How and Why to Identify Risk Categories in Project Management – The Motley Fool | Region & Cash

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Risk categories help project managers understand and plan for which parts of a project could go wrong. Learn best practices for identifying and managing risks in your project.

In her book Being Comfortable with Insecurity: 108 Lessons on Cultivating Fearlessness and Compassionwrites the Buddhist nun Pema Chödrön: “The root of suffering is resistance to the certainty that uncertainty is all we really have, no matter the circumstances.”

Project risk management is a process that recognizes that things can go wrong. By establishing project risk categories, your team can mitigate unnecessary pain points by accepting the inherent uncertainties of project management and having plans to change as needed. Instead of pretending that everything is going exactly as planned, risk categories help you figure out how to deal with it when it doesn’t.

Learn about risk categorization and best practices for managing those risks to come closer to recognizing that everything is uncertain.

Overview: What are risk categories?

Risk categories are specific elements within a project or its operating environment that could go wrong during the planning, implementation, or follow-up phase of an activity. These risk categories take into account things like cost, schedule, available staff, public reception, and available inventory. They look at the details that contribute to a successful project and consider what would happen if one or more of those details went off course.

4 types of project risks

A risk structure plan outlines the various potential risks within a project. There are four main types of project risk: technical, external, organizational and project management. Within these four types there are several more specific examples of risk.

1. Technical Risks

Technical risk refers to anything that could go wrong with your software, hardware, or manuals or other process documents related to your project.

When listing your technical risks, consider whether you have enough computers, tablets, or other devices for everyone on your team. Ask if you have experts on staff to troubleshoot any software issues that may arise, or if you have access to outside vendors who could help. Also, check if you have created user-friendly reference guides for the implementation of your project.

2. External risks

External risks are things that could affect your project and are outside of your organization’s direct control.

When listing your external risks, analyze the current market situation. Think about what problems your subcontractors or suppliers might encounter. Check the appropriate local, state, and federal regulations affecting the area of ​​your business. Ask if your clients might change over time and how that would affect your project.

3. Organizational Risks

Organizational risk refers to aspects of your organization’s overall resources and culture that could impact the delivery of your project.

As you list your organizational risks, consider whether you have enough staff available to cover the time and effort required to complete your project. Check that your financial processes are working well enough to pay subcontractors on time.

Ask if you have the budget to carry out your project as planned. Consider whether you have policies in place to know who will make decisions on critical project issues.

4. Project Management Risks

Project management risks relate to how the team working directly on your project works and what internal aspects of your team could affect the success of your project.

As you list your project management risks, take a look at your team’s culture and morale, and whether interpersonal issues might be affecting results. Check that you have clear communication channels in place between team members and that people know who to contact with specific issues.

Consider whether you have involved all stakeholders in the planning phase of your project or whether there are other voices that you need to consult.

Example of a risk classification structure.

To determine your project’s specific risk categories, start with the four main risk types and then detail potential issues for each. Image source: author

Dealing with risk categories

Any successful project management plan should include steps for dealing with risk categories. There are three important steps to doing this.

1. Consult a wide audience to identify risks

Identifying risks is the first and possibly the most important step in a risk management plan. For the smoothest possible implementation, you want to have a solid understanding of where your project is likely to get bumpy.

No single person on your team can create a comprehensive list of potential risks. Each stakeholder has a different perspective and specific expertise that can provide information on the risks that may require the most planning.

Consult a wide audience when identifying the risks of your project. Ask your IT team members for their opinion. Consult a focus group of your customers. Listen to your newcomers and measure their attitude. The more feedback you get from different voices within your project, the better prepared you are for the risks you couldn’t identify on your own.

2. Assign a lead to each risk

Once you have identified your risks, assign a person accountable for each risk. You can put this information in a project tracker so your entire team knows who to contact if someone needs help with a specific risk.

When assigning leads for risk, consider who on your team has the capacity and expertise to fill that role. This can be a great way to make more people feel like they have real ownership of the project, which can boost employee morale.

3. Track and prioritize your risks

You can then use project management software to track and prioritize your risks. You should include evidence and measurements of the probability of the risk materializing and the financial and reputational impact of the risk should it materialize.

As you track your risks, consider any decisions you’ve made about what steps your team will take when they occur. If so, track when the mitigation plans began, where they stand on their implementation, who took what steps, and what the recent results have been.

Best practices in categorizing risks for your project

When creating risk category levels, you should follow some best practices to make the most of the risk management process for both your current project and as your business grows.

Look for common areas of risk

Risk categories in project management can show you where you may have recurring risks. For example, you may find that the majority fall under the organizational risk type. By recognizing this, your team can help find longer-term solutions to these risks instead of setting patches that need to be installed for each new project.

As you identify and prioritize your risks, organize the information into a risk register that helps your team better identify common categories. The Project Management Institute (PMI) states that this tool can be one of the most important ones for project managers. You can review PMI’s sample risk registers to get an idea of ​​a format that might be appropriate for your project.

A risk register table with descriptions of risks, their categories, the status of a management plan, and the associated costs.

By listing risk categories in your risk register, you can quickly see if there are consistent commonalities between them. Image source: author

Make risk management part of internal learning

Managing risk doesn’t have to be a stressful or rigid process. People grow and learn from mistakes and challenges. You can make risk management an acceptable – maybe even fun! — Aspect of your team’s culture by incorporating it as part of your organization’s proxy learning strategy.

Have team members present how they overcame a specific risk scenario. Share risk trackers and other process management tools. Reward your employees for finding creative solutions to problems that arise.

In general, let risk be an openly acknowledged, natural part of the project management process. Think of risk not as a problem, but as an opportunity for effective team communication, internal learning, and shared compassion among employees.

Quantify your risks to inform prioritization

It can feel daunting at first to have a long list of risks and not know what to focus on first. A good way to start prioritizing your risks is to quantify them. If possible, consider how much this risk would cost from a financial perspective if it were to materialize.

Quantifying risk from a financial perspective includes issues such as lost sales, unexpected additional expenses, costs for additional hours or staff turnover, and any other expenses that would only arise if that risk materialized.

Identify and manage risk categories to limit suffering by accepting uncertainty

Project management shouldn’t be about controlling a situation, it should be about accepting that every task comes with risks that your team must learn how to manage. By identifying risk categories, your team can accept the unfoundedness of reality and relax into the ever-changing flow of technical, external, organizational, and project management risks as they arise.

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