A Practical Guide to Risk Management

· · project-management

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What would happen if 20% of your employees got a better offer from your competitor and left? Or, if you got hacked and lost all your files? 

These things happen unplanned. But, there is a way to lessen their impact, even prevent them from happening.

It’s simple - all you have to do is make a list of all the things that could go wrong, define their impact, and make a backup plan.

Think of yourself as Ebenezer Scrooge from “A Christmas Carol” that gets a rare opportunity to see the future and become a better person before it’s too late.

How to approach risk management

The whole point of the activity is to think about all the bad things that could happen and be prepared in case they do.

Don’t get attached to making the spreadsheet pretty. You don’t need an exhaustive but ultimately useless list. The point is to get your mind going and letting your thoughts simmer and work in the background. The document itself is irrelevant; what’s relevant is the journey.

Start by outlining types of risk and coming up with things that could go wrong, like:

Technical

  • Site is down due to DDoS
  • New version of Ruby breaks your app
  • Wifi is down for a whole day
  • Your presentation doesn’t work on older machines

Clients

  • Client pushes for earlier deadline
  • Client doesn’t likes your work
  • Client decides to completely change the project
  • Your key client left you

Employees

  • You can’t hire new employees on time
  • New employees don’t have the right skills
  • A key member leaves
  • Employees ask for remote work

Legal & Finance

  • You forget to renew the office lease
  • You get sued for copyright violation
  • Invoice isn’t paid on time
  • A legal agreement takes longer than you think
  • You don’t qualify for tax exempt no more

Contractors and Suppliers

  • A contractor doesn’t respond to email
  • They charge more than agreed
  • They don’t deliver on time
  • They’re work is not as good as you thought

Work

  • The initial estimate is way off
  • You lose all your files
  • Project scope got bigger
  • Defects are found before shipping
  • Not enough resources

Next, assign a probability to each risk:

  • 1 - there’s a theoretical chance but nothing to worry about
  • 2 - could happen, but won’t hold my breath
  • 3 - better to cover my bases
  • 4 - highly likely, must have plan B
  • 5 - seriously need to reexamine my business

Then, assess the severity should the risk happen and the impact it’ll have on the business:

  • 1 - a slight bump in the road
  • 2 - no need to panic, we’ll manage
  • 3 - tense workplace and lots and lots of overtime
  • 4 - only a miracle can save us
  • 5 - prepare documentation to file for bankruptcy

Calculate each risk score by multiplying probability and severity. Then apply conditional formatting so you can see at a glance what your highest risk is.

Finally, think about what would be the best thing to do if a risk occurs. Write what you’ll do to avoid the risk and lessen the impact should the risk occur.

An example of a risk management spreadsheet

(Download the risk management template here.)

Risk prevention

By thinking about all the possible things that can go wrong, you begin to spot your weaknesses and can work on preventing them:

  • There’s a real possibility you’ll catch a virus and lose all your documents? Make a recurring task in Active Collab that’ll remind you to backup files every 1st of the month.
  • Client refuses to pay unless you can show them where each minute went? Start encouraging your team to track time and writing a short note, indicating what they did.
  • Your team is spread too thin and you can’t finish projects on time? Start your day by checking the Team Timeline report so you can see how much work each team member has.
Risk management won't help you if you treat it like another to-do. Instead, think of it as a unique opportunity to save your business before it's too late.
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