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Risky Business: 5 Steps to Effective Risk Management
In a previous blog (“Stretching the Dollar – The Value of Project Management”), we explored the ways in which project management could benefit your organization. In part two, we will explore how this is achieved by focusing on a key threat to any successful project: risk.
Project Management Could Save You Millions
The secret is out: as companies look for new ways to save and get the most out of their budgets, executives have begun tapping into project management as the go-to solution. The reason for this is simple. Project Management Institute’s Pulse of the Profession found that “performance in meeting project goals, timelines and budgets significantly impact an organization’s ability to thrive” reporting that “organizations with high performance in these three measures risk only $20 million per $1 billion spent;” by contrast, low performing organizations risk “$280 million for the same $1 billion spent”. That’s quite the difference.
However, despite many executives seeing the value of project management and instituting project management functions to better leverage company resources (albeit, failing to properly support these functions once instituted, as noted in a previous article “Stretching the Dollar: The Value of Project Management”), only 39% of all projects were delivered on time, on budget and met requirements in 2012 (“CHAOS Manifesto 2013: Think Big, Act Small”, The Standish Group).
What Could Go Wrong?
One of the underlying reasons for unsuccessful project completion is poor risk management: anticipating what could possibly go wrong (or right) in any project and developing ways in which to leverage (or hedge) them. Effective risk management requires 5 steps: identifying risk, analyzing risk, developing a risk response plan, monitoring risk and initiating a risk improvement plan.
Understanding and Identifying Risk
With any project, there are always positive and negative risks, and both should be effectively managed in order to successfully deliver a project on time and on budget with all necessary requirements met. For agencies and consulting firms, those negative risks could be client delays, missing assets, a potential change in requirements, or a pressing drop date. Understanding, prioritizing and effectively communicating these risks across cross-functional teams (and your client) saves clients’ money and agencies and firms the one resource that can’t be recouped: time.
You’ll never be able to immediately address every risk that will be identified in step one. In order to ensure company resources are properly dedicated, risk must be analyzed and prioritized. This can be done both qualitatively and quantitatively, but the focus should be to develop a straightforward method of calculating the likelihood of any given risk occurring and the level of impact it may have on your project, assigning priority accordingly. Doing this saves time and effort, two areas of concern that have a direct impact on your bottom line.
Developing a Risk-Response Plan
Once risks have been prioritized, the next step is developing a risk-response plan. Your plan should be comprehensive and consider all risk-response opportunities available to the project. Asking three simple questions should do this: Can the risk be avoided? Can the risk be mitigated? Can the risk be accepted? High-probability, high impact risks will need to be addressed, making the last option completely unacceptable.
Once risks have been identified, prioritized, and an action plan has been developed, there should be a continuous process of monitoring risk and communicating escalating risk to all teams involved. The more members that are aware and the better the risk is communicated, the easier it will be to address the risk and proactively respond. You can’t fix what you don’t know.
Initiating a Risk Improvement Plan
Although all good projects must come to an end, bad projects have the potential to live on in unlearned lessons rearing their ugly heads in future projects. Post-project assessment is crucial to ensuring you are continuously improving process and effectively addressing risk. What went right? What went wrong? How can we leverage the positives and improve the negatives? Companies will often find doing this for every project proves to be much more trouble than it’s worth, but developing a process for determining which projects should be assessed is worth the effort.
Improve Your Risk Management
Effective project management begins with risk management. In order to best leverage this skill, risk management should occur in a continuous cycle of identifying risk, analyzing risk, determining the best response for identified risks, monitoring risk, and developing a risk improvement plan to better the process.
Ensuring project management is adding value to your organization and to the clients you serve means ensuring that you are investing in those functions that allow project management to be effective. Risk should be effectively managed in order to improve operations and transfer the value of project management on to clients. Improving efficiency, managing risk, and effectively communicating between teams will improve the responsiveness of any team on any project – and ensure the health of its budget.
Need help from our project management experts?Contact BKV today!