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A Guide to Understanding Risk Management

Project management is changing. The industry is growing at a faster rate than the number of available workers. Research suggests there will be 22 million new project management roles by 2027.

If you’re looking to change careers into this exciting industry, a key part of project management is risk management. Although risk management is a vague concept to those outside the industry, our guide is here to tell you everything you need to know about it. 

What Is Risk Management?

Risk management is an all-encompassing term. It refers to the practice of identifying, analyzing, and mitigating risks within businesses, whether that’s within an individual project or a wider business need.

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Project managers are responsible for the risk management process on any given project. To do this effectively, they need to identify possible issues and potential pitfalls that could hinder project objectives from being met. 

There’s a common misunderstanding of the word “risk” as it applies to businesses. Risks are not exclusively threats, as they may be positive. Rather they’re events that may or may not happen, but which will affect the project and indeed the larger business.

Common Types of Risks

While by no means can we fit an exhaustive list in this article, we can outline some of the most common risks businesses and projects may encounter. 

The most obvious is cost. Running over budget or incurring unexpected costs adds risks to any project. This is why cost estimation is a vital part of your strategy.

One of the most common reasons project costs may increase is due to scheduling. Scheduling conflicts may cause delays, which often results in costs increasing. 

Finally, performance may affect projects. This risk can cause delays through inconsistent results. 

Again, this is by no means an exhaustive list. Risks will be unique to projects and to businesses. That’s why most businesses have a risk management process. 

Risk Management Process

Just like risks, risk management processes are unique to each business. It meets the individual business needs to help them best identify and understand the opportunities and threats. 

It’s also a lot easier than it used to be. Many businesses opt to use ERM software to help them identify risks. This clever technology can assist in identifying and monitoring risks on a business’s earnings and operations. 

That said, for those without ERM software, there are some clear steps you can take to manage risks. 

First, and most obviously, identify all potential risks that may impact the project and in turn the business.

Then assign ownership of these risks. Having a relevant staff member keep an eye on that risk means you can stay on top of it. Being able to catch risks early helps you capitalize on them, or indeed reduce the potential consequences. 

Get your nominated team members to analyze each risk completely to understand all possible outcomes. Once you have a good understanding of all the risks, prioritize them.

You can prioritize according to the potential likelihood, urgency, and severity. Once prioritized, you can take preventative action.

Not all risks can be prevented. But they can be minimized at the very least. Preventative action can also include preparing for if they do happen.

Prepare Plan B

Though these steps may help with risk management, risks are a natural and unavoidable part of doing business. As risks are inherently unpredictable, your best tool to combat them is often your ability to adapt to change. 

You can find more business tips on our blog.

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