You identify them, record them, monitor them and plan for them: risks are an inherent part of every project. Some project risks are bound to become problem areas—like executing a project over the holidays and having to plan the project timeline around them. But there are many risks within any given project that, without risk assessment and risk mitigation strategies, can come as unwelcome surprises to you and your project management team.
That’s where a risk management plan comes in—to help mitigate risks before they become problems. But first, what is project risk management?
What Is Risk Management?
Risk management is an arm of project management that deals with managing potential project risks. Managing your risks is arguably one of the most important aspects of project management.
The risk management process has these main steps:
- Risk Identification: The first step to manage project risks is to identify them. You’ll need to use data sources such as information from past projects or subject matter experts’ opinions to estimate all the potential risks that can impact your project.
- Risk Assessment: Once you have identified your project risks, you’ll need to prioritize them by looking at their likelihood and level of impact.
- Risk Mitigation: Now it’s time to create a contingency plan with risk mitigation actions to manage your project risks. You also need to define which team members will be risk owners, responsible for monitoring and controlling risks.
- Risk Monitoring: Risks must be monitored throughout the project life cycle so that they can be controlled.
If one risk that’s passed your threshold has its conditions met, it can put your entire project plan in jeopardy. There isn’t usually just one risk per project, either; there are many risk categories that require assessment and discussion with your stakeholders.
That’s why risk management needs to be both a proactive and reactive process that is constant throughout the project life cycle. Now let’s define what a risk management plan is.
What Is a Risk Management Plan?
A risk management plan defines how your project’s risk management process will be executed. That includes the budget, tools and approaches that will be used to perform risk identification, assessment, mitigation and monitoring activities.
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Risk Management Plan Template
Use this free Risk Management Plan Template for Word to manage your projects better.
A risk management plan usually includes:
- Methodology: Define the tools and approaches that will be used to perform risk management activities such as risk assessment, risk analysis and risk mitigation strategies.
- Risk Register: A risk register is a chart where you can document all the risk identification information of your project.
- Risk Breakdown Structure: It’s a chart that allows you to identify risk categories and the hierarchical structure of project risks.
- Risk Assessment Matrix: A risk assessment matrix allows you to analyze the likelihood and the impact of project risks so you can prioritize them.
- Risk Response Plan: A risk response plan is a project management document that explains the risk mitigation strategies that will be employed to manage your project risks.
- Roles and responsibilities: The risk management team members have responsibilities as risk owners. They need to monitor project risks and supervise their risk response actions.
- Budget: Have a section where you identify the funds required to perform your risk management activities.
- Timing: Include a section to define the schedule for the risk management activities.
How to Make a Risk Management Plan
For every web design and development project, construction project or product design, there will be risks. That’s truly just the nature of project management. But that’s also why it’s always best to get ahead of them as much as possible by developing a risk management plan. The steps to make a risk management plan are outlined below.
1. Risk Identification
Risk identification occurs at the beginning of the project planning phase, as well as throughout the project life cycle. While many risks are considered “known risks,” others might require additional research to discover.
You can create a risk breakdown structure to identify all your project risks and classify them into risk categories. You can do this by interviewing all project stakeholders and industry experts. Many project risks can be divided up into risk categories, like technical or organizational, and listed out by specific sub-categories like technology, interfaces, performance, logistics, budget, etc. Additionally, create a risk register that you can share with everyone you interviewed for a centralized location of all known risks revealed during the identification phase.
You can conveniently create a risk register for your project using online project management software. For example, use the list view on ProjectManager to capture all project risks, add what level of priority they are and assign a team member to own identify and resolve them. Better than to-do list apps, you can attach files, tags and monitor progress. Track the percentage complete and even view your risks from the project menu. Keep risks from derailing your project by signing up for a free trial of ProjectManager.
2. Risk Assessment
In this next phase, you’ll review the qualitative and quantitative impact of the risk—like the likelihood of the risk occurring versus the impact it would have on your project—and map that out into a risk assessment matrix
First, you’ll do this by assigning the risk likelihood a score from low probability to high probability. Then, you’ll map out your risk impact from low to medium to high and assign each a score. This will give you an idea of how likely the risk is to impact the success of the project, as well as how urgent the response will need to be.
To make it efficient for all risk management team members and project stakeholders to understand the risk assessment matrix, assign an overall risk score by multiplying your impact level score with your risk probability score.
