It’s useful to have categories for your project risk because it helps with risk identification. Working through this list can give your team a head-start with identifying where project risk might come from. Not all the categories will be relevant to every project (and some might not be relevant to your business at all), but having a list that is maintained by your Project Management Office will make it easier to ensure all the bases are covered.
So, let’s jump straight in.
Most projects will be affected by organizational politics, but you should also be aware of the possibilities of impact from local or national politics (or even international politics, if that’s appropriate for your project).
A change in government will affect policy decisions and potentially funding, especially for projects with an element of public sector work or those working with government bodies.
The economy has a huge impact on businesses, and that filters down to have an impact on certain projects. At a macro level you might be looking at the national economy and the implications on your product set, for example. You could also use this category as a discussion point for the ‘economy’ of your organization, looking at the impact of funding cycles for multi-year projects or considering what would happen to your project budget if certain conditions were true.
Technology is moving on at a rapid speed, and it’s possible that technological changes could make your project more or less viable over a period of time. This should be built into your approach to managing volatile projects.
There are also risks relating to using new technology for the first time, or in an immature way.
Your Legal team or advisors should be connected to changes in the law and regulations affecting your industry. These may have implications for projects that should be considered. A risk resulting from legal changes that may mean your project is no longer viable.
Alternatively, your project may be to make your business compliant with new regulations. This can introduce risk around what would happen if the timescales for the project were not met and the business was not compliant when the deadline comes into force.
Some industries have a more stable marketplace than others, and you’ll know your own market well. Risks relating to your position in the market, the demand for your goods and services and the rise of new competitors can all affect your project. Staying close to how your market is changing is crucial for any business wanting to compete, so you’ll need to make sure that the people who truly understand what is happening are well-connected to your project teams so that the information is passed on.
6. Supply Chain
Rarely these days will you do a project that has no reliance on anyone else. Whether that’s the manufacturer of a critical part for your product, or a vendor supplying you with cloud-based software, our organizations are more linked together than ever before.
This creates risk, because when one part of the supply chain fails, the downstream implications can be significant. A supplier going bankrupt could put your project back months. Bad weather on the other side of the world could lead to crucial electrical components failing to make it your manufacturing plant on time.
Supply chain risk can also be internal, as your project team will rely on other departments to provide subject matter expertise to the project. If the people or services you need from your own staff are delayed, this can also affect the success of your project.
This type of risk relates to changes in the organizational structure. This might apply if you have a change of leadership, which might in turn lead to a change in strategic direction. It’s crucial to make sure project teams are aware of these risks and then what to do if they happen, because something like this could quickly make a project unviable.
These risks relate to impacts on how your business is run. That could be anything from risk that would impact the ability to keep a critical process running in the factory through to making sure the project goes ahead without impacting your customer services.
Environmental risks range from those that could expose your organization to fines or even legislative action, such as illegal dumping, through to ensuring that your internal environmental policies are adhered to.
Risks in this category are likely to be heavily tied to your position on corporate and social responsibility, and can also affect reputational risk, for example if your business is seen to be polluting.
Financial risks on projects relate to funding cycles, access to funding and making sure that the cash flow is available to pay invoices on time. It’s prudent to consider financial risks to projects because if there are problems in this area, projects could stall, putting all prior investment at risk of being wasted.
Specifically, non-people resources. This kind of risk relates to whether you can get access to the equipment, materials and other resources required to deliver the project in a timely fashion. Risks around delivery of equipment or the inability to source specialist materials would fall into this category.
Alongside non-people resources, you also have to consider staffing risks. These are things like the right people not being available at the right time due to other projects overrunning, or lack of expertise within your business. It would also extend to the risk of staff sickness, and poorly timed vacations.
Risks in this category affect the project timeline. A common risk here is that a task turns out to be more complicated than expected, and so it takes longer. This would add delay to the schedule if the task is on the critical path.
Reputational risk was touched on earlier in the section about environmental risk, but it is worth mentioning again. Today, when it seems like an organization’s reputation can be won or lost on a Tweet, it is definitely worth considering the risk to reputation when you work through the identification exercise. As well as focusing on the public face of your business, think about the impact on investors and on your own staff. Reputation matters when it comes to retaining talent in your organization.
It’s useful to have an ‘other’ category! This prompts the question: “What have we forgotten?” during risk identification discussions. You need space to be able to think about things that don’t neatly fall into the categories above, or perhaps fall into several and need to be split out in a different way.