Risk Management Skills in Today's Projects
Mastering the art of risk is not an overnight “ah-ha” moment. Risk management skills build over time through skill acquisition.
With every new event, concept, or lesson learned, you sharpen your judgment while bolstering your risk management practices.
By continuing to study risk management topics, as a risk manager, you hone your skills in identifying, evaluating, and responding to risks.
In today’s highly complex, high-stakes business environment, mastering and understanding risks are crucial to your organization’s success. One wrong move could ruin your project and cause significant setbacks for your organization.
Today, we will discuss some skills a new and experienced risk manager needs to know.
Understanding Risk Management
Risk management, per Project Management Institute in The Standard for Risk Management in Portfolios, Programs, and Projects, is:
“The process that shapes decision making across the organization and within each domain and involves identifying, analyzing, responding to, and monitoring risks.”
Risk management is a critical element within project management as it can be a deciding factor for a project. Having risk management skills are essential to the risk management process, as described in my other blog, The Risk Manager Role in Project Management.
Risk Managers Throughout Industries
This article focuses on project risk management, but risk management spans multiple industries. Some of the more popular certifications outside of the PMI-Risk Management Professional are:
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Enterprise Risk Management (ERM)
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Financial Risk Management (FRM)
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Certified Information Security Manager (CISM)
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Certified Compliance & Ethics Professional (CCEP)
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and many more
Although we see risk managers exist in multiple different professional spaces, the application of the fundamentals are very similar.
And for project risk managers, the fundamentals ensure you have a solid foundation for managing risks throughout your project.
Fundamental Risk Management Skills for Professionals to Learn
I don’t care what you do in this world, it are the fundamentals that make you successful. And that makes no difference with risk management skills – if you understand the fundamentals, you succeed with them in your projects.
Risk Identification Skills
Skills in understanding how to identify potential risks is one of the highest priorities for risk managers, emphasizing the importance of identifying risks with potential impacts on project success.
You cannot manage what you don’t have – and for risk managers to be effective, they must know how to identify risks that could potentially impact the organization’s operations and financial performance.
You can identify risks in many different ways, with some of the most popular methods being:
Brainstorming
Checklists
Interviews
Delphi Technique
SWOT Analysis
Root Cause Analysis
The To-Do's for Your Risk Identification Skills
Diversity: This is with your team and the method you use to identify risks. You want to see the problem from different angles to find all the risks possible. This is done through diversity in your team and the methods used.
Educate the Team: As you gain these diverse teams, not everyone has project management experience. Train these members in the how and why you do risk management.
Update Regularly: Like everything in risk management, identification continues throughout the project’s lifecycle. You need to constantly evaluate to find new risks.
Examine Everything: Ensure you are looking at the whole problem, not just a single portion of that problem. – Examine all risks, no matter how small. Let qualitative risk analysis determine if it is something that must move into further stages of analysis
The Don'ts for Your Risk Identification Skills
Focus on the Obvious: Don’t just look into what you know or see clearly. Work with your team of experts to find the less obvious and, sometimes, more significant risks.
Avoid Lessons Learned: Someone has done something similar to your project. Review the lessons learned, understand where they succeeded and failed – and learn from the past.
Only Have Yourself and PMs Do the Work: Teams do risk management. if you find yourself the only one identifying risks, you must find ways to get the team involved.
Only Use One Method: It’s easy to find that method of risk identification you love, but not all methods fit every scenario. Understand your team and your projects – and pick the method that best suits the team.
Why You Need These Skills as a Project Manager or Project Risk Manager
Being able to identify risk is not just a skill for risk managers – its a necessity for success. Remember, you cannot manage risks, if you have not identified any risks. And there are always risks on every project.
With all the abovementioned techniques, risk managers have plenty of resources in their arsenal, making them ready to tackle and teach risk identification.
The main reason behind this skill is to teach, coach, and mentor your teams in identifying the project risks. The project/risk manager should not and really cannot do it all by themselves – as they are not experts in all areas of the project.
The team needs to identify and communicate risks throughout the team. This encourages diversity of thought by gathering different viewpoints of risk throughout the project.
So, build up your risk identification skills so that you can help identify risks, but also so you can teach others how to identify risks too. Doing this will ensure that no rock is left unturned – and no risk goes unnoticed, leading to fewer unknown risks on the project!
Risk Analysis Skills
Risk analysis is split between qualitative and quantitative risk analysis. Conducting both of these throughout the project are often skipped, but are one of the most important aspects of risk management.
In reality, not knowing how to or skipping risk analysis is like setting sail on a boat without checking the weather. Some days you might be ok, but others you’ll find yourself in storms that have been avoided.
Identifying, assessing, and effectively mitigating risks through developed strategies is crucial for minimizing, eliminating, or transferring risks.
Thereby allowing you to advise company leadership on potential actions to safeguard the organization.
Qualitative risk analysis allows you to do a quick analysis of the probability and impact of each risk. You can also throw in other factors aligning to the timing of risk and timing of risk.
Qualitative risk analysis is something you need to compete for all identified risks. This might seem like a lot, but once you have the process down – it will move quicker than you think (and it is still much easier than quantitative risk analysis).
Overall, through this analysis you can develop a prioritized list of risk the project needs to address.
To learn more about Qualitative Risk Analysis – check out my article on the importance of Qualitative Risk Analysis.
And check out my FREE Risk Assessment Template that will make your qualitative risk analysis easier!
