Have you ever grabbed an umbrella on a cloudy day? Buckled your seatbelt before putting your car into gear? Put a couple of extra dimes into the parking meter in case your errand took longer than you planned?
Whether or not you realized it at the time, you were doing something important: risk mitigation.
What is risk mitigation?
Let’s start with a simple risk mitigation definition. Risk mitigation is when you identify potential threats and then hash out a plan to eliminate them — or, at the very least, minimize their impact.
Snagging an umbrella on your way out the door will keep you dry in case there’s rain, much like fastening your seatbelt will keep you safe in the event you’re in a fender bender.
This same philosophy can be applied to businesses and projects. When you use risk mitigation strategies for project management, you attempt to understand all the various factors that could throw your project off track and then either proactively try to prevent those things from happening or reduce their consequences.
That could mean planning what you’ll do if a necessary resource isn’t available or figuring out what next steps you’ll take if you hit a major delay or bottleneck.
Of course, even with a thoughtful strategy, there’s never a complete guarantee that a project will go off without a hitch. However, taking the time to form a risk mitigation plan helps you respond to those scenarios in an orderly and effective way — and avoid letting that risk sabotage your entire project.
Types of risk mitigation
When it comes to mitigating risks, it’s tempting to think about things in black and white: your goal is to completely stop the risk from happening in the first place.
In some cases, that’s true. But it’s certainly not the only way to manage and respond to risks. As Project Management Institute (PMI) advises, think of a risk like a bullet. When one is headed your way, you can choose to:
- Move to avoid the bullet
- Deflect the bullet
- Repair the damage done by the bullet
To put it simply, there’s more than one way to deal with a potential risk. When worried about rain, some people might grab an umbrella. Some might take their chances. Others might reschedule their plans entirely so they can stay indoors.
There isn’t necessarily one “right” way to approach risk mitigation. Instead, it’s helpful to understand the different approaches, of which PMI says there are four: avoidance, reduction, transference, and acceptance. Let’s take a closer look at each of them.
As the name implies, the avoidance approach is all about attempting to steer away from a potential risk entirely. That sounds ideal, but this route could also mean drastically changing your original project plans in order to eliminate the possibility of a risk.
Example: You use a virtual or remote format for your team retreat to avoid the risk of illnesses and quarantines.
You might also hear this one referred to as simply “mitigation,” and it’s all about reducing the likelihood of a specific risk, the impact of a specific risk, or both. It’s not quite as extreme as avoidance but still involves taking steps and making some changes to minimize a potential threat.
Example: You institute masking and testing requirements for your in-person team retreat.
With transference, you essentially move (read: transfer) the risk to someone else. That could mean working with a vendor or supplier for a piece of a process that’s too risky for you to do in-house. Even purchasing insurance is an example of risk transference, as you transfer the risk to the insurance company in exchange for your premium.
Example: You purchase a travel insurance policy so that you can cancel your team’s retreat without penalty if necessary.
While often cited as a type of risk mitigation, it doesn’t actually involve any sort of prevention at all. With acceptance, you simply allow for a risk to exist and don’t take proactive steps to address it or remove it. You resign yourself to dealing with the consequences if and when the risk occurs. It sounds like a gamble, but sometimes it’s the best or only option for risks that would require mitigation steps that are costly or complex. Sometimes the best you can do is take your chances.
Example: You decide to host an in-person team retreat and deal with any necessary quarantines or isolations if and when they happen.
Five steps for assessing (and mitigating) risk
There’s no shortage of ways that you can respond to project risks but before you can take action, you first need to understand exactly what risks you’re dealing with.
That might make you feel like you need to be some sort of fortuneteller, but there’s no need to search for a crystal ball. There are a few practical steps you can take to assess the biggest risks to your project and then hash out a risk mitigation plan that empowers you to move forward with confidence.
1. Identify areas of risk
The best way to understand the potential risks that could derail your project is to create a simple risk breakdown structure (RBS). Much like a work breakdown structure in project management, your RBS is a hierarchical chart that spells out your project risks, starting with higher-level categories and continuing down into sub-levels of risk.
Exactly what these categories and sub-levels are will depend on your specific project. Projectmanagement.com explains that there are numerous different types of potential project risks, including:
- Cost risks
- External hazard risks
- Governance risks
- Legal risks
- Market risks
- Operational risks
- Performance risks
- Project deferral risks
- Schedule risks
- Strategic risks
Thinking through those different categories can help you think holistically about all of your project’s threats. But don’t worry about ranking or categorizing risks at this point — your goal during this part of your project risk assessment is to simply generate a long list of risks.
You might also find it helpful to bring in other project team members for this brainstorming process as they could identify risks that you wouldn’t have thought of on your own.
2. Understand the probability and impact
Now you’re armed with a long list of project risks but trying to figure out how to prevent or respond to all of them is overwhelming — and will likely take too much time and too many resources away from your actual project.
Not all risks are created equal, so your next step in your RBS is to categorize your risks based on two factors:
- Probability: How likely is this risk to occur?
- Impact: What is the consequence if this risk occurs?
