Mention risk in managing a project and the team are likely to groan at the thought of another meeting and box-ticking exercise, yet the importance of risk management cannot be underestimated over the life of a project. Proper thought to the risks involved in a project can make all the difference between coming in on budget or being way off the mark, but risks materialising doesn’t just have a financial or schedule impact, some issues can have big consequences on trust and employee relations, company reputation, as well as the health and well-being of staff.
Risk means many different things to different people. For some, a bit of risk is exciting and the greater the risk – the greater the reward, whereas others will want to minimise all risk, sometimes to the detriment of moving a project forward. It is important that the stakeholders and team develop a collective view on risk, so that a more balanced assessment of risk emerges.
So how do you get to that point? Many teams use a scoring system when it comes to risk, taking into account whether a risk to a project represents a low, medium or high impact to the project, company or stakeholders. A scale of probability is also used to grade how likely a risk is to occur. By plotting the scores on a graph, it becomes easier to evaluate which risks are most likely and which can have the biggest impact.
Work with stakeholders to establish a consensus view on the risk response they can accept the project taking. The risk responses can range from do nothing, identify mitigating action and allocate time / financial contingency in case it materializes, to fully mitigate in project plan and budget. The below example could be used to plot risks once assessed for probability and impact.
So for example, using lower cost locations to deliver elements of the project delivery may save budget in the short-term, but also carries with it a high associated risk in terms of miscommunication, expertise and ability to work effectively as a virtual team. In this case, the team needs to establish whether it will actually save time and money for the project in the long-term and whether it could have a high impact on project delivery. Before even developing the project schedule, adequate time, resources and finances need to be allocated, to minimise financial risk.
Risks to a project can have far more importance at different stages of a project. Therefore, risk assessment should be carried out in stages: As standard, risk should be assessed at the beginning of a project, prior to the development of the project schedule and then continued at regular intervals to evaluate whether the risks are still a possibility, strategies have been effective or the threat has gone. Generally, the probability of an issue arising lessens as the project nears completion, so it is good practice to re-evaluate risks and their financial impact, so that the budget contingency can start to be released back into the business.
Managing budget in this way becomes far easier with the right budgeting tools. Suresteer provides a useful tool to be able to allocate and manage the contingency budget associated with project risk. It enables you to track project expenditure independently of resource budgets, making it much easier to assess how the tasks associated with a project are performing and as a project advances, contingency budget can easily be released back into the business. Find out more about Sure Budget and take advantage of the free trial to see how it can help with your project forecasts and budgeting.