Qualitative Risk Analysis
Not all risks need to go through quantitative risk analysis. Still, the ones you identify during qualitative risk analysis for this review need a thorough analysis to assess their impact on the project.
Quantitative risk analysis is taking the risk and determining the impact of those risks for both time and costs. Example:
Earned Value Management (EVM)
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There is a 30% chance of delay, resulting in an extension of 2 weeks for the project.
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We will assume each week’s delayed cost is -$50,000
EMV = Probability x Impact =
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Probability = 30%
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Impact = 2 week @$50k each week
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So, with Probabilty x Impact we get: 30% x (2x-$50k) = .3 x $-100,000 = -$30,000
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Our EMV = -$30,000
EMV is a straightforward analysis. For our example, we used a negative risk, but this could also become a positive value because the risk decreases vs. increases costs.
EMV helps get an idea of which risks hold the greatest monetary value. It also assists with building your contingency reserves for your project.
The Meat and Potatoes of Earned Value Management
One of the most dreaded areas of the PMP, EVM is a series of formulas to help determine how your project moves.
The Formulas use specific values:
Budget at completion (BAC) – Your total budget
Planned Value (PV) – What you planned to spend
Earned Value (EV) – What you planned to have complete
Actual Spend (AC) – What you’ve spent
And the formulas are:
Earned Value: BAC x % Complete
Schedule Variance: EV – PV
Cost Variance: EV – AC
Schedule Performance Index (SPI): EV/PV
Cost Performance Index (CPI): EV/AC
Estimate at Completion (EAC): BAC/CPI
Estimate to Completion (ETC): EAC – AC
Variance at Completion (VAC): BAC – EAC
To Complete Performance Index (TCPI): (BAC – EV)/(BAC/AC)
Lucky for you (if you are not currently PMI certified), doing the math side of EVM questions are falling off the exam. Calculators and programs are abundant, so the exam focuses on interpreting the EVM information.
EVM’s main goal is to determine if our schedule and budget are on track for the project. Each area of EVM gives a specific level of information. Download the below spreadsheet for FREE and get additional information, plus a formulated spreadsheet on for doing your own project EVM.
Why You Need These Skills
As a risk manager, you need to track the project’s risks as they progress. This is the majority of your role and your battle within the project.
You need to master qualitative risk analysis as this determines the priority of your risks, making them manageable and systematic.
Quantitative risk analysis also needs a deep understanding as you prioritize risk through detailed impact analysis for time and cost impacts.
The math for EVM sounds complicated, and the formulas look intimidating. However, knowing that with technology today, formulas are less important, you need to understand the interpretation of the data.
Overall, having a comprehensive understanding of risk analysis doesn’t just help you avoid adverse events in your project. It ensures you deliver your project with confidence and precision.
Advanced Risk Manager Skills
As a risk manager matures in their field, the fundamentals become intuitive – allowing them to focus on more advanced skills and capabilities.
Risk managers want to learn these advanced skills to enhance their risk management framework while aligning their risk to the broader organizational objectives. This is why the two advanced skills picked are strategic thinking and planning and project management skills.
Adapting to evolving risk management skills and competencies at different experience levels within the profession is crucial for continuous improvement and learning from past experiences, considering various types of risks such as secondary, systemic, and technical risks in a comprehensive approach to risk management.
Strategic Thinking and Planning
Strategic Thinking
Risk managers need to think about organizational goals when implementing risk mitigation strategies. This evolves past focusing on safeguarding the project from threats through a strategic focus that brings the entire project into focus on the project’s outcomes.
Risk managers do this by understanding how their risk management strategic planning aligns with the organization’s strategic objectives.
To do this, you want to involve senior leadership within your stakeholder – and get their feedback on your risks and risk responses. Doing so ensures that your risks are managed not just to respond to the risk but to help the organization’s growth and strategic success.
Strategic Planning
When implementing risk responses, the goal should not always be to develop tactical responses. There needs to be a development of strategic and sustainable solutions for future long-term stability.
I encountered this during one of my recent projects. We developed multiple tactical solutions for our project – which was advertised as a one-and-done type project. But, due to the success, the organization wanted to move directly into the next phase at an even larger scale.
To do this, we had to redo our tactical solutions to fit into the new project. And we had to rebuild many parts to fit the new, strategic solution. Doing this allows the organization to accomplish this type of project in the future – without the need to rebuild all the components.
This became especially true during risk management when a high risk emerged that would have devastating results for the organization if it were to happen. Taking this risk to our leadership, we accepted it for now (since it had an extremely low chance of occurring).
We integrated a line item into the next similar project to develop a strategic solution to cover this risk.
Thinking strategically puts the professional in risk management professionals. We need to think strategically to accomplish strategic results for our organizations.
Wrapping Up
Navigating the world of risk management and sticking to an organization’s strategic goals cannot be overstated. All the skills discussed today are not just technical but are the core to the strategic execution of risk management during projects.
To grow as a risk manager, you must:
Develop an eye for obvious and subtle risks, enhancing your ability to foresee risk through the education and development of diverse, cross-functional teams.
Foster an environment of continuous learning, educating your team in risk management processes, awareness, and collective responsibility.
Engage with senior management by adding them to your list of stakeholders, allowing you to bring a deeper strategic output to all risk responses.
As you master these skills, remember that risk management never actually ends. Strategies and organizational goals change, so you must also change and update your risk management strategies to meet these challenges.
Embrace continuous learning, become adaptable, and pursue excellence as risk professionals. Doing so puts you on the right path toward becoming one of the successful risk managers in your organization.
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