Have you ever been in a meeting where someone mentions a risk, and all eyes turn to you?
Engineers, executives, and experts might be present, but as the project or risk manager, you’re expected to have all the answers!
This article will arm you with essential risk management strategies, ensuring you’re never caught off guard in one of your meetings ever again!
Risk Management Overview
Project Management Lifecycle
Risk management spans the entire project management lifecycle, including:
Initiation
Planning
Execution
Monitor and Control
Closing
Risk management does not exist within any one step of the project management lifecycle but needs to be applied across the entire lifecycle. This means that a risk can form at any time throughout a project. Just like during your weekly project meeting mentioned earlier.
Risk Management Lifecycle
Yes, Risk management also has its own lifecycle within five simple steps:
Plan Risk Management
Identify Risks
Analyze Risks
Plan Risk Responses
Implement Risk Response
Close Risks
Risk Management Strategy
A crucial part of project management planning is determining how you’ll manage risks. Having a solid understanding of the various risk strategies ensure you’re prepared for any scenario your project might stumble upon. .
This is why today we are going to go through the different strategies. This way, when asked what your team should do with the newly identified risks during your next meeting, you can give them the perfect answer. Without ever knowing the technicality behind the risk!
Understanding Risk Strategies
The PMBOK, 5th edition, defines Risk Strategies as:
A risk response strategy is a plan of action to deal with a specific risk or set of risks. The general steps in risk response are identification, assessment, response strategy, and monitoring
I get a lot of questions about explaining what exactly an opportunity is for risk management vs. a threat – and how there can be such a thing as “Good” risks.
If you haven’t read our blog on “Stop Saying Risk and Opportunity”, you must understand we have both Positive and Negative Risks. Also called Opportunities and Threats, it is critical you know the difference.
Understanding that risks can be both positive and negative within your project is something that many project managers struggle with. We always want to protect our projects from the bad but never look at the incredible opportunities available.
This concept is so important because it will drive the risk management strategy you use throughout your project.
Below, we have the risk response strategies that your risk management strategies will develop on:
Opportunities (Positive Risks)
Escalate
Exploit
Share
Enhance
Accept
Threats (Negative Risks)
Escalate
Avoid
Transfer
Mitigate
Accept
Now, let’s get into these response strategies for each type of risk.
Key Risk Management Strategies in Project Management
Opportunity Risk Management Strategies
Risk Exploitation Strategy
When we have a positive risk, we can put the project’s time, scope, or cost into a better state for our outcomes. This could mean:
Reducing costs, saving us and/or our customers money
Meeting tasks within our scope quicker allows us to meet our customer needs better.
Being able to move quicker within our timeline and possibly deliver the project early.
Examples of exploiting opportunities within a project would be:
Enhancing project capabilities
Taking calculated risk
Seeing an Opportunity and capitalizing it
Risk Sharing Strategy
During risk sharing, you distribute the impact or ownership of risk across multiple parties. By doing so, you can use your partnership across parties to decrease any downsides of a risk through collective resources and expertise.
This approach allows you to:
Reduce individual exposure, allowing for a risk management strategy that’s more manageable
Foster collaboration while building stronger relationships across teams and organizations
Enchanted resilience by combining knowledge and resources
Examples of Risk Sharing as a risk management strategy include:
Entering a joint venture with other organizations
Creating strategic alliances and partnerships
Contracting third-party resources for high-risk tasks
Risk Enhancement Strategy
During risk enhancement, the goal is to increase the probability and/or impacts of a positive risk. In turn, you amplify the benefits of the risk.
When you enhance a risk, you focus on opportunities that can lead to the greatest outcomes.
This strategy allows you to:
Maximize benefits and increase value
Accelerate innovation and gain a competitive advantage
Create a proactive environment that encourages an opportunity-focused environment
Threat Risk Management Strategies
Risk Avoidance Strategy
Risk avoidance involves changing or altering the project plan, eliminating the risk entirely. With this proactive strategy, you clear potential threats while keeping the project on track for completion.
