What is Project Risk? A Complete Guide [Free Templates]
Any unexpected event can affect your project — these risks can influence anything ranging from deadlines, your team’s performance, workflows, project budget, and resources.
Project risk can be for better or worse. If you’re organizing an outdoor event promoting the latest umbrella and the weather report shows a high chance of showers, that would make a great promotion for the product. On the contrary, the rain wouldn't be so welcome if your event project promoted a new bikini.
If it rains during your event, it’s an issue — if the weatherman announces a rain storm before the event, it’s a project risk or potential issue that may or may not happen and might impact the project.
Every project carries risks. Even if a project is successful, there’s still a chance the budget overruns. If this happens to you, you’re not alone — according to research, five out of six projects exceeded the budget by 200%. Therefore, managing project costs should be at the core of project management.
By adopting risk management practices, you can establish practical project objectives, stay within budget, meet deadlines, and ensure your team stays focused.
Our guide outlines the eight most frequently encountered project risks and how to mitigate them. Let’s dive in.
How about overall project risk?
Overall project risk is the chance that a project might not succeed because of different risks, uncertainties, and things outside our control.
Many factors can affect whether a project will work out, such as how big the project is, the budget, the deadline, the availability and skillset of team members, and stakeholder expectations. All of these things together can make the overall project risk higher or lower.
Individual project risk vs. overall project risk
Individual project risk means one potential issue that might impact your project. Overall project risk is the cumulative effect of all the potential risks.
Let's say the individual risk is that the project costs more than budgeted for. The overall project risk is not just the extra required funding but also the longer timeline and extra resources that could happen and change the outcome.
Project risk interpretation
The project manager and stakeholders can interpret the overall project risk differently. As the project manager, you would want to consider what risks could influence the project’s success.
Instead of wanting to know the specifics, the stakeholder would like to gauge how risky the overall project is before allocating the funds.
Pro tip: Consider adding the project risks in your next budget proposal to show stakeholders you’ve thought it through.
What is project risk management?
When managing a project, you have to figure out what could go wrong and make a plan to mitigate those risks. By having a good understanding of the potential risks, you can take steps to either prevent them from happening or be ready to handle them if they do occur.
A project risk assessment can be conducted in many forms depending on the project. You don’t have to start from scratch. Let’s look at the various types of project risk management and use our step-by-step guide to anticipate risks and keep your projects running smoothly.
Also read: A Complete Guide to Project Controls in 2023
Implicit risk management
Implicit project risks are typically associated with overall project factors and decisions made by the project manager or higher management, particularly in defining the scope, timeline, resource allocation, and budgeting.
Implicit risks are closely related to how the project will be managed. An implicit risk assessment looks at the bigger picture of the project, not standalone issues.
It’s important to gauge the potential issues before the project kicks off and revisit the risks if there are changes in management, a shift in team members, or a change in the company’s strategic direction.
However, unlike explicit risks, implicit risks are not unique to a particular project but are more general and can apply to various projects.
Explicit risk management
Explicit risk management centers on identifying and managing risks specific to a particular project and any unique risks the project team may face. This process is essential to minimize any negative impacts on the project.
These explicit risks are linked to the day-to-day operations of the project's processes or how external factors impact them.
Project risk management frameworks
While you might put project risk management on top of your list as a project manager, this might be different for the leadership of your company. According to research, senior executives prioritize strategy and performance management over strategic decisions from a risk perspective. Executive boards spend 9% of their time on risk management.
Looking at this number from an implicit risk management perspective, you might want to suggest a framework to make this process more tangible.
There are several frameworks by the Project Management Institute you can use to discover implicit project risk:
- PESTLE: Political, Economic, Social, Technological, Legal, and Environmental risks.
- TECOP: Technical, Environmental, Commercial, Operational, and Political risks.
- SPECTRUM: Socio-cultural, Political, Economic, Competitive, Technological, Regulatory, Uncertainty, and Market risks.
For example, if a supplier is in a politically and economically unstable country, chances are that the price of manufacturing your equipment could go up and influence future project budgets.
How to assess project risk
In your role as project manager, you will be putting out fires. If you plan ahead, you can make your job as a ‘firefighter’ much easier. Map out your project risk management approach by following these steps:
Risk identification: begin your risk management plan by identifying the potential risks involved in the project. You can't predict every single risk. Focus on the significant ones by researching and writing down the potential biggest threats in a risk register.
Download our risk register template
Indicate the impact: look at your list and analyze the severity and likelihood of each risk. Depending on the complexity, asking your project team or key stakeholders to perform the analysis with you may be useful.
Create a risk response plan: For each risk, create a response plan that outlines how the team will pivot and quickly address the risk. You don’t have to spend days coming up with solutions but approach it as a proactive plan to manage risks if they do occur. The response plan will help your team to manage potential threats better.
