Updated: Jul 29
Risk is an inherent factor in any project, no matter its size or scope. A crucial part of successful project management is the ability to identify these potential risks and strategize on mitigating them. In a dynamic business environment, project risk identification serves as a defensive mechanism that shields the project from unforeseen threats. This post delves into the importance of risk identification and offers a step-by-step guide on effectively identifying potential risks in your projects.
Understanding Project Risk
Risk in a project context can be defined as the possibility of an event or condition that, if it occurs, has an undesirable effect on the project's objectives. This effect could translate into scope creep, cost overruns, delivery delays, and project failure in the worst-case scenario.
The Importance of Risk Identification
Risk identification is the first stage of the risk management process. It provides the foundation for the subsequent steps - risk analysis and risk response planning. By identifying potential risks upfront, project managers can plan mitigation strategies to prevent these risks or minimize their impact on the project objectives.
Moreover, it helps the project team and stakeholders to anticipate challenges, assign resources more accurately, and foster a proactive rather than reactive project environment. It is a crucial element in building the robustness and resilience of any project plan.
The Process of Project Risk Identification
Understand Your Project and Its Context: Start by comprehensively understanding the project and its environment. This involves clearly defining the project objectives, requirements, deliverables, and constraints. Also, consider the wider context such as the business environment, industry norms, regulations, etc. The development of a Project Charter with key stakeholders can be a good way to facilitate this understanding of the project and it's context.
Brainstorming: Bring together your project team and stakeholders for brainstorming sessions. This collective thinking approach fosters the sharing of different perspectives and experiences, helping to uncover a broader range of potential risks.
SWOT Analysis: Assess the Strengths, Weaknesses, Opportunities, and Threats related to your project. This can help identify internal and external risks.
Interviews and Expert Consultation: Speak with experienced project managers, industry experts, and consultants to gain insights into potential risks that may not be obvious to the project team.
Checklists: Utilize risk checklists or prompt lists. These can be based on industry standards, past projects, or even expert judgment. Checklists serve as a systematic approach to identify common and recurring risks in similar projects. MCS has a detailed risk checklist it uses during initial project risk identification workshops with it's clients:
Some More advanced techniques that are sometimes used on complex high risk projects are
Risk Breakdown Structure (RBS): An RBS is a hierarchical representation of risks, starting from the broader risk categories down to detailed risk events. This method is useful for visualizing and organizing the identified risks.
Scenario Analysis: This involves envisioning different future scenarios (like changes in regulations, market conditions, or technology) and identifying risks that could arise under each scenario.
During/after identifying the risks, catagorise & document them in a risk register. This should detail the nature of the risk, its potential impact, likelihood of occurrence, and possible risk responses. Here is a sample Risk Categorisation Framework:
Risk Register Sample (simple one for early/front end stages of a project):
After development, the Risk Register should be periodically reviewed throughout the project life cycle to update and reassess both existing identified risks and emerging risks. During the Implementation Phase of the project this should be delegated to the prime or EPC contractor for the project if there is one.
Contract Risk Management A special topic is contract risk management. Early identification of the allocation of the risks associated with the proposed Packaging and Contracting Strategy for the project should be carefully considered and key team members (including probably contract management professionals) should be assigned to manage those risks.
The Relationship between Risk and Contingency and Management Reserve
When setting a Project Control Budget (see my blog post on this topic here: https://www.markcowleyservices.com/post/4-key-steps-to-successfully-creating-a-project-control-budget ), a key topic for discussion with management is Contingency and Management Reserve levels. See the panel below for the difference and how to risk affects contingency levels.
Project risk identification is an indispensable part of project management. It fosters proactive planning, enhances stakeholder communication, and ultimately improves project performance. It is an ongoing process that should be revisited throughout the life cycle of the project, as risks can evolve or new ones can emerge.
In the end, no project will ever be completely free of risk. However, through comprehensive risk identification, we can better prepare, prevent, and manage the risks that come our way, increasing the likelihood of our project's success.