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Using a Risk Management Matrix as a Project Management Tool

risk management

Using a Risk Management Matrix as a Project Management Tool

What could go wrong? This is a question that most project managers have to battle with whenever they are figuring out the chances of success of their project. With the highly volatile nature of the modern business world, a lot can go wrong. Business projects are rife with risks, and success is preserved for managers who take into consideration some risk management tips.

For instance, a software development project can face risks like security breaches, non-compliance, technical debt, and even low customer adoption rates. While all these risks are imminent, not all of them can be solved, especially considering the small budgets that most managers have to work with when handling such threats.

Even worse, managers are typically needed to look for ways to ensure that any investment they make towards risk treatment is adequate. This demand usually calls for a bird’s-eye view towards risk management. Lucky for you, using a risk management matrix might be the right choice to ensure that you can manage project risks with a high level of attention to detail.

Here is how to approach project management with a risk management matrix by your side:

It Starts With Risk Identification

For you to use a risk management matrix, you need at least to understand your risk landscape with some level of confidence. You should be proactive in pointing out potential risks, regardless of whether they are trivial or significant. Some project managers create a checklist for their risks, which they include in their risk register.

This checklist can include threats that have affected their projects in the past. The good thing with past risks is that it can be easier to predict their impact and possibility. There are, however, more ways to identify risks, even for entirely new business projects. These threats can fall under operational, financial, reputation, technical, political, or human risks.

To leave no stone unturned, you can start by conducting market research, as this will help you identify common risks with more certainty. You can also consult other experts in your industry, review the history of your business along with that of other companies, and attend industry workshops that deal with your project. Before approaching the next step of risk analysis, you need to have almost exhausted your list of project risks.

Analyze the Identified Risks

Risk analysis is an essential part of risk management. It allows you to understand the risks your projects might face with a significant level of confidence. While it can be time-consuming, it can save you a lot of resources and time in the future. It will also help eliminate the ‘what if’ factor in risk management.

However, you will need to dig deep into what you know about a specific risk to analyze it thoroughly. Ideally, you might have to access documents such as project plans, security protocols, financial data, market forecasts, and financial data. Remember, it might be tough to battle a risk that you do not understand.

Risk analysis involves quantifying different risks. Next, you will have to form a risk assessment matrix to help with ranking them.

The Risk Assessment Matrix

A risk assessment matrix is simply a visual representation of the risk landscape for a particular project. It can help you in ranking the different risks that your business faces. Ideally, to come up with it, you will need to compute the likelihood/probability of a risk happening and the impact that it can have on the progress of the project. The likelihood that a risk will occur is typically placed on the Y-axis, while the effect of the risk is placed on the X-axis.

For the probability of a risk happening, you will have to present it as a percentage. On the flip side, the impact that a risk can have is termed as minor, moderate, major, or critical. When computing the figures for the matrix, you should multiply the impact of each risk with the probability of it happening. The figure that comes up should be a representation of the risk’s nature.

The risk matrix also has three significant zones; the yellow, the green, and the red zone. The yellow area is the low-risk zone, the green one is the moderate risk zone, and the red one is the high-risk zone. These zones also help when it comes to prioritizing the different risks. You can prioritize your risks using any of these four groups:

1.   Critical Risks

These risks demand the immediate attention of whoever is in charge of them. They come with special affixes and are often tied to a deadline. Failure to deal with such risks appropriately can easily lead to the detriment of your project.

2.   Major Risks

Though they are high risks, they can typically impact the business less. They are labeled ‘H’ in the matrix and often have a unique color code.

3.   Moderate Risks

These are medium-level risks. They are often associated with you having to devise alternative strategies to battle expected bottlenecks throughout the project’s lifetime. Since they usually have a little bit of wiggle room, project managers can always look for ways to circumvent them.

4.   Minor Risks

These risks are trivial, though still significant to the progress of your project. They can easily be postponed until all the other more impactful risks are dealt with.

Why Using a Risk Assessment Matrix Is Important

A risk assessment matrix ensures that you do not fly blind when it comes to risk management. There are more than a couple of ways to handle risks, but not all of them will look at all perspectives of the risk. For instance, while you might choose to use security tool A, it won’t be sufficient enough if it leaves a particular security aspect unhandled. Ideally, any solution you select should maximize the already scarce resources your project team has at its disposal.

The matrix also gives an overall view of your risk landscape. Since it empowers your business to rank your risks, it can be easy also to learn what to prioritize above everything else. Consequently, neutralizing the risks becomes pretty easy.

Picking the Right Risk Management Treatment Option

Once you understand the risks that your project faces, the next stage will be to look for ways to mitigate the risks.  Ideally, there are four risk treatment options; avoidance, transfer, mitigation, and acceptance.

You should avoid risks that are too high for your business to handle. If you were to choose to deal with them, it would cost you an arm and a leg. These are risks that will be tough to outsource. For instance, if you might need to work in the EU, but aren’t GDPR compliant yet, you can avoid that part of the project until you are compliant enough.

The second option is to transfer the risks. This risk treatment option will apply to threats that are best handled by other businesses or individuals other than you. For instance, you can transfer the risk of a fire burning down sensitive documents to your insurance company by taking up insurance.

If you can handle a risk in-house, you should consider mitigating it. This includes investing in state of the art tools, or even setting up a great team to manage the risk. Lastly, you should accept any risks that are too trivial to have an impact on the progress of the project.

Reassessing the Risk Assessment Matrix

Risk landscapes are dynamic. Today’s risks can easily take a new shape. For instance, while you might have protected your business software from malware attacks, hackers are likely to find other vulnerabilities in your system. As such, risk assessment isn’t a one time job.

You should commit to re-evaluating your risk landscape and watching for any risk that has changed. For any new risks, feel free to take it through the risk management process and rank it in the matrix. Such a progressive approach to risk management will reduce the chances of nasty surprises.

Who Is Accountable For Your Risk Management?

Your risk management matrix is bound to be useless if you do not have people accountable for specific risks. Building a culture of accountability ensures that you have someone to approach were a threat to affect your business. It also reduces the habit of pointing fingers. Besides, project members will commit more to a project and its risks when they know what roles they play.

When creating your risk register, include a part that outlines the owners of the different risks. Such people should be in charge of implementing the risk treatment option you choose as well as monitoring the status of the project concerning the risk.

Communication Is Essential For Risk Management

Ample communication is essential to neutralizing the risks your project faces. Communication ensures all hands are on deck when it comes to risk management. Since employees are at the forefront of risk management, they need to understand the priority you set for each risk your project faces.

The top leadership also needs to understand your ideal risk posture, considering that they will be in charge of releasing funds required for risk treatment. Everyone in your team will need to understand their roles. They should also learn how to report issues in their roles to the right people.

With a well-outlined communication protocol, anomalies can reach the risk manager fast, and solutions can be provided even faster. This can be especially vital when it comes to dealing with high severity risks.

Risks are a necessary evil for doing business, but they do not have to cripple your project. You need to get ahead of the risks before they can bring down your project. With a risk management matrix by your side, picking the right risk treatment options will be easy. Weave a risk assessment matrix into your project management practices to prop your project up for success.

Share your thoughts about the risk management practices in your company in the comments section below

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