Monitor and assess regularly: Regular monitoring is crucial because circumstances surrounding the project can change. The likelihood and business impact of risks can shift, and new risks may emerge while others become less likely. Regular monitoring ensures that your risk assessment remains relevant and effective throughout the project's lifecycle.
Risk assessment matrix
The best way to identify project risks is to dedicate time and implement a method into your everyday processes.
Your risk register will work best as a part of a larger risk management plan. A risk assessment matrix or SWOT analysis can help evaluate and prioritize risks based on their likelihood and potential impact.
Both methods visually represent the risks that your project or organization faces, and it helps determine which risks should be addressed first.
The matrix has two axes: one for the likelihood of the risk occurring and another for the impact of the risk. Both can be rated on a scale from low to high. Each risk is placed in a specific matrix quadrant based on these ratings with corresponding colors: red, yellow, and green. Use our template and create your risk assessment matrix and edit the colors to your preference or company color palette.
Download our risk assessment matrix template
Conducting a SWOT analysis helps identify potential project risks and highlights the project's strengths. Leveraging the project's strengths can set you apart from competitors.
To perform a SWOT analysis, evaluate each letter of the acronym:
- Strengths: What are our areas of excellence?
- Weaknesses: What areas require improvement?
- Opportunities: What are our objectives for the year?
- Threats: Where are our competitors outpacing us?
Completing a SWOT analysis provides a better understanding of the project's position relative to competitors and its strengths and weaknesses. This knowledge can help you enhance future projects and minimize risks, so your team can work with greater confidence.
8 of the most common project risks
Risks are not all bad — you have to take them to grow as a project manager. But, it is better to be prepared. Team members might leave during the project, your stakeholders might have feedback, or a supplier might take longer than expected — all these are common in creative project management.
We got you covered. The following breakdown of creative businesses' most common project risks will give you a welcome advantage in risk management. By being aware of these risks, you’re in a better position to avoid them.
1. Fluctuating project budget
As the new project kicks off, excitement and creativity ignite the team. When the first tasks are completed, you feel confident the project will stay within budget and move smoothly across the set milestones.
The dream of a project comes soon to a halt as unforeseen obstacles mess with your progress. Although there may still be time to complete the project before the deadline, these unexpected challenges have caused you to exceed the approved budget.
How to mitigate a fluctuating project budget
The initial step in any project is setting a realistic budget. However, many project managers struggle with this task. A practical approach to achieving a solid budget is to forecast expenses based on resource planning and add 10% to account for potential contingencies. This buffer handles unforeseen hiccups.
By using data from past projects, you create a blueprint for a realistic budget. For recurring projects, you can reuse the same budget framework. For new projects, use past budgets as a guide.
Rodeo lets you re-use elements of your past projects. Simply use the toggle to add the details you need to get started. Plus, you can break your budget down into phases, with tasks and activities corresponding to a different section of the project.
2. Scope creep
Scope creep in a project is the tendency for project requirements to expand beyond the originally defined scope, and it can arise when the initial project objectives are not clearly defined.
A prime example of scope creep is when the client alters the requirements for deliverables substantially, impacting the team’s timeline or the contents of their work.
How to avoid scope creep
Reaching an agreement on the project scope and communicating that vision with stakeholders from the beginning will reduce the likelihood of scope creep. Scheduling regular project progress reports can also ensure the project remains aligned with the original project scope.
A change management plan and outlining a change control process ahead of time can create a formalized procedure that allows project managers to review and approve or reject proposed changes.
3. Changes in your project team
Your business and team are prone to encountering challenges in processes, changes in team roles, management transitions, or technology updates. These factors can introduce distractions, require workflow modifications, and affect project schedules.
Fluctuations in the project team can lead to lower overall performance. For example, a team member left the team and didn’t create a structured handover document, leaving others guessing.
How to mitigate resource changes
You can never predict or prevent operational challenges, but you can provide some structure and mitigate the negative effects. Prepare handover templates that are easy to fill in, and schedule team meetings or additional training sessions.
With Rodeo’s reporting feature, you’ll make better and more informed decisions in times of change. Get real-time insights into team productivity, logged hours, and project timelines so you can control whatever phase you’re in. Share the reports in Excel or CSV files with teams outside your organization to keep your stakeholders up to date.
4. Planning issues
Many influences can mess up your project. A lack of clarity, miscommunication from stakeholders, vague project scopes, or unclear deadlines can result in changing schedules or tasks.
Poor planning can lead to a lack of direction, unclear priorities, and unrealistic timelines, derailing a project before it begins. While a project manager might be the one to blame, planning issues might be created by external factors.
How to deal with shifting timelines
It is crucial to consider the urgency and time required for each task when creating your team’s schedule. Additionally, you should identify tasks that can be put on a backlog if necessary.
