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How Can a Project Manager Reduce Risk?

written by: Rupen Sharma, PMP • edited by: Michele McDonough • updated: 10/29/2010

Project managers determine ways to reduce risk throughout the project life cycle. This article provides a detailed walk-through of how project managers can reduce risk in their projects. Examples and tips are also provided.

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    The question, “How can a project manager reduce risk?" gives managers sleepless nights and possible nightmares. Risks that aren’t Reduce Risk!!! mitigated can cause the project to go over-budget and over-schedule; the project would most definitely face severe turbulence.

    To successfully reduce project risk, a project manager needs to develop risk mitigation strategies for the risks identified. Therefore, the challenge of reducing risk begins with risk identification. After all, you cannot reduce a risk that hasn’t been identified. After you have identified risks, you need to assess the risks both qualitatively and quantitatively. By assessing project risks, you can prioritize then develop appropriate risk mitigation strategies. Risk identification and assessment is a recurring activity.

    Next, let’s look at some activities that a project manager can perform to reduce negative risk. Positive risks are opportunities that should not be reduced, rather they should be enhanced! The term risk in this article refers to negative risks. For more on positive risks, refer to the How to Respond to Positive Risks article.

    Image Credit: SXC

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    Project Managers should Identify Risks

    While identifying risks, project managers need to document all possible risks that they can foresee. You must be wondering, “How canRisk Identification  a project manager reduce risk all alone?" Well, project managers can’t do it on their own. Therefore, to reduce project risk, project managers must involve internal and external project stakeholders. Depending on the power and influence on the project outcome, the stakeholders would provide varying risks. For example, suppose you have a quality assurance person in your team. Do you think the person would identify similar risks as, say, the technical architect. I doubt it! Therefore, use the Salient Model or the Power Influence grid to identify stakeholders that can provide valuable inputs during risk identification.

    Another easy way to identify risks is by taking inputs from a project manager that has executed a similar project. Since the ability to identify risks generally improves with experience, take inputs from project managers who have been there, done that. Even if they haven’t, such project managers could function as experts.

    Tip: It’s most effective to gather people in a room and brainstorm on the possible risks that could impact the project. Read the Effective Brainstorming Methods in Project Management article.

    Image Credit: SXC

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    Project Managers Should Assess Risks

    Not assessing the risks properly can lead to colossal losses. For example, Tata Motors was trying to setup a automobile manufacturing plant in a part of India that has a volatile political environment. Ultimately, the work on the plant had to be stopped and the plant relocated to another part of the country. This led to major losses and project schedule delays.

    While assessing risks, project managers use both qualitative and quantitative methods. The probability and impact of each risk is taken into account. Some risks have may have minimal probability of occurrence, but could have significant impact. This is one of the ways that a project manager can reduce risk. For example, though strikes aren’t common in the United States, the probability of occurrence is low, however the impact is tremendous. Similarly, in Europe and Asia strikes are more common and hence have a greater occurrence. In this case, the probability would be higher, while the impact would be the same.

    Read the What is the Difference Between Risk Identification and Risk Assessment? article to getter a better understanding of identifying assessing risks.

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    Project Managers should Plan Risk Responses

    Each identified risk needs to have a risk response strategy in-place. When a risk response strategy is not in-place, all hell can break loose. For example, the oil spill in the gulf of Mexico, B.P. was accused of many lapses, including using equipment that was not up to the mark and delayed communication after the spill. An oil spill has a low probability of occurrence, but the impact, as we all know, is significant. Without an effective risk response strategy, an oil spill can lead to billions of dollars in losses.

    Not all risks can be mitigated, refer to the How to Respond to Negative Risks article to understand the various risk response strategies that you can use.

    So, how can a project manager reduce risk? Use the tips given this article and fewer sleepless nights and nightmares. You should also follow the golden rules while managing project risk.

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