and more is known about risks, be sure to periodically (perhaps monthly) review all the risks and make sure they are still well documented, especially with respect to identification and responses. For risks that have occurred, be sure to keep notes of successes and failures in responses. Be sure there is a clear representation for all risks in the log or register.
Conduct periodic risk data quality assessments. A risk data quality assessment is a review to determine the quality of data created for risk management, including the identification, prioritization, analysis, and response. A periodic (monthly or quarterly) review assures that the best possible information will inform the response strategies and actual responses. A good risk data quality assessment examines the collected risk management data in a variety of dimensions, such as:

Accessibility – is the data well organized and accessible
Consistency – is all the data in the right format and internally consistent (e.g., are there similar risks which may have very different priorities)
Credibility – is the data complete and believable
Relevance – is all the data related and applicable to the initiative
Unbiased – is the data free of bias and supported by facts and observable circumstances
Validity – is the data of the right type and correct

Understand the biases that can affect thinking about risks and decision-making. As you become more familiar with the sponsor, team, and other stakeholders, watch for any demonstrations of bias in discussing and handling risks and making decisions related to risks. Psychologists have identified more than 100 cognitive biases, and some of the more common impacting risk management include:
- Positive thinking bias: essentially being overly positive or giving more weight to positive experiences
- Negativity bias: like positive thinking, but giving more weight to negative experiences
- Framing effect: drawing different conclusions from the same data, depending on how the information is presented
- Confirmation bias: interpreting information in a way that supports preconceptions
- Prospect theory: decisions are made on gains and losses rather than on potential outcomes.