No matter what business you do, chances are you routinely handle projects to reach both personal and professional career goals.
With projects, though, come risks. While project risks are a given, you don’t want to fall victim to them if they can be avoided. Fortunately, there are some risks so common that they’re easy to identify and tackle, saving you time, money, and resources.
Here is the list of the 9 common project risk that we will be learning in detail including the ways to tackle them:
- Cost Risk
- Schedule Risk
- Performance Risk
- Operational Risk
- Market Risk
- Governance Risk
- Strategic Risk
- Legal Risk
- External Hazard Risks
- How to tackle and avoid the risks
Common Pitfalls in Project Management and Why They’re Dangerous
Modern businesses and professionals understand that when it comes to getting ahead, it's necessary to take risks, but how you take risks is important. For many project managers, this means business planning, building, and strategizing – actions that all rely heavily on carefully balancing what resources you have and planning risk assessments around them. Operating this way ensures that your business protects itself as it grows.
During risk management, project managers and professionals seek to identify events that may negatively impact overall project performance. Risks are both internal and external, so risk assessment and management usually include a number of aspects that include:
- Program risk assessment
- Investment risk assessment
- Operational assessment
- Alternative analysis
- Cost uncertainty
The following list of the most common project risks that modern businesses encounter will give you a welcome advantage in risk management and planning. By knowing and studying what these risks are, you’re in a better position to avoid them and poise your business for success, growth, and longevity.
Cost risk is probably the most common project risk of the bunch, which comes as a result of poor or inaccurate planning, cost estimation, and scope creep. When this happens, project managers end up spending more money than they actually have on a project, which may hurt the business in other places or cause the project to go unfinished if funds and resources can’t be replenished.
The result of poor planning, schedule risk is the risk that project tasks and activities will take longer to complete than estimated. Schedule risk is closely related to cost risk because any slips in schedule often increase costs, slow down project benefits, and throw off timelines, which lose any competitive advantage you might’ve had at the start.
This project risk is not the fault of any one party, which makes it especially daunting. Performance risk is simply the risk that the project won’t produce the results and benefits outlined in the project specifications. Even if you keep costs within budget and stick to the schedule, performance risk can mean that you’ve lost time and money on a project that ultimately did not deliver.
Operational risk stems from poor implementation and process problems, including but not limited to: procurement, production, and distribution. In short, this project risk is part of performance risk because the expected outcome doesn’t happen at all or in the way that project managers had planned.
Market risk includes risks posed from competition, commodity markets, interest rates, foreign exchange, and liquidity and credit risks. This project risk is more unpredictable and difficult to plan for, but there are ways in which project managers can protect their business.
Governance risk is connected to the performance of the board and management in regard to the community, ethics, company reputation, and community stewardship. This risk should be easier to mitigate because it depends largely on the behavior of executives in business. Of course, this risk is still real and should be taken seriously.
Strategic risk is another type of performance risk. Issues result from mistakes made when strategizing, such as picking project management software that doesn’t work well for your project.
Legal risk can be unpredictable and may arise from legal and regulatory duties. These include contract risks, litigation brought against the business or organization, and internal legal issues.
External Hazard Risks
These risks are the most unpredictable of all and come from entirely external sources: nature, other people, government, and society. External hazard risks include storms, floods, earthquakes, and other natural disasters; vandalism, sabotage, and terrorism; and civil unrest and labor strikes.
How to Tackle and Avoid the Risks
So, how can you tackle these nine common project risks for optimal success? When employed all together, the following tactics will help you protect your organization and significantly lower the risk of falling victim to common project risks.
Identify Risks Early with a Risk Register
Identifying project risks prior to the start of your project is a great way to tackle and avoid common pitfalls. One way to do this is with a risk register. A risk register (also known as a risk log) is an important part of risk management. It’s created at the start project and acts as a tool that helps project managers track issues and deal with them as they arise.
The use of a risk register in project management and risk management is to record details of all identified risks, along with their analysis and plans for how the risks will be handled. In short, a risk register or log identifies different risks and their severity, then provides actions and steps to mitigate the risk.
Employ Project Management Software
Project management software allows you to streamline project tasks and activities, as well as plan out work to the last detail. Software is one of the top options to avoid risks because it allows project managers to see problems and risks in advance and plan accordingly. And when used with a risk register, all of your bases are effectively covered.
Once you’ve identified the most common risks, you can prioritize them in the way that best suits your business. This means that you identify which risks are more pressing and then handle those first. Some risks may be able to wait, while others such as cost risks and legal risks are more urgent.
Enroll in our PMP® Certification Course today and develop a strong foundation in the principles of project management.
Become a Project Leader Today
Become a digital-age project leader with Simplilearn’s Post Graduate Program in Project Management in partnership with the University of Massachusetts Amherst. In line with the Project Management Professional (PMP®) certification, you’ll learn the tools, frameworks, best practices, and skills to minimize project risks to drive transformational projects.