Go through each risk and score it accordingly for each factor. You might choose to use a simple and straightforward low-medium-high scoring system to categorize your risks. Or, if you want to do some math directly in your RBS, you can also assign numerical values to these factors.
3. Create a risk register
Even the simple act of categorizing your risks gives you some direction about which ones deserve time, energy, and resources. Risks that have a high likelihood and a high impact obviously need to be at the top of your priority list.
To really make sense of all of the risks your project is facing, you might find it helpful to move on from your RBS and create a more detailed risk register. While the RBS helps you categorize and understand your project risks, your risk register will help you identify, log, plan for, and track them.
Your risk register will include columns for:
- Risk identification number: A digit to quickly identify your risk
- Name: A label or quick description of the risk
- Risk categories: If it’s a legal, schedule, cost, marketing risk, etc.
- Probability: Score for how likely the risk is to occur
- Impact: Score for how harsh the potential consequences of the risk are
- Rating: Score for where the risk falls on your priority list
- Approach: Whether you will avoid, reduce, transfer, or accept the risk
- Action: The detailed steps you’ll take
- Person: Who’s responsible for overseeing or mitigating the risk
Create a simple chart with spaces and columns for all of this information or start with our helpful project risk analysis template to get a better understanding of which risks are the most pressing.
4. Plan your approach
When it comes to risk mitigation, your approach and your action deserve the bulk of your time and attention — after all, those are the steps that involve actually dealing with the risk.
For the critical risks you’ve identified in the above steps, it’s time to think about how you’ll respond in the event that the risk actually happens. What steps will you take?
When you determine your approach, you’re simply focused on deciding which of the four types of risk mitigation you’ll turn to: avoid, reduce, transfer, or accept.
With that high-level direction, you can move forward with mapping out your actual action steps. For example, let’s say that you’ve identified a risk of a cyberattack that could compromise your customer data. You decide that you’re going to reduce that risk by:
- Hiring a cybersecurity consultant to confirm your systems are reliable
- Conducting staff training on phishing scams and cyberattacks
- Limiting the amount of data you collect from customers
Those detailed action steps are what you’d list in the “action” section of your risk register so you and your project team know exactly what you need to do proactively or in response to a risk.
5. Monitor and respond to risks
Much like your project itself, risks are fluid. Some might crop up right when you thought they might. Others might never happen at all. You might even face some risks that you could have never anticipated.
That’s why it’s so helpful to have documentation in the form of your RBS and your risk register. These are resources that you and your project team can return to as you monitor your risks, adjust your plans, and generally try to stay ahead of potential issues and roadblocks.
Did circumstances change that make a potential risk way more likely? Its rating and priority should change and you should confirm your action plan is ready to go. Did you officially secure a certain supplier and virtually eliminate the chance of a risk? That one can move down the list.
Put simply, risk mitigation isn’t a one-time thing. It’s a process that you need to continue to check in on and stay on top of as your project and your team move forward.
What are the challenges of risk mitigation?
One of the biggest challenges of mitigating risks is the unknown. Even with a step-by-step strategy, there’s no way to be completely certain about what’s going to happen over the course of your project.
Beyond the pervasive uncertainty, risk mitigation also presents a fine line that businesses and project managers need to walk. While you want to be adequately prepared for some of the most critical risks, you don’t want your risk mitigation strategies to overshadow your entire project. They shouldn’t command more time, energy, and resources than the project itself, but it’s tough to know where to stop.
And finally, it’s challenging to understand or quantify the success of your risk mitigation plans. Ultimately, the true mark of success is preventing or avoiding a risk entirely — but there’s really no way to know if a risk didn’t materialize because of your strategy or because of sheer luck.
Wrike’s risk analysis template can help
Risk mitigation is part art and part science. There are certain steps you can take to prepare and plan for the biggest potential pitfalls but there’s still an inherent amount of unpredictability built into assessing and addressing risks. You never really know what could happen — and that makes risk mitigation feel like a bit of a gamble or a guessing game.
But when it comes to the things that you actually do have some control over, Wrike can help you approach your project in a thoughtful, strategic, and organized way. By centralizing your project management in a single platform, you can benefit from increased visibility into past, present, and future projects. That’s helpful context to have as you identify what risks are potentially most pressing.
Plus, taking a more coordinated and streamlined approach to project management reduces risks on its own. When project team members and stakeholders can collaborate in one centralized place, it reduces the potential for miscommunications, misunderstandings, missed deadlines, and other project management risks that could sideline your project.
Wrike is packed with project management features but it can also be used as your complete risk management software. Our project risk analysis template will help you identify your key priorities and risks so that you can deliver more successful projects — on time and under budget.
Risk mitigation might seem like a step that’s full of doom, gloom, and worst-case scenarios. And while it’s never all that encouraging to think about all of the potential threats that could swoop in and sabotage you, it’s an important part of successful project planning and management.
After all, the biggest risk you can take is not thinking about risks at all.
Ready to understand and address your project’s biggest risks? Get started with a two-week free trial of Wrike today.