What are the Five Steps in Risk Management Process in project management?

Risks are an inherent part of any Project that has been initiated to deliver some end product to the customers. This is why Project Professionals always need to take care of the potential disruptions in the middle of the Project phases. This article focuses on discussing the Risk Management Process and its steps in detail.

What is the Risk Management?

The Risk Management Process defines the steps that help us to remove all the possible disruptions from the Project. It is a collection of sequential steps that help organizations enhance their operational efficiency for a successful project Execution. It plays an important role in making the Project Execution successful and satisfying the end users with the deliverables of the project. Some of the key points to understand about risk management are:

1. To create a comprehensive list of potential threats and opportunities.
2. To prioritize risks and focus on those with the highest potential impact.
3. To quantify and prioritize risks for further attention and action.

What are the Five Steps in the Risk Management Process?

Step 1: Identify the Risks

This step involves the activities to properly comprehend the Risks and their impact on the various project tasks. It is important to recognize and document the risks in a proper record. It has various aspects such as methods of identification, communicating with the stakeholder, and documentation of the risk factors. Let us discuss each of these in detail.

• Identify the Risks: The project experts implement methods such as SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis to predict the Project risks. Additionally, the Delphi Method is used to know the risk information from the expert opinions and consensus.
• Involve the Stakeholders: Risks may affect every part of the Project due to which the entire business process has to suffer. Therefore, through this substep, Project Experts involve the different Stakeholders through standup sessions and meetings to get thoughts on the Risks from the end-user perspectives.
• Document the risks: After the different risks have been identified, they are organized in the form of a hierarchy and formally documented in the record. These records are accessible to the key stakeholders and project team to continuously review and update in each phase of the Project.

Step 2: Analyze the Risks

After we have identified all the possible risks in our project, we have to analyze them so that the mitigating actions can be planned according to the impact that the risks create. The key factors of this step include:

• Analyze Risks Scenario: The Project experts understand What risks may arise under what conditions. Also, they evaluate the scale of the scenario that may lead to a particular risk. Finally, the risk assessment results are communicated to the stakeholders associated with the project.
• Define the Scope of the Risks: After understanding the root cause of the risks, the stakeholders and project team analyze the domains that may be impacted by the risks. Thus, they define the boundaries and limits for each risk.
• Develop the criteria for prioritization: Since all the risks cannot be diagnosed and resolved at the same time, it is important to be aware of the priority of the risk-response plans. So, criteria for the risk priority are defined in this substep.

Step 3: Evaluate or Rank the Risks

In this step, risks are evaluated or ranked by assessing their potential impact and likelihood of occurrence. This prioritization helps focus attention on the most critical risks that require mitigation or contingency planning.

• Perform Qualitative and Qualitative Analysis: Some risks have a higher impact and some have a lower. Also, some risks may have a high frequency of occurrence while some have a lower frequency of occurrence. Hence, it is important to analyze them in terms of quality as well as quantity so that they can be properly analyzed.
• Visualize the Probability Impact Analysis: The evaluation and assessment of the Project risks have to be understood and interpreted accurately. So, project managers often use the Risk Matrix to analyze the Probability versus Impact of the Risk to categorize them into low, medium, and high risk.
• Documenting the Updates: All the updates of the Risk Management Process are finalized and documented in the record. This information also helps in the future project execution.

Step 4: Treat the Risks

After identifying and evaluating the risks, various mitigation actions and response strategies are developed to reduce the risk impact and eliminate it from the Project Lifecycle. This step generally has the following activities:

• Develop the Mitigation Plans: The project experts can deal with the risks in four ways. They can Avoid, Mitigate, Transfer, or Accept the risks. The type of action plan depends upon the intensity and scope of a risk that arises. Keeping this fact in mind, the experts formulate different mitigating actions.
• Implement the Mitigation actions: Here, the action plans are executed as per the actions, responsibilities, and timelines specified in the risk response strategy.
• Monitor and update the Risk Register: After the implementation of risk response is done, Project Managers monitor the performance and update the status in the risk register.

Step 5: Monitor and Review the Risks

Identifying the risks and executing the mitigation action is alone not sufficient to ensure risk-free project planning. It is also important to consciously monitor the status of the risks and keep a check on the risk-mitigating actions. The key actions of this step are:

• Monitor the risks: The stakeholders and the project managers keep a check on the probability, impact, or overall significance of the risk.
• Analyzing KPIs: System experts observe the Key Performance Indicators that give information about the metrics related to risk occurrence, severity, and the success of mitigation efforts.
• Develop Trigger System and Early Warnings: If the risk response strategy fails in any scenario, the response triggers are defined so that immediate action can be planned for risk mitigation.

After the identification, evaluation, and mitigation of the risks, it is important to keep the key stakeholders and team members informed about the ongoing risk management process. This helps all the concerned personnel to be informed about the current status of risk scenarios in the Project. Thus, they can easily understand their responsibilities in the critical time.

These were the essential five steps of the Risk Management Process. Now, let us see what benefits we can get from a successful Risk Management Process.

Advantages of Risk Management

1. Gathering Risk Information: Risk Management helps the users to gather risk information and categorize it into different types. This categorization helps us to easily assign them to appropriate risk owners.
2. Documenting the Mitigation Plans: we can list and document the actions and activities to resolve the risks. Due to easy documentation, the project operations are transparent throughout the project.
3. Planning the Risk Resolution: We can easily monitor how the risk mitigation activities are progressing ahead. Thus, we can maintain the relevance of activities in the project plans.
4. Identifying the future Risks: As the Risks have to be identified at the beginning of the Project, we can easily resolve them by identifying and resolving them in just five simple steps.

Conclusion

The Risk Management Process resembles the entire lifecycle of the risk resolution actions in any project. It involves all the ordered steps, right from the moment the risk is identified to the time of its mitigation. First, we identify, assess, and mitigate the risks. Then, we have to monitor the performance of the risk response plan and communicate the risk assessment results to the stakeholders.

FAQs

1. What is ERM in Project Management?

ERM means Enterprise Risk Management which includes the key principles and guidelines on Risk Management for the organization. It is a complete suite of Risk Management Processes that is globally applicable to all projects across the organization.

2. What are the tools and methods for the Risk Assessment?

Various tools and methods enable us to understand the metrics of the risk and performance of the response plan against it. One of the popular tools is the Risk Log (also called Risk Register) which keeps track of the risks, their impact, timelines, risk owners, etc. It highlights the severity and probability of the risk using which we can evaluate the risk.

3. What is the Early Warning System in the Risk Management Process?

Early warning systems are the programs that help us in the early identification of possible disruption. We can use many Automated Alert Systems and Risk Management software to get early warning about the project risks.

4. What are some Risk Management Standards?

The Risk Management Standards define a global standard for the Risk Management Process. One such standard is the ISO 31000 which was published in the year 2009 and revised in 2018. It highlights the Enterprise Risk Management(ERM) principles along with the guidelines on Risk Assessment and Risk Management. Another standard is the (BS) 31100 which is a British Standard published in the year 2011 to define the Risk Management Principles.