Risk management isn’t about luck; it’s about using the right risk management tools in the right way to address the right problems. Projects can fail as a result of unmanaged risk. But what are the right tools? And how do you get started?
In this article, we’ll call out some of the top risk management tools our team has used over the years and how you can use them to address and manage risk on your projects.
1. Risk register
Let’s start with something that will be familiar to everyone who has done project management training, the risk register. It’s your central hub for recording and tracking risks, responses, and status. Because if it’s not documented, it’s not managed!
The risk register includes a risk description, impact, probability, owner, response strategy and current status. You can use color coding or scoring to highlight high-priority risks. It’s a document you’ll come back to time and time again as you work through the project.
2. Risk Breakdown Structure (RBS)
Do you have one of these? A risk breakdown structure is a hierarchical chart that categorizes risks (for example, technical, external, organizational). It can help your team systematically identify risks across multiple domains or areas of the project, and when our teams have used it, the primary benefit is that it helps you focus on risk identification and feel more confident that you’ve identified all the core risks – especially in the early stages of planning.
You can even align it to your work breakdown structure by using cross-referencing or similar numbering strategies so it’s easy to see when risks are likely to occur and where they will show up.
3. Bow-tie analysis
Bow-tie analysis is a visual diagram showing causes (on the left), the central risk event and consequences (on the right). It’s useful when there is a complex risk (which you put in the center).
You probably wouldn’t want to use it for every risk as it takes time to work through and some of the risks on your project wouldn’t warrant that level of analysis. But if you have wicked problems that might cause you challenges later, this type of analysis can help you identify where to apply controls.
Examples would be operational, health and safety, or high-impact technical risks, where there are multiple causes and multiple consequences. Plus, it looks great on a slide if you need to explain risks to your stakeholders!
4. Monte Carlo simulation
We love a good Monte Carlo simulation and it’s one of the models we teach and use the most because it’s so useful. And project management software has come on so much over the years that it’s no longer difficult to run. You just need the right software.
Monte Carlo simulators are probabilistic forecasting tools that model thousands of possible outcomes. They focus on the impacts to project budgets and schedules so you can see what would happen if something else happened. They’re useful because they help predict the likelihood of finishing on time and on budget. Armed with that information, you can make management decisions about what course of action you want to take, or where to invest time or your risk budget.
Again, it’s not for every risk or every project. You’ll get most use out of this tool in large or high-stakes projects, or where uncertainty is high.
5. Scenario analysis
Don’t have the budget or the software for Monte Carlo simulations? You can do a similar thing by working with the team to review multiple “what if” scenarios to test different project paths or responses. Brainstorm some scenarios and then work through them together: what if this risk happened? What if this supplier was late? What if this changed?
We like this approach because it builds resilience and it’s also reflective (before the event). Openly discussing potential paths through the project lifecycle helps you prepare for what might happen, even if you do nothing more than talk about them.
Then, if any of the scenarios do happen, either by accident or design, you’re that little bit more prepared. Plus, you can tell stakeholders you already thought through what would happen in this scenario and you can now put your action plan into use!
6. Historical risk data analysis
This tool is a bit harder but worth it if you can access data – and AI and big data is making it easier by the day to get your hands on data sets and the analysis of them.
What you do is review past projects (either from your own company or industry data sets) and identify what went wrong on those projects. Most risks we face aren’t brand new: they’re the same risks faced by other projects. The trouble is, mostly we don’t pay attention to past learning and plough on regardless. This is your chance to stop and learn those lessons, and put new ways of working into practice.
7. Lessons learned and post-mortem reviews
Historical risk data analysis and lessons learned from the bookends to your project. You do the historical review at the beginning, and you contribute to the success of future projects by doing the lessons learned at the end. This should improve future forecasting and risk management – you’ll thank yourself later!
Risk isn’t avoidable, but it’s manageable, especially with the right risk management tools. Whether you’re building skyscrapers or launching software, structured risk management tools help you act early, sensibly and decisively. Having tools to hand helps you turn risk into something vague and unknown into something you can track, plan and manage.