Using this strategy allows you to:
Prevent potential losses or setbacks
Maintain project stability and focus
Ensures resource allocation is efficient and effective
Examples of risk avoidance within a project include:
Changing the project scope to exclude some high-risk activities
Selecting alternative suppliers or vendors, avoiding unreliable ones
Modifying timelines to sidestep seasonal disruptions
Risk Mitigation Strategy
Risk mitigation is when we take actions to reduce the likelihood or the impact of one of our risks. We can implement different measures that help address these potential threats through planning. When we mitigate risks, we manage uncertainties and ensure our projects can succeed.
Using this strategy to mitigate risk, we:
Minimize any adverse impacts of risks
Improve the project resilience and ability to prepare for certain risks
Enhance our stakeholder’s confidence in a successful and value-added project outcome.
Examples of risk mitigation include:
Implementing quality control throughout the project
Assessing risks throughout the project and developing contingency planning
Training team members on a program that is critical for the project outcome
Risk Transfer Strategy
Risk transference involves the process of shifting the impact of a risk to a third party. We can do that with contractual agreements like an insurance company or outsourcing work. We then use this contract to transfer risks to those parties.
Using risk transferring can:
Reduce any direct exposure to risks
Leverage the expertise and resources of external agencies
Bring a higher level of predictability and manageability of our risks
Examples of risk transferring are:
Purchasing insurance to cover any risks around damages or losses
Outsourcing your high-risk tasks to contractors
Incorporating some indemnity clauses in your contracts
Both Threat and Opportunity Risk Management Strategies
Risk Acceptance Strategy
Risk acceptance is when you acknowledge a risk and decide to not address the risk or take any immediate action. This strategy means you see the impact as manageable, or the cost of mitigating the risk cannot be justified. Risk acceptance can apply to both threats and opportunities.
When you accept a risk, you:
Make the conscious decision not to take any action against the risk
Avoid unnecessary risk responses and resource allocation for low-impact risks
Allow your team to focus on the higher-priority threats and opportunities
Some examples of risk acceptance within a project are:
Moving into the next phase of the project while having minor uncertainties
Making the conscious choice not to mitigate or respond to low probability/low impact risks
Accept flexibility in your project plan when small risks exist
Risk Escalate Strategy
Risk escalation is when you elevate the risk to a higher level of management or authority for assistance with resolution. This strategy is used for threats and opportunities when the complexity exceeds the project team’s capabilities. Or can be used when the team requires a larger, more strategic decision making authority.
When you escalate a risk, you are:
Ensuring the right attention and assistance with responding are allocated to the project
Leverage the decision-making of higher-level authority
Gain assistance with addressing risks that could impact the project to a program
Examples of risk escalation are:
Taking a risk of going over budget to executives for resolution
Bringing new regulatory compliance issues to legal or senior management
Taking a new technical challenge to senior technical advisors and/or experts
Conclusion
Are you following these risk management strategies?
Putting together an effective risk management strategy means you have a process for engaging in proper risk management practices around risk response planning.
Understanding risk identification and how to throw risks into a risk register through a risk assessment template is only the beginning.
If you are not looking for ways to respond to your possible risks, you are asking to be reactive over proactive. Only proactive risk response strategies will allow you to respond appropriately to all your risks.
Monitor and Controlling Your Risk Responses
Like many things in project management, you cannot assign a risk response strategy without constant evaluation. You must continuously evaluate your risks and their validity and adjust the responses as necessary.
Not every risk might occur, but having a plan for any risk occurring ensures you protect your plan while increasing the likelihood of having a successful outcome.
Evaluate your projects for risks and put your risks within a risk register, but ensure you have the appropriate risk response strategy for each risk. Monitor and control your risks – and if you do all of this, you too can reduce the negative impact of risks on your projects!
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