Conducting a project risk assessment is essential to ensure you and your project team are prepared for handling the unexpected.

Stephen Covey author of the 7 Habits of Highly Effective People, recommends when planning, “Begin with the end in mind.” One of the first things to think about before starting a project is – what could potentially go wrong?

As any seasoned project manager will tell you, unforeseen problems will happen along the way. When issues do arise, you need to have a strategy for managing risks for your project.

What does a project risk assessment entail?

Imagine this scenario – you’re a construction project manager and receive an urgent call from someone on site, an elephant has escaped from the zoo and is stampeding through town. Luckily, it was a baby elephant, so no one got hurt. Unfortunately, the baby elephant trampled right through your project site, damaging thousands of dollars’ worth of material. All of the new construction on a brand-new technology headquarters – everything you’ve worked on for months was flattened. What’s next?

Life is full of surprises (sometimes of the circus variety!). Risk assessment helps you prepare for uncertain and unexpected events that might negatively affect your project. Risk isn’t only about safety. It involves technology, resources, people, and processes. There are five elements of project management risks.

  • Risk event: What can happen?
  • Risk timeframe: When is it most likely to happen?
  • Probability: What are the chances of this event?
  • Impact: What is the impact?
  • Factors: What can trigger the risk event?

Another way to think about it: Imagine you’re on your way to the most important business meeting of your life. A million dollars of your own money is hanging in the balance. You’re on the road and you get a flat tire. There isn’t time to call someone to help you and a tow truck could be hours away.

However, you did your homework. The spare tire is in the trunk along with the tools to change it, so you’re back on the road in no time. You also left the house early to give yourself a buffer for the unexpected. Your spare tire, tool kit, and time buffer are all risk management.

Steps to perform a project risk assessment

Risk management is simply a process of identifying, addressing, and managing risk. Following a thorough risk management process is like putting a fire extinguisher in the kitchen.

Of course, you will do all you can to prevent fires, but know that the time spent planning will pay off should you ever need it. There are many benefits to performing a risk assessment before a project kicks off. When you take into account all of the potential risks, you lessen the impact of the unexpected. Your resource planning becomes more effective. In addition, your estimates on costs and return on investment are more accurate.

Careful planning prevents legal hang-ups and injuries. And when things change, or unexpected circumstances arise, you can meet your circumstances with flexibility, because you prepared for it.

You’ll never be able to plan perfectly, but if you follow these steps to complete a risk assessment, you’ll greatly improve your risk management.

Step 1: Identify risks

Analyse potential risks and opportunities. Before a project commences, take some time to examine all of the possibilities: the good, the bad, and the ugly. Review best case scenarios and worst case scenarios and leave no stone unturned. Although risk identification is continuous, risks should be managed as soon as possible. Involve your client during the planning process. Different viewpoints and experience levels will help identify as many risks up front as possible.

Step 2: Determine probability

An important step in a project’s risk assessment is examining the odds that a particular risk will happen. While it’s more likely that inclement weather will delay breaking ground, you might want to factor in a runaway elephant, say if you’re building next to a zoo. Rate every possibility with high, medium, or low probability. That will ensure you’re focusing your resources on mitigating the risks most likely to impact your project.

Step 3: Determine the impact

Every risk has an impact, some more than others. While a key member of your team being hit with a nasty case of the flu might not set your project timeline back, if your entire team catches the flu this might be a different matter. Think about what would happen if each risk you have identified actually occurred. Would it affect your final delivery date? How would it affect the budget? Identify the risks that have a large effect on the outcome of your project. Rate those risks as high impact. Identify the rest of the risks as medium to low impact risks.

Step 4: Treat the risk

This part of the process is called risk response planning. Set a plan to treat and modify the highest risks to acceptable levels. Risks can be treated with mitigation strategies, preventive plans and contingency plans.

Step 5: Monitor and review the risk

Risk management is a continuous process because conditions change. Review, monitor, and track risks periodically throughout your project. Uncertainty plays a major factor in risk management. If you build a process around that uncertainty, you can minimise risk for your project. With less risk, it improves your chances of achieving your project goals.