Today we’re facing some hard truths. Poor risk management has the ability to severely impact your business. Whether that’s through a delay to project benefits impacting your revenue and profit streams, or one of the other effects that we describe below, poor risk management is something you can’t afford.
Luckily, you don’t have to put up with suboptimal processes. In this article we outline 7 of the most significant impacts of poor risk management and tell you what you can do about them.
1. Poor User Adoption
User adoption refers to the process of getting your team members to actually follow a process, use the tools you have mandated and stick to the methodology. If they don’t do this, you’ll have poor results because your colleagues are not working to a standard, best practice way of managing risk.
When you don’t ‘right-size’ your approach to risk management, one of the biggest challenges you’ll face is user adoption. This happens because:
The process is too bureaucratic to be efficient, so users shortcut the prescribed process and do their own thing, just to keep work moving along
- The process is not robust enough, so project managers have to implement their own workarounds to ensure adequate control is maintained in a changing environment
- The process is too complicated, so project teams streamline what is required and do what they think is best.
- All of these scenarios lead to sub-optimal processes, lack of standardization across the business and more work for your teams.
What To Do: Any change to the way people work requires change management. Talk to the people involved about how they work. Make sure the process reflects your organizational culture and is workable.
2. Unrealized Benefits
Risks can kill a project’s benefits overnight, or they could be slowly eaten away through inefficient management practices. When your team isn’t working efficiently, every additional admin task adds cost and time to your project, which in turn has an impact on how quickly your benefits can be delivered – if they are delivered at all.
What To Do: Make sure your risk management efforts are the right size for your company. Tailor the best practice advice to seamlessly fit your office culture so that your team isn’t bogged down in bureaucracy, eating up all the benefits in unnecessary admin.
3. Late-running Projects
Unforeseen risks can significantly slow down a project because it takes time to understand them, analyse them and prepare management plans to monitor, act on and track them.
Delays can also happen when risk management activities take longer than you expected and they push out other activities on the project schedule.
What To Do: As the delays tend to happen when you are hit by a risk you didn’t see coming, early identification is important. Schedule risk workshops throughout the project to prompt the team to spend time reviewing and identifying new risks. Work with your project managers to ensure that they are scheduling enough time for risk management activities and including a buffer of time on highly risky projects, according to your methodology.
4. Overspent Budgets
Risk management costs money. However, the cost of dealing with a risk if it materializes and becomes a real issue for your business, is normally far, far more. Budget overruns happen when risks and the associated actions related to managing them effectively aren’t budgeted for. Overspends are also common when a risk isn’t identified at all – and then the project team has to find money from somewhere to do something about it before the project falters.
What To Do: Calculate budgets include an element that relates directly to the perceived riskiness of the project. Cover any mitigation or management activities in this contingency fund, and then call off against it. This will help keep your project budget on track and not used for ad hoc spending on risk management activities.
5. Unhappy Clients
Clients don’t want to be involved in something that is perceived to be high risk. They need to know what you are doing to mitigate any potential threats and that you’ve got a sensible Plan B in place.
What To Do: Involve your clients in your risk management so that they know what professional steps you are taking to protect them and their investment. Regularly report on risks and what you are doing to monitor and manage them.
6. Reputational Damage
You don’t want to be known as the company that always gets caught out by something. Your clients need to have confidence that you are effective at handling risk. This leads on from the point above: dissatisfied customers are a huge risk to your organization’s reputation. One bad review can have far-reaching implications for future work.
What To Do: Good risk identification processes will help you spot anything on the horizon that has the potential to undermine your company’s good name.
7. Project Failure
Ultimately, the worst case scenario for failing to adequately manage risk is that your project fails. It never completes or never delivers anything of value. The objectives in the business case aren’t reached and you waste all that investment in time and effort that has gone into your project to date.
What To Do: Incorporate risk management in your project controls so that you have early warning of when a risk could potentially cause a project to collapse. Implement robust escalation processes so that project teams know what to do when a serious risk is identified and who should be making the decisions about what to do next.
Risk management doesn’t have to be difficult. When you right-size your processes, and have the support of your team, it’s easy to see how a risk management approach fits right in to your existing business. It gives you an underlying support framework that heads off the impacts above, and provides a secure foundation for all of your project work.