No project ever goes perfectly according to plan, but a solid risk management strategy can help teams tackle challenges and seize opportunities. Here are five practices to elevate your approach to balancing risk and reward.
Everyone manages risk—whether it’s looking both ways before crossing the street or buckling up before starting the car. But in projects, risks are more complex. There are unmarked roads and hidden challenges around every corner, and being caught off guard can lead to costly consequences. That’s why effective risk management is critical to the success of every project—and every project manager.
How to manage risk: Risk management is a team effort. While it begins with the project manager, success relies on active participation from team members, stakeholders, sponsors, partners, and customers. It also requires organizational support through clear processes, tools, and resources. A culture that fosters honest, ongoing conversations about risks can make all the difference. By addressing “bad” risks early, teams can mitigate their impact, while identifying “good” risks can unlock opportunities for greater rewards.
Here are expert-vetted, field-tested practices to help you enhance your risk management approach.
Start a Conversation, Keep It Going
At its heart, risk management is about having honest conversations. It’s sitting down with your team and stakeholders to weigh trade-offs and ask, “Here’s what could happen—do we need to act now? Should we adjust our project plan? Or do we move forward as is?” When business pressures, personalities, or other factors make these discussions challenging, it’s essential for project managers to do everything they can to keep the dialogue alive.
Most team members are eager to discuss risks once they feel safe doing so—without fear of being labeled complainers. In fact, many feel a sense of relief when risks are acknowledged openly. What worries them most is when they see risks jeopardizing project success, but no one is willing to address them.
Unfortunately, in many organizations, risks are treated like hot potatoes—juggled and passed around until it’s too late to act. In such environments, bad news often gets worse, and by the time it surfaces, options for mitigation are limited.
Executives and customers are often risk-averse or hesitant to discuss uncertainties, viewing them purely as negatives. To navigate this, it’s helpful to reframe the conversation around risk, focusing on both the challenges and opportunities it presents. This approach not only encourages engagement but also fosters proactive, solution-focused thinking.
Remember Risks Are Opportunities, Too
Risk only exists in the context of pursuing an opportunity, and the potential reward must justify the risks you choose to take on. Yet, many risk models overlook the positive side of the equation, focusing solely on probability and impact without considering the benefits the opportunity might bring. Effective risk management requires weighing both the risks and the potential rewards.
Project managers tasked with identifying risks should also focus on presenting solutions and highlighting the benefits to stakeholders. Opportunities emerge regularly throughout a project. As you address risks, you’ll uncover more tactical opportunities, each with its own risks. In these moments, you must make informed decisions about the best course of action.
At its core, risk management is an entrepreneurial exercise. While data collection, analysis, and identification are crucial, the real value comes when decisions lead to redefined project plans that harness the opportunities embedded within the risks. The real challenge for many organizations is creating an environment that encourages and supports creative responses to risk.
On innovative projects, where uncertainty and unknowns are the norm rather than the exception, the best approach is continuous redefinition. This mindset must be embedded within the project’s infrastructure. Rather than planning for the final goal, you should plan to reach milestones, adjusting as you learn. Instead of simply tracking progress toward a goal, focus on monitoring what insights and knowledge you’ve gained along the way.
Build a Realistic Risk Budget into Your Plan
Many project managers start by listing potential risks and their probabilities but often miss a critical step: creating a realistic risk budget. Without this, there may not be enough resources or time to effectively address risks when they arise.
A risk budget should be divided into four main categories:
- Avoidance – Actions taken to prevent a risk from occurring. This requires upfront planning, as many avoidance strategies need to be implemented just before the project begins. The budget might cover costs for identifying alternatives, negotiating contract terms, or selecting specific technologies or approaches.
- Mitigation – Actions taken to reduce the likelihood or impact of a risk. Mitigation involves proactive measures throughout the project’s life to prevent risks from materializing or to minimize their effects if they do.
- Detection/Triggering – Actions taken to assess whether a risk is likely to occur or has already occurred. This includes techniques to determine the likelihood of the risk happening and its potential impact. Detection is often initiated right before the risk is expected to occur.
- Contingency – Actions taken to address the consequences after a risk event happens. Contingency plans are often more expensive than avoidance, mitigation, or detection, which is why investing in prevention up front can reduce overall costs.
The key takeaway from this categorization is to avoid simply adding a flat percentage of the project budget for risk. Instead, carefully estimate and allocate funds for avoidance, mitigation, detection, and contingency actions.
Lastly, this risk budget should be fully integrated with your project plan. Too often, project managers keep risks in separate tools or processes, leading to plans that are neglected, ineffective, or only used for administrative tasks. When the risk budget is embedded within the project plan, it becomes a vital management tool and is less likely to be cut.
Reassess Risk Throughout the Project
Most risks aren’t static—they evolve as the project progresses and circumstances change. Even if the risk itself remains the same, the team’s understanding of it typically improves over time. This means that some risks need to be not only reprioritized but reassessed to determine if the potential impact, likelihood, or the planned management approach is still appropriate.
Project managers should evaluate several key factors during this reassessment:
- Does the original analysis still align with what is now known about the risk and the project?
- Are the current management activities making any difference?
- Is the planned contingency still suitable?
- How do team members feel about the progress on managing their assigned risks?
- What do experts in the areas impacted by the risk think of the current assessment?
- How do the project manager and team feel about the risk—are they more confident or increasingly concerned?
Don’t overlook the last question. Since risks are inherently uncertain, the experience and intuition of both the team and project manager play a significant role in deciding whether a reassessment is needed.
Conduct a Risk Review, Learn and Share
Many risks are specific to each project, which can make applying lessons learned from one project to another seem challenging. However, an end-of-project review offers a valuable opportunity to improve risk management for future projects. Here are some key areas and questions to consider:
Risk Identification Process
- Which risk categories generated the most items?
- Where was it difficult to identify risks?
- What aspects of the project only had risks identified later in the process?
- Who outside the core team contributed to the identification process?
Risk Analysis
- Which areas were easiest to analyze risks, and where were they most challenging?
- Which categories generated the most significant risks?
- Where was it hardest to develop effective contingency plans?
- Where did determining the best management approach prove most difficult?
Risk Management
- Which types and categories of risk responded best to management efforts?
- Which approaches worked well, and where were the challenges?
- Were there instances where the approach had to be changed or risks reassessed? If so, why?
Contingencies
- Where were contingencies necessary, and were they effective?
- What challenges did you face when implementing contingencies?
- Did any contingency plans fail completely?
A common critique of project reviews is that they often become blame-oriented rather than focusing on improving future projects. During risk reviews, the emphasis should be on understanding:
- Why problems occurred and how they were resolved
- Which best practices were developed or improved
- What approaches didn’t lead to successful outcomes
- What recommendations the team has for improving future risk management
Ensure that all this valuable information is captured in a risk database. Learning from experience helps everyone grow, and risk reviews provide an opportunity for project managers and teams to accelerate their development. When it comes to managing risk and maximizing reward, these insights will pay off down the line, even when navigating uncharted territory.
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