Why is risk management critical for successful projects?

Why is risk management critical for successful projects?

November 1, 2023 Business Operation Project Management

We run a lot of projects, a lot of multi-party collaborative research projects often with significant uncertainties. So, what is that one piece that underpins the success of all of them? To us, it is risk management strategy. Any project have risks, whether you know or acknowledge it or not.

Just by way of example, imagine that you are the manager of a top-flight rugby team preparing for a big game.  There are 15 men on the field of different shapes, sizes, and abilities.  You must consider the possibility that any of these could get injured, red card (sent off), or yellow card (10 minutes in the ‘sin bin’).  You can substitute the injured man, but you need to consider for all possibilities how you re-arrange the team on the field.  This is ‘risk management’ in action!

Taking it step by step…

Consider an event which may happen.  For example “Staff member knocked off bicycle on way to work, and gets serious head injury”.

Then evaluate the probability of this happening.  No need for actual number, just categorise as “Rare, Unlikely. Possible, Likely, or Almost certain”.

Also consider the impact on the project if it does happen. “Insignificant, Minor, Moderate, Major, or Catastrophic”. This is established by estimating ‘the cost of the consequences’

The final step is to multiply the ‘cost of the consequences’ by ‘probability of the event happening’ to give what is called a ‘Risk value’.  This will give a clue as to how much effort can be directed to mitigate against it.

Overall actions which might be considered are “Reduction, Removal, Retention, Contingency, Transfer, Share, or Nothing”.  The most preferable course of action is to remove the probability of occurrence (or at least reduce it).  So, while it is environmentally friendly for the staff member to come to work by bicycle, choosing a route away from main roads would be a good start.  Then, reduce the consequences, for example by wearing a proper safety helmet.

The remainder of the register is simply management control of the risk by documenting “Who What, Where, When, How,” etc.  This is to be reviewed regularly during the project.  Risks no longer current can be removed, and new ones added.

Just by way of a footnote, the first risk entered should always be “Initial assumptions and estimates might be wrong!”

Photo by Ollie Craig: https://www.pexels.com/photo/illuminated-empty-green-rugby-stadium-in-evening-5670148/