A project risk is any unforeseeable event that might or might not occur during a project. Risk doesn’t always mean negative outcomes; it simply means an uncertain event. Therefore, project risks can negatively or positively affect the project’s objectives.
Most Common Project Risks
It is necessary for companies to take risks to succeed in today’s business environment. Every project involves risks, but some are more common than others.
An increase in project expenses is referred to as cost risk. It’s the possibility that the project will cost more than the allocated budget. Caused by inadequate budget planning, poor cost estimating, and scope creep, cost risk is perhaps the most common project risk.
Clients that ask too much when the project has limited resources also increase the chances of failure. There is a possibility that cost risk will lead to other risk factors such as schedule risk and performance risk.
The chance that tasks will take longer than intended is known as schedule risk, and it is usually the result of poor planning. It’s directly tied to cost risk because schedule slippages often increase costs and prolong the project’s outcomes, including benefits.
Delays lead to missed timelines and the potential for a competitive edge to be lost. In addition, it can affect performance by missing the timeline for completing the intended task.
The danger of the project failing to deliver results that meet the project’s specifications is known as performance risk. It is a common risk that is hard to pin down to a single source. A project team can complete the project on schedule and under budget yet still fail to achieve the expected results and benefits.
On the other hand, performance risk can lead to cost and schedule risks when a team’s performance results in increased costs and project management time. AS a result, the business ends up wasting money and effort on a project that didn’t work out as intended.
Other Types Of Risk
The following risks can also threaten an organization’s financial health:
The term “strategic risk” refers to a specific type of performance risk. It is caused by strategic blunders, such as selecting a technology that does not perform as planned.
For example, choosing project management software that doesn’t help the team with their responsibilities but instead requires them to spend more time working on the software than on the project itself.
Poor implementation and process issues, like procurement, production, and distribution, are examples of operational risk. It is also a type of performance risk because the ideal outcome was not achieved due to inadequate implementation.
Risks associated with the market include competition, foreign exchange, commodities, interest rate, liquidity, and credit risk. It is challenging to plan for market risks since they are unpredictable. However, sound financial and business strategies can help protect the company.
Legislative and regulatory obligations pose legal risks. These include contract risks and lawsuits against the organization. There are also internal legal issues to consider.
Legal risks are unpredictable consequences brought by state policies, business competitors, or employees.
External Hazard Risks
Storms, floods, and earthquakes can be among the risks of external hazards. Vandalism, terrorism, and sabotage can also cause them. In addition, strikes and civil unrest are some other causes. Each of these causes can severely affect a project’s budget and timeline.
By looking at these examples, it is clear that project risks are both internal risks associated with successfully completing each project phase and external risks that are beyond the team’s control. In the latter case, external risks are posed by factors outside the organization but affect the overall value a project might generate.
Project Management Software
In order to manage project risks efficiently, managers need project management software that lets them see problems in advance and prepare accordingly. Below are five project management tools that help teams manage tasks, communicate, and collaborate efficiently.
Wrike is an award-winning work management software that allows teams to schedule and monitor projects, collaborate in real-time, and generate reports. The software offers Wrike for professional services and Wrike for marketers, along with customized team templates.
Used by 2.3 million professionals, this software helps maintain enterprise-level security while creating 360-degree visibility through time tracking, portfolio analysis, and budget management.
Jira is a team collaboration and project management tool used by developers to plan, track, and release software. It is specifically designed for agile teams. Along with story creation, sprint planning, tracking issues, and delivering updated software, users can also generate reports that help in improving teams and can create their custom workflows.
Jira is an easy-to-use tool that lets all your team members plan, track, and release great software. Each team has its own process for shipping software. Make use of an existing workflow or create one based on how your team works.
Nifty is a project management software that keeps people, projects, and functions aligned within your company. This award-winning software is easy to use and requires very little training.
Automated progress reporting from Nifty will keep you on top of activities and prevent you from missing a deadline. From marketing campaigns to development sprints and product launches, you can plan, track, and visualize everything in one place.
Buildertrend is the most popular software used by home builders, contractors, and remodelers. The construction software features everything you need in one application, an all-in-one solution.
WorkflowMax is a job management software application designed for small to medium-sized companies. It provides a complete workflow management solution in one centralized platform in which you can track jobs, manage timesheets, manage documents, send invoices and purchase order requests.
Managing Risks: A Step-by-Step Guide
Project risk management involves guiding the project team to develop a contingency plan to prepare them in case problems arise from potential risks. To help manage risk, here is a simple five-step guide:
- Risk identification – what could possibly go wrong?
- Assess the likelihood and impact – how likely is it that this risk will become an issue, and what will its impact be?
- Make a decision – should we accept the risks and move forward with the project?
- Think of possible solutions – recognizing and accepting the risks, what can we do to prevent them?
- Pay attention to the risks – are any of the risks increasing? Have we updated our plan for addressing that risk?
Analyzing risks and properly identifying them is the best way to manage risks. It is important to know the risks, how likely they are to occur, and how they may impact your project. In contrast, failure to accurately classify risks in time is always detrimental to the project.
Would you like to know the benefits of project management software? Read our blog to find out.