Managing Risk

Understanding project risks is crucial for ensuring the success of any project. By identifying potential risks early on, project managers can develop strategies to mitigate or avoid them, minimizing the negative impact on project timelines, budgets, and overall outcomes. Without that, projects are vulnerable to unexpected issues that can derail them entirely, resulting in significant delays and budget overruns.

Project

managers use many strategies to manage Risks and opportunities , some of the

common project risk management strategies are detailed below :

1-???Avoid:

In project management, risk avoidance is a strategy that businesses can adopt to reduce their level of risk by avoiding certain high-risk activities altogether. In

simple words, risk avoidance means not taking risks.

A comprehensive risk avoidance strategy is one designed to deflect as many

threats as possible, to avoid the costly and disruptive consequences of an

unexpected event or threat.

An example of risk avoidance might be avoiding the use of certain hazardous materials or chemicals due to the dangers of handling and storing them; another example is to change the route of a highway road to avoid conflicts areas, another example is a bank avoiding expanding his product to include financial derivatives because the business plan determined it is too risky.

2-??Transfer:

Transferring risk means passing it over to another party to manage and the example typically given is insurance. You can transfer the risk (in exchange for a fee) over to an insurance company who then take the risk on your behalf.?Or transfer a risky scope of work to subcontractor specialized in this type of work.

Another example is contracts with indemnification clauses for risk transfers. Contracts with such a clause ensure the transfer of financial risks from the indemnitee to the Indemnitor. In such an arrangement, the future economic losses shall be borne by the Indemnitor. (Srivastav, 2023)

3-??Accept:

Accepting risk is a conscious strategy of acknowledging the possibility for small or infrequent risks without taking steps to hedge, insure, or avoid those risks.

The rationale behind risk acceptance is that the costs to mitigate or avoid risks are too great to justify given the small probabilities of a hazard, or the small, estimated impact it may have. (Kenton, 2022).

Positive results may come from accepting tolerable levels of risk since some risk will always be a part of conducting business. Moreover, accepting risks helps an

entity or individual prepare for the worst-case scenarios and safety nets and smooth the downfall.

Examples of risk acceptance is the risk of expected hurricane on a construction project schedule, where the company accepted to shut the construction activities during the hurricane time., in this case the contractor identified and accepted the

risk of delaying the project schedule for a probability of making their clients unhappy.

Another example is a company may choose to accept the risk of cyber-attacks by not investing in advanced cybersecurity measures. This decision is based on the

belief that the probability of an attack is low, and the cost of cybersecurity measures outweighs the potential risk.

4-???Mitigate:

Risk mitigation refers to the process of planning and developing methods and options to reduce threats, or risks, to project objectives. A project team might

implement risk mitigation strategies to identify, monitor and evaluate risks

and consequences inherent to completing a specific project. Risk mitigation

also includes the actions put into place to minimize the effects of the risk by

creating a strategy to manage, or substantially limit setbacks. Management will

monitor progress after developing and implementing the plan and evaluate

whether to adjust any measures as needed.

The examples here can be the risks related to the project scope definition, if the

scope is not will defined, the project team need to step in and mitigate the

risk by making a business case if it was not provided or engage a third party

or SME for the undefined parts.

Also, the risk if the design is not complete, The PM and project team need to mitigate this risk through identifying the priorities of the design needed at this

current stage and the following stages or change the project methodology to

Agile instead of Waterfall.

There are certain risks you usually face in every project, one of those is Budget Creep, where in changes in the project scope affect the budget, mitigation can be a full review of project budget frequently and after significant changes, controlling the changes and balance the requirements is another mitigation .

5-???Escalate:

Escalating is an appropriate strategy if the risk response under consideration?would need more than the level of authority you have within the team. Basically, you’re passing the risk up to the program or portfolio management team and it’s no longer the project risk to track and manage. To make risk escalation work, a clear threshold between the different levels in the organization need to be implemented, so everyone knows where each risk belongs, without confusion or ambiguity.

Here are some examples of risk escalation in practice:

-???The project team discovers that the design contractor may be taken over by a

competitor. It is too late for this to have any effect on their project, but it might affect other projects who use this contractor in future. The threat is escalated to the procurement department so they can decide how to manage it for future projects.

-???When a project team widely express their dissatisfaction of their payment or work conditions. The threat is escalated to the HR department.

-???A team member identifies an opportunity to create a new value stream for the

business. This opportunity is escalated for senior management attention.