3. Create a Risk Response Plan
A risk response is the action plan that is taken to mitigate project risks when they occur. The risk response plan includes the risk mitigation strategies that you’ll execute to mitigate the impact of risks in your project. Doing this usually comes with a price—at the expense of your time, or your budget. So you’ll want to allocate resources, time and money for your risk management needs prior to creating your risk management plan.
4. Assign Risk Owners
Additionally, you’ll also want to assign a risk owner to each project risk. Those risk owners become accountable for monitoring the risks that are assigned to them and supervising the execution of the risk response if needed.
Related: Risk Tracking Template
When you create your risk register and risk assessment matrix, list out the risk owners, that way no one is confused as to who will need to implement the risk response strategies once the project risks occur, and each risk owner can take immediate action.
Be sure to record what the exact risk response is for each project risk with a risk register and have your risk response plan it approved by all stakeholders before implementation. That way you can have a record of the issue and the resolution to review once the entire project is finalized.
5. Understand Your Triggers
This can happen with or without a risk already having impacted your project—especially during project milestones as a means of reviewing project progress. If they have, consider reclassifying those existing risks.
Even if those triggers haven’t been met, it’s best to come up with a backup plan as the project progresses—maybe the conditions for a certain risk won’t exist after a certain point has been reached in the project.
6. Make a Backup Plan
Consider your risk register and risk assessment matrix a living document. Your project risks can change in classification at any point during your project, and because of that, it’s important you come up with a contingency plan as part of your process.
Contingency planning includes discovering new risks during project milestones and reevaluating existing risks to see if any conditions for those risks have been met. Any reclassification of a risk means adjusting your contingency plan just a little bit.
7. Measure Your Risk Threshold
Measuring your risk threshold is all about discovering which risk is too high and consulting with your project stakeholders to consider whether or not it’s worth it to continue the project—worth it whether in time, money or scope.
Here’s how the risk threshold is typically determined: consider your risks that have a score of “very high”, or more than a few “high” scores, and consult with your leadership team and project stakeholders to determine if the project itself may be at risk of failure. Project risks that require additional consultation are risks that have passed the risk threshold.
To keep a close eye on risk as they raise issues in your project, use project management software. ProjectManager has real-time dashboards that are embedded in our tool, unlike other software where you have to build them yourself. We automatically calculate the health of your project, checking if you’re on time or running behind. Get a high-level view of how much you’re spending, progress and more. The quicker you identify risk, the faster you can resolve it.
Free Risk Management Plan Template
This free risk management plan template will help you prepare your team for any risks inherent in your project. This Word document includes sections for your risk management methodology, risk register, risk breakdown structure and more. It’s so thorough, you’re sure to be ready for whatever comes your way. Download your template today.
Best Practices for Maintaining Your Risk Management Plan
Risk management plans only fail in a few ways: incrementally because of insufficient budget, via modeling errors or by ignoring your risks outright.
Your risk management plan is one that is constantly evolving throughout the course of the project life cycle, from beginning to end. So the best practices are to focus on the monitoring phase of the risk management plan. Continue to evaluate and reevaluate your risks and their scores, and address risks at every project milestone.
Project dashboards and other risk tracking features can be a lifesaver when it comes to maintaining your risk management plan. Watch the video below to see just how important project management dashboards, live data and project reports can be when it comes to keeping your projects on track and on budget.
In addition to your routine risk monitoring, at each milestone, conduct another round of interviews with the same checklist you used at the beginning of the project, and re-interview project stakeholders, risk management team members, customers (if applicable) and industry experts.
Record their answers, adjust your risk register and risk assessment matrix if necessary, and report all relevant updates of your risk management plan to key project stakeholders. This process and level of transparency will help you to identify any new risks to be assessed and will let you know if any previous risks have expired.
How ProjectManager Can Help With Your Risk Management Plan
A risk management plan is only as good as the risk management features you have to implement and track them. ProjectManager is online project management software that lets you view risks directly in the project menu. You can tag risks as open or closed and even make a risk matrix directly in the software. You get visibility into risks and can track them in real time, sharing and viewing the risk history.
Tracking & Monitor Risks in Real Time
Managing risk is only the start. You must also monitor risk and track it from the point that you first identified it. Real-time dashboards give you a high-level view of slippage, workload, cost and more. Customizable reports can be shared with stakeholders and filtered to show only what they need to see. Risk tracking has never been easier.
Risks are bound to happen no matter the project. But if you have the right tools to better navigate the risk management planning process, you can better mitigate errors. ProjectManager is online project management software that updates in real time, giving you all the latest information on your risks, issues and changes. Start a free 30-day trial and start managing your risks better.
