Why and How You Should be Creating Your Project’s Risk Management Plan?

Preparing for the unexpected is a part and parcel of all of our lives. It is the concept of uncertain events and occurrences that insurance is based on. Project management is no different.

Being prepared for what might happen in a project ensures that you are well equipped to lead your team to a successful outcome. A risk management plan is how you can get your team on the same page.

Here is everything you need to know about why you should create a risk management plan and how to do so.

But first, you need to understand what constitutes a project risk and therefore, what is included in your management plan.

What are Project Risks?

Before we can discuss what a risk management plan is and how to create one you first need to properly understand what constitutes a project risk and what it is you are actually planning for.

Project Management Body of Knowledge (PMBOK) defined project risks as the following:

“…a risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective. Thus, a risk is not an event or occurrence which has already befallen a project. It is an event that might happen.”

Difference Between a Project Issue and a Project Risk

Many people often confuse project issues and project risks. This is because both project issues and project risks affect the project.

However, as highlighted by the definition of the project risk mentioned above, project risk is something that may happen therefore having a level of uncertainly attached to it. project issue on the other hand is an event or occurrence that has already taken place.

Project risk thus requires preparation and preemption whereas project issues need active responses.

The Different Kinds of Project Risks

As you can see by PMBOK’s definition, the project risk in question can be both good or bad therefore having either a positive or negative effect on your project.

Besides this general differentiation of risks as good or bad risks, you can also categorize risks per their foreseeability and knowability.

There are the first kinds of risks which are known risks and have been identified and recognized by project managers or team members in the planning stage. These risks include things such as resource limitations or budget overages. It is this category of risks that are well documented and included in the management plan.

The second category is the unknown risks. These risks have not been highlighted during the planning of the project and usually, only several individuals are aware of them. You may use your management plan to discover these to allow you to be thoroughly prepared for all eventualities.

Finally, you have those risks that are unknowable. These are those risks that are not anticipated and cannot be reasonably expected to be such either.

What is Risk Management?

Risk management is an important aspect of project management. Risk management involves managing any potential risks that may arise or occur during a project’s lifecycle.

Considering the effect that a potential risk may have on the success of a project, risk management is a vital part of project management and should not be overlooked.

Risk management involves four main elements. These include identification of the risks, assessment of risks identified, mitigation of those potential risks, and monitoring of risks.

Risk identification is the first step of the risk management process. Identification of risks is done by gathering valuable data from past projects or the opinions of different experts.

Risk assessment is the prioritization of the risks identified. You will want to consider the likelihood of the risks that may occur as well as the impact they will have on your project if they were to happen. You will then categorize your risks upon these two assessments.

Risk management then involves creating a contingency plan of how you will mitigate the impact risks may have on your project. You also identify who is responsible for the risks identified in terms of monitoring and controlling them.

Risks can occur at any time during a project and therefore it is important to monitor them to be able to properly control them.

To learn more in this blog about the risk management process.

What is a Risk Management Plan?

The management plan for risks is a document that outlines how your project team will both monitor and respond to risks that have the potential of impacting your project whether positively or negatively.

In the management plan, you and your team will detail things such as:

• What is the project being worked on?
• What will be the category of risks identified?
• How will the team identify, record, evaluate, and monitor risks throughout the lifecycle of the project?
• What will be the methodology used to evaluate the risks?
• What are the risks identified?
• How will you manage the risks identified?
• Who will be responsible for said management of risks?

Categories the management plan will include are:

• Identification of the methodology for risk management. This includes the tools and approaches you and your team will use for assessing, analyzing, and mitigating risks.
• You can also include a risk breakdown structure. A risk breakdown structure is a chart that provides you with the ability to identify risk categories and their hierarchal structure.
• The risk matrix allows you to analyze the likelihood of a risk occurring against the impact the risk would have on the project.
• Risk mitigation strategy outlining the contingency plan to manage your project’s risks.
• Funding and timing information that will be needed to perform risk management activities.

Why is Creating a Risk Management Plan Important?

The term risk includes a wide variety of possibilities. Risks can be concerning scope, cost, schedules, or even the quality of the project.

Due to the impact that any potential risk can have on the success of your project, preparing for such an occurrence is vital.

If you consider your life in general, we deploy risk management in different aspects. From car insurance and disaster insurance to fire drills and evacuation plans.

We plan for the worst because planning for failure is a means to ensure you succeed.

A project is no different, being prepared for the worst ensures that you will be well equipped and are prepared to deliver a successful project according to the quality expected, in the budget decided, and within the time frame allotted.

How to Create an Effective Risk Management Plan for your Next Project?

Now that you know what risk management is and why creating such a management plan is important, here is how you can create an effective plan for your next project.

It should be noted that nothing here is written in stone. Project management is a flexible concept and changes according to teams and projects. Therefore, use these steps as a guide and do what feels right for your team and in light of the project you are working on.

Step 1: Identify All Potential Risks

The first step to creating your management plan is to identify all potential risks associated with the project you are working on.