Without proper project management, it’s easy for creative teams to lose focus or miss important information while working on deliverables.
Manage your team’s capacity carefully to get the best results and hit the deadline. With Rodeo, you can assign tasks based on availability and skills. Optimize performance and output. Break your project into tasks, including descriptions and files.
5. Stretched resources
If there are insufficient resources, completing the project becomes difficult. These resources could be time, team, skills, budget, or materials and supplier issues. As a project manager, this might be one extra burden for you. On top of that, you have to make sure your team can keep moving forward.
Ideally, resource planning should be done in the planning and budgeting stage before the production phase starts.
If you bill clients hourly, you have to keep a close eye on the employees' time spent on billable tasks versus operational tasks that clients don’t pay for.
Organizing having to do more with less
Resource allocation can help mitigate this risk because you ensure team members are always assigned to every task. By identifying required resources from the outset, the risk of running out of resources can be minimized. Plus, keeping an eye on the billable vs. no-billable hours ratio will help you to take action when needed and reduce in-house tasks that don’t make the final invoice.
6. Tight deadlines
So many tasks yet to complete and so little time. You might think effective deadline management is primarily dependent on time management. However, successful deadline management requires proper management of tasks and team workloads as well.
Also, if your team struggles with accountability, you might experience missed milestones or, worse: missed deadlines. Fluctuating team performance can result in lower-quality work or a lack of trust in the team.
How to mitigate tight deadlines
To manage multiple projects with potentially conflicting timelines successfully, preparation is crucial. Here are some strategies to help you:
Reverse engineer your timeline: Start with the final project deadline and work backward, breaking down each task and estimating the time required to complete it. Prioritize the project with the longer timeline and focus on it first.
Create task-specific timelines: Before delegating tasks to your team, ensure that you have a timeline for each one that includes estimated completion times.
Utilize project management tools: Software solutions can help manage workloads and consolidate all project action items in one place.
Rodeo makes task planning and time tracking easy. The platform helps project managers identify when team members are falling behind.
7. External influences
These risks are the most unpredictable of all and come from entirely external sources such as stakeholders, nature, illness, labor strikes, and changing government regulations.
External risks might affect the project's outcome and your team's performance or influence decisions at a business level.
How to mitigate external factors influencing your project
The first step is to identify and analyze the external factors that can impact your project.
A contingency plan for each external factor should include steps you can take to mitigate the impact of the external factor.
Keep a close eye on the external factors that can impact your project. This will allow you to quickly identify any changes impacting your project and act accordingly.
Finally, be prepared to adapt your project plan as needed based on changes in external factors. Being flexible can help you quickly adjust to new circumstances and minimize the impact on your project.
8. Communication difficulties
Effective communication is crucial in project management and is a crucial yet often overlooked aspect of project success for teams involved in project management or project-based work.
Mismanagement of communication can completely derail a project, particularly when it involves interrelated tasks that require team members to work together and communicate effectively to achieve project objectives.
Poor project communication management can lead to confusion regarding the project’s status and who’s working on what, which could lead to a lack of confidence in your team and clients.
How to avoid miscommunication
If your team is using a plethora of communication tools, including email, chat, calendars, and other planning tools, you can lose oversight quickly. Project managers must ensure everyone on the team is proficient in the selected technology.
Rodeo is an intuitive tool that helps you keep track of every stage of your project’s lifecycle to ensure project success. The sleek and clean dashboard brings together your tracked time, open tasks, and project status to help you understand what needs to get done ASAP.
In addition to software, it is vital to establish clear expectations regarding response times and set an example of the communication style and tone. Learn more with our Guide to Project Communication Management.
Plan and prepare for project risks with Rodeo
Project management software solutions are invaluable tools for mitigating project risks.
Rodeo features are simple, and the intuitive interface is easy to navigate regardless of your technical expertise.
You won’t need to pay for costly third-party integrations to see your projects through to completion since Rodeo is an all-in-one tool.
Pairing your risk register and matrix with Rodeo helps you monitor the project status at all times from different perspectives. Here’s a look at Rodeo’s main features:
- Budgeting: Get your project right from the start by creating detailed, phase-based budgets outlining time and activity expenses before moving to the production phase. You can even send your budget estimate to clients for approval.
- Time tracking: Rodeo allows team members to start and stop the stopwatch on their dashboard or to add a timecard later if they forget. All time entries are attached to a budgeted activity to ensure your billable hours are logged.
- Invoicing: Send customizable, client-ready invoices directly from the platform based on the completed work.
- Reporting: Rodeo’s features are interconnected, bringing you real-time insights into project performance and employee productivity so you can steer the project to completion.
- We integrate with QuickBooks and Xero to ensure your bookkeeping is up to date.
Interested in experiencing Rodeo for yourself? Take advantage of our 14-day free trial today.