Project risk: what is it and how to analyze it

Project risk refers to anything that can change the trajectory of project completion. It is useful to consider project risk at the start of large and small projects, because by knowing the risks in advance, you can take steps to prevent them. By knowing how to assess project risks, you can be confident that you will achieve all project objectives and be able to adapt to changes that may arise. In this article, we define project risk and explore ways to improve project risk analysis.

What is project risk?

A project risk is any unforeseen event that affects the achievement of one or more project objectives. This may include short-term tasks that arise in the early stages of project production, as well as long-term project goals. Here are a few tools you can use to mitigate project risks:

  • Risk Identification:

    • Risk identification actively determines which risks may affect project completion. You can engage in risk identification at any stage of a project, but it’s ideal to consider them before you begin.

  • Risk analysis. 

    • Risk analysis determines the likelihood of a particular risk occurring. You can also use risk analysis to evaluate how a particular risk might affect the completion of a project.

  • Risk Management:

    • Risk Management assesses the likelihood of a potential risk and creates plans to minimize their impact on the project. You can benefit from doing risk management at or before the beginning of a project so that you have options in place for different actions in case a potential risk changes the project’s trajectory.

Benefits of Understanding Project Risks

Understanding project risk can help you improve your ability to prepare for risk before it happens and adapt your actions if it occurs. When you understand the potential risk to the project you are working on or about to start, you can minimize the impact of any risk that occurs during the project. It also allows you to ensure that any action you take on a project complies with any applicable laws or regulations that may apply to your project. Because most industries have best practices for understanding and analyzing project risk, you will most likely be able to manage project risk for any project you take on.

How to analyze project risk

Here are a few steps for project risk analysis:

1. Start at the planning stage

Start assessing the risk your project may face before you start working on the project. By doing so, you can maximize the likelihood that you consider all potential risks and how to manage them. Planning how to analyze risk when planning project completion also allows the two processes to inform each other, as the potential risk you identify may change how you choose to complete a particular aspect of the project.

For example, if a project has a long list of steps to complete, you might want to review all the steps in advance so you can explore the potential risks for each one and minimize risk instances that crop up unexpectedly during the project.

2. Identify the potential risk

Identify potential risks that may arise at any stage of your project. Risk can arise at any stage of a project’s production, so it’s important to consider every step of the process to make sure you’ve identified all potential risks. Risk identification can bring the greatest benefit to your project at the start of a project, but additional risks can be identified as you begin and continue work.

This might include writing a list of risks for each phase of your project, or working with the team to get additional perspectives on which risk is most likely to occur.

3. Consider the likelihood and impact of each potential risk

Analyze each identified potential risk in terms of how likely it is to occur and how severely it could affect the completion of your project. Some risks may be small, such as a shortage of a certain material that can be replenished by purchasing it from the store. However, other risks can have more complex implications for the project trajectory, such as whether a part of the machine you are developing performs the expected function.

You can also consult with other people working on the project, or people familiar with the project, to learn about additional perspectives during the process.

4. Have a Risk Management Plan

Think about how you can respond to any potential risks identified during the project planning stages. Drawing up a contingency plan or an action plan in the event of a risk makes it possible to hypothetically mitigate the risk before it occurs. Risk management plans should consider what the risk is, what its potential impact on the project is, and how it can be mitigated if it occurs.

It can be helpful to write down risk management plans so that you can create a document or spreadsheet to refer to for any potential risk.

5. Continue to assess risks throughout the project

Assess risks throughout the project, even if you start doing it during the planning stages. During project completion, additional risks may arise, so it can be beneficial to continue to identify potential risks and develop solutions as you go. If you continue to evaluate risks during project execution, you can plan how to mitigate their impact on your project as quickly as possible, even if unforeseen risks arise.

This may include paying attention to why potential risks do not arise if they occur elsewhere in the production process, or identifying risks that you recognize as you work.

6. Adapt to any risk

Take action if the risk materializes and adjust your action plan accordingly. Even if you analyze the risk from project start to completion, you may still need to put in place contingency plans. Ideally, risk identification and planning can minimize the number of risks that arise, but it is still useful to know how to proceed in the event of a previously identified or new risk.

Adapting to risk can mean reorganizing your list of steps or considering alternative courses of action before you proceed.

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