This is a step that is not contained to a timeframe and should continue throughout the project’s lifecycle starting from the planning phase of the project.

Remember, you want to try and include not just known risks but also unknown risks which could take some research to discover. You can speak to clients, stakeholders, and industry experts to gain insight into such risks.

After identifying the potential risks, you want to document and prioritize them. You can use tools such as a risk breakdown structure to identify and categorize risks and then document them in a risk register.

You can use a project management tool like nTask to keep track of all the risks you identify and use the platform to documents all the information related to these risks.

nTask allows you to identify risks in the risk module, your team can easily view details of all the risks that have been identified all within one single platform.

Step 2: Evaluate and Assess the Risks Identified

Risk assessment includes assessing the likelihood of risk or the event or occurrence happening against the impact said event, risk, or occurrence would have on the project’s success.

Usually, you would want to map this assessment out on a risk matrix. (To learn more about risk matrixes read this blog on how to use risk assessment matrix in project management.)

The likelihood of a risk occurring involves categorizing the identified on a score from low probability to high probability.

You also want to map put the impact the risk would have on your project. This is done either as low, medium, or high.

It is the score of these two evaluations against each other that will indicate to you and your team how urgent the response to a risk will need to be and which risks to pay extra attention to.

Step 3: Create a Mitigation Plan

You then want to create a mitigation plan. How does your team intend to diminish potential risks from adversely affecting your project?

This is your plan of action and will cost you part of your budget or could affect your schedule. Therefore, factor this into your management plan as well.

nTask offers you the option to write your mitigation plan for each individual risk you identify, therefore providing a centralized document of all the assessments as well as being accessible to all those involved in the project.

Step 4: Assign Identified Risks to Team Members

Next, you want to assign team members as risk owners to individual risks that have been identified.

These team members are responsible for monitoring the risk as well as controlling the response outlined in the mitigation plan if the risk does occur.

Highlighting an individual or individuals who are responsible for the monitoring and controlling of particular risks ensures that if a risk occurs the mitigation plan is acted on straight away and avoids any confusion which could lead to unnecessary delays and costs.

Step 5: Create a Backup Plan or Contingency Plan

Projects risks are uncertain events and therefore they can change as the project progresses.

Thus, once you have created mitigation plans for risks identified and created other necessary documents for your risk management your job is not done.

Creating a contingency plan offers more security for the success of your project. New risks can appear, reclassification of risks already identified could be needed, etc. Creating a contingency plan protects against these things.

Step 6: Work with Project Stakeholders and Measure your Project’s Threshold

The main thing about creating such a management plan is deciphering what your risk threshold is.

You want to discover which risks are potentially too high and render the project unworthy of that time, money, and resources to be spent.

If you find that there are risks that are simply too high, ensure that you speak to those who are relevant such as stakeholders, and decide whether the project may overall be at risk of failure.

Use your risk matrix to decern this. Risks that have a very high score on impact and likelihood warrant consideration.

How nTask can Help with Creating your Project’s Risk Management Plan?

nTask is a project management tool that offers a centralized platform where you have every tool you need to manage your multiple projects for you and your team.

Features available in nTask include:

• Gantt charts
• Kanban Boards
• File management
• Communication tools
• Task management
• Meeting management
• Issue management
• Timesheets

One of the sub-level tools that nTask offers are a robust risk management module.

The module allows you to identify and analyze any and all potential risks you may expect with respect to your project.

You can identify and analyze the risk, create a mitigation plan, assess the risk identified, assign the risk to team members, and communicate about the risk as well. Not only this, but nTask also creates a risk matrix for you depending on your assessment and analysis.

With nTask’s risk management module, you can create your management plan with ease.

The management plan will be within the project management platform in a centralized location along with other important information that will be readily available to all those who need access to it.

Simplify your risk management and the creation of your management plan with nTask. To read more about the risk management module in detail and how you can use it to your advantage check out the blog post here to learn the latest risk module update.

Risks to Consider In Risk Management Plan in Project Management 

Consequently, what kinds of risks and uncertainties must be taken into account while creating a risk management plan? The majority of project risks, according to the Project Management Institute, fall into a few distinct categories:

• Technical: Included in this category are hazards related to specifications, the technology being used, interfaces, performance, and quality.
• Management: This covers any hazards that result from communication, planning, scheduling, or estimation.
• Organizational: This covers all project dependencies, logistics, supplies, finances, etc.
• External Risks: Risks from your users, clients, contractors or even the market itself are considered external risks.

Keep in mind that there is a chance that you will benefit from each of these risks. For instance, it’s possible that a rapid shift in demand will result in much lower sales figures. Have you considered how you might benefit from that unexpected rise in the budget?

Over to You

Preparation for your project is a means to make sure that you and your team are well-equipped to deliver a successful project in terms of output, quality, budget, and time.

Risk management and by extension a risk management plan is one such important aspect that ensures the likelihood of this result for your project.

To learn more about project management and the other important aspects of running a successful project, check out our blog here.