Why Bother Using a Risk Management Tool When Planning Projects?
When most people think about risk management, they imagine that it has something to do with factoring in potential problems that come from some kind of financial deal. For example, before moving forward, you will want to assess the amount of risk involved to make sure that it’s a worthwhile investment.
But what about when talking about projects and delivery? It may surprise you to learn that using a risk management tool transcends business and can become a necessary part of any company’s strategy for success. Whether it’s an internal project or an external one, assessing and managing risk can have tremendous repercussions if done properly (or improperly), which is why more businesses are turning to it as a means of ensuring success.
Today we’ll dive into the world of risk assessment and see how it can benefit project planning as well as your return on investment.
What is Risk Management?
At its core, this process is meant to identify any potential issues that might come up that could lead to significant problems down the road. Delays and failures are all a part of assessing risk, which is why managing it can be so crucial to ensure smooth sailing. To put it in layman’s terms, let’s say that you have a project that takes place outside. To succeed, it has to be a sunny day, but the forecast says there is an eighty percent chance of rain. Thus, when managing risk, you will want to wait until the chance of rain is low enough that it won’t pose that much of a threat.
Accurately Identifying and Managing Risks
Whether you are a small company or a Fortune 500 business, the better you are about assessing and identifying risks, the better prepare you will be to combat them or avoid them altogether. It’s important that you spend as much time planning for different variables within a risk management tool, and then using it to assign a likelihood of those issues coming up. Doing so also allows your risk register to be sorted so the most likely issues are held up for further scrutiny.
When talking about risk management as it pertains to projects, you will want to get everyone on board with the planning meaning so that all input can be calculated. The best way to assess risk is to get ideas from those who will be working on the project as they will know best about what obstacles can stand in the way of success.
Another thing to keep in mind when assessing risk is to calculate everything, even if it seems unlikely. This will be called a risk log, and it is a list of everything that could happen. That way, you can create contingency plans for everything, and you won’t be sidelined by an occurrence that you dismissed in the planning stage. Anything that could potentially be a risk, no matter how unlikely, must be treated as if it will absolutely happen.
Why Don’t Companies Use a Risk Management tool?
It’s unclear why so many businesses don’t spend the requisite planning on risk factors when starting new projects, but most of the time it’s because they don’t think it’s necessary or they don’t know that it can benefit them. However, not taking the time to correctly identify risks can cost both time and money, which will drastically alter your bottom line.
Most likely, companies don’t involve risk management for internal projects because it’s not common to do so, but that doesn’t mean that it won’t be beneficial. In fact, the more you can plan ahead for any project, the higher your chance of success will be, regardless of the size or complexity.
Once you’ve used a risk management tool to identify your risk factors for your project, then it’s time to figure out how you will deal with these problems. In risk management, there are four primary ways to handle these issues, which we’ll discuss below.
The best way to eliminate risk in your project is to avoid it altogether. Thus, if something (or someone) is a high-risk liability in your risk log, then you might want to cut it out for the benefit of the rest of the team. If you can avoid as much risk as possible, then you will have a much higher chance of success.
No matter how careful you are, there will always be issues that arise during any project. Thus, when populating your risk management tool with information, you will want to see how you can reduce those problems as much as possible, thereby mitigating your chance of failure. Even if you can cut the risk down by twenty percent, it will be hugely beneficial in the end, even if you can’t eliminate it entirely.
In this case, you might be able to transfer some or all of the risk to someone else. For example, if a project will rely on multiple teams and one team seems like a high-risk factor, then you might be able to assign the risk to another risk owner, thereby bypassing the problem entirely. This can also be known as “passing the buck,” and might not always be available as a solution. Ultimately, the problem will fall onto someone’s shoulders, so don’t think that transferring it will eliminate the issue forever.
Finally, you can accept that there will be some level of risk involved in your project and that you will have to deal with it as it happens. No matter how careful and meticulous you are when getting data into the risk management tool, there will always be problems that arise, so the more prepared you are to handle it, the quicker you can get past it. In this case, it’s best to come up with a plan before the starting, when potential pitfalls are revealed by your risk register, rather than scrambling as it happens, thus leading to further delays and issues.
Risk Management Tool Benefits
So is all of this really necessary? If your company has a long history of successfully completing projects without any delays or budgetary concerns, then probably not. However, according to a recent study by PriceWaterhouseCoopers, only 2.5 percent of businesses have that kind of track record. Odds are that you have experienced failure and problems on a regular basis, which is where maintaining a risk register can come in handy.
In fact, here are five reasons that you should use a risk management tool when managing your next project.
As we mentioned above, two ways to deal with risk is to avoid it or reduce it as much as possible. By assessing problems before you begin, you can minimize any setbacks that may occur, or head them off before they affect productivity at all. Most of the time, what kills a project is that extended delays inflate the budget, which then puts an expiration date on completion, assuming that you don’t have unlimited funds to continue projects that are becoming too expensive.
Higher Rate of Delivery
Once you’ve been able to assess risk and mitigate it as much as possible, then you can streamline your success rate, thereby ensuring that you can complete projects more frequently and ahead of schedule. And, as they say, success breeds prosperity, so the more you can deliver for your clients and shareholders, the more value you can provide as a brand. Typically speaking, the biggest reason that businesses are unable to expand or move up in the world is that they can’t match productivity with demand, meaning that they can’t move the needle towards higher profits and bigger investments.
Whenever there is a delay in a project, that means that your budget takes a significant hit. Not only are you losing out on potential income that could come from a successful finish, but you are having to pay staff and labor for more time spent trying to fix problems. As we mentioned, an inflated budget is a major contributor to failure on projects.
By minimizing your exposure through proper risk management, you can not only allocate funds for contingency plans, but you can enact them as needed, thereby ensuring that you don’t go over budget. By adding in risk to your cost analysis, you can be better prepared when delays happen, and not get caught off guard with unforeseen expenses. Overall, the more streamlined you can be, the less it will cost you in the long run.
While cutting down on expenses is always a huge win for any business, by doing so on a regular basis, you are able to ensure that you get a higher return on your investment, regardless of the project or the goal. Managing risk means that you don’t have to worry about sinking too much into a losing prospect, which means that even the most innocuous projects can have a profound effect on your bottom line.
Better Capabilities for Seizing Opportunity
Once you’re able to increase your ROI and minimize your risk for any project, then that means that you can be more aggressive in your goals and achievements. As we mentioned, what keeps small businesses from expanding is that they can’t handle the extra workload. This way, you can not only expand, but you will be more capable of taking on new challenges because you are able to assess any issues that can come up.
In the end, keeping an up to date risk log is all about creating a fine-tuned machine. Your business depends on being successful in all aspects, whether it’s labor, new clientele, or streamlined operations. By targeting your risk factors and developing strategies to avoid, minimize, or overcome them, you can ensure that your company will be able to adapt to the future and become successful no matter what. We would love for you to use PlanHammer’s integrated risk management tool.