All projects, no matter how meticulously planned, are exposed to the effects of risk. While you may not be able to predict the future with total certainty, there is a framework you can build to mollify any nasty surprises you might face during a project.
Risk modeling helps you identify, analyze, and mitigate risks so you're prepared to deal with them should they occur. These 4 reasons explain why creating a risk model is an essential first step for successful project management.
1. You Can't Plan for What You Don't Know
To avoid going into your project blindfolded, you must identify any risks it may encounter. Risk identification is the continuous process of distinguishing events that could positively or negatively impact outcomes throughout the project life cycle.
Creating a risk register as part of your risk modeling framework is akin to laying all potential scenarios out in front of you, ensuring you're well-aware and well-prepared to tackle any eventuality.
It's important at this early stage to be practical and upfront about the risks you might face. If you feel that organisational issues could impact the project, for example, these need to be documented in the risk register – regardless of whether this will risk upsetting senior management.
It's only once you know exactly the types of risks you can expect to face that you can start the project in earnest.
2. Better Communication With Organization and Stakeholders
An honest and free-flowing exchange of communication between all parties is crucial to your project's success. And everyone should be kept up-to-date about developing risks during each phase of the project.
The significance of this open disclosure of risk can't be overstated, with a majority of risk managers agreeing that communicating hazards clearly to stakeholders is the most important task they face.
Christopher Donohue, Managing Director of Research for the Global Association of Risk Professionals said it best: "Effective risk management is not confined to understanding, modeling, or testing risk – but in being able to communicate risk and its impact on the business."
Building a risk model can ensure the project management team, organizational executives, and project stakeholders are all aware of potential risks from the outset. It's also a useful tool when it comes to defending the decisions you make during the risk management process.
Trying to remedy the negative impacts of a risk reactively rather than proactively will give stakeholders the impression that you're making things up as you go along – severely damaging your business relationship, integrity, and reputation.
3. Increase Organizational Risk Maturity and Assign Clear Responsibilities
Drawing up a risk model will undoubtedly boost your organization's risk maturity. After all, failing to have a robust risk model in place will position you at the bottom of the risk maturity ladder. In a market saturated with risk-immature companies, having an established risk modeling culture in place will set your business apart.
A portion of this maturity develops out of defining clear roles and assigning responsibilities during the risk modeling phase. This will help you avoid having to play the dreaded 'blame game' if risks materialize.
It's more important to get to work remediating the negative consequences of risk than wasting time pointing fingers, and a risk model will make certain this happens.
4. Increase Likelihood of Meeting Expectations
Implementing an effective risk model can improve your chances of successfully delivering a project on time and on budget. This is because once all risks have been carefully assessed, you can make more accurate project estimates – both in terms of scope and finances.
If your risk model suggests that a project is going to come up against impactful and probable risks, it makes sense to inform stakeholders and set honest scope expectations. The bidding process for projects is inherently competitive, but with large projects typically running 20% overtime and 80% over budget, it's likely that your truthfulness will pay dividends.
Setting overly-optimistic expectations with stakeholders is simply bad business, and a clear sign that your risk model is not as comprehensive as it should be.
While there's no tool that can replace professional, experienced judgement, a robust risk model will be an invaluable tool throughout the project life-cycle. Having foresight of potential risks will allow you to be prepared, be honest with stakeholders, and avoid large budget and scope overruns.
To learn more about achieving project success, download our free guide today.