Types of Project Management Risks And Ways to Mitigate Them

In every project, some risks are inevitable. When they arise, you need to understand mitigation measures that you can use to address them. This helps you keep the project on track and set realistic expectations with all stakeholders involved in the project. 

There's a lot to discuss regarding identifying and mitigating risks. This article will help you identify different types of risks and ways you can minimize them. Take a deep dive into the article to see if you really need to mitigate all the risks.  

Identifying risks in project management

Some project management risks are easy to spot, and some are tricky. For instance, predicting technological or regulatory changes is more challenging than identifying a project going over budget. 

Tools help identify these risks effectively. For example, a risk register records each risk and details its likelihood, impact, and possible mitigation methods. It makes risk identification and mitigation more organized and systematic. 

Project management professionals also use a risk assessment matrix, a 3x3 or 5x5 grid that categorizes risks by likelihood and impact. This matrix helps them prioritize and assign mitigation tasks for their teams. 

Strength, weakness, opportunity, and threat (SWOT) analysis isn’t new. You can use it to understand a project’s internal and external factors that aid in making decisions. However, these are some techniques you already know. 

What if risks are more complicated to identify? 

In such cases, consider using:

• Monte Carlo analysis runs several simulations to predict outcomes and identify potential roadblocks. 
• The Delphi technique gathers expert opinions and uses the consensus to make informed decisions. Professionals leverage expert insights to identify and mitigate risks effectively when there is a lot of uncertainty, complexity, or controversy about risks involved in a project. 

Types of risks in project management

There are project-level risks and business-level risks. Both have smaller sub-categories, such as financial, strategic, performance, or external. Project-level risks affect a project's daily operations. They can be budgeting issues, resource management challenges, or scheduling conflicts impacting project outcomes. 

On the other hand, business-level risks affect multiple projects or the entire business. Such risks relate to prioritization, governance, customer satisfaction, or workforce issues. You need an overall risk management plan to address them. 

Let’s break down these risks into different sub-categories. 

• Financial risks include rising material costs, unrealistic budgets, higher-than-expected time, or labor requirements. Failure to secure funding or lower sales numbers also falls under this type of project management risk. 
• Strategic risks relate to a project’s strategy, including methodology, planning, daily operation, company culture, investments in tech, and retention rates. The Project Management Body of Knowledge (PMBOK) classifies strategic risks into short-term and long-term risks. The former affects project owners in the lifecycle or immediately after a project ends. Long-term strategic risks relate to a project’s goals and outcomes.  
• Performance risk covers overall project performance. It includes unrealistic deliverables, poorly defined KPIs, outdated market research, and underperforming product lines. Some projects have emerging requirements that change during project planning, adding performance risk for the whole project. 
• External risks come from less predictable sources. They can be employee illness, weather events, legal decisions, market volatility, or supply chain risks. They can directly affect project performance and business outcomes based on severity.
• Operational risks usually come up in the later stages of a project when challenges related to completing deliverables appear. These risks involve issues related to people, internal processes, software systems, or external events that influence a project's timely completion. 
• Market risks involve commodity markets, foreign exchange rates, interest rates, company liquidity, and competition. They are hard to mitigate because they can change quickly and are often beyond one's control.
• Scheduling risks occur when tasks take longer than expected. These risks can lead to financial risks and other issues, like losing competitive advantage or having problems with suppliers.
• Governance risks relate to the actions of executive-level board members and managers. They are usually easy to manage through continuous stakeholder engagement.
• Legal risks stem from legal, contractual, or regulatory obligations. They come from laws, regulations, competitors, and even employees or customers.
• Project deferral risks occur when a project is not completed. These risks often result from other risks, like operational or scheduling risks. Limited timeframes can make it hard to finish a project later, so it's crucial to complete projects on time.

Examples of project risks and how to manage them

Below are a few major and common project risks you’ll encounter in a PMO role. 

Scope creep

Scope creep involves growing expectations for a project’s requirements after it begins. You can combat it by documenting every discussion you have with stakeholders and regularly reviewing these discussions and decisions with your team periodically. 

However, documentation is easier said than done. You can’t be scribing notes like a machine line-by-line in meetings while expecting to be 100% involved in discussions. Moreover, sending complete transcription or video recordings to your team doesn’t effectively solve the purpose of documenting and keeping everyone on the same page. 

Why? 

These long recordings and transcription enter the back burner when it lands in your stakeholder's inbox. You need a better way to take down highlights and meeting minutes without making comprehensive word-for-word notes. 

Reelay’s corporate AI meeting assistant solves this and sends a comprehensive yet precise meeting minutes document after the meeting. It automates note-taking with AI and lets you focus on meaningful discussions. 

An example of Reelay’s meeting minutes shared over email. 

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Reelay shares an even more comprehensive Google Docs file that summarizes meeting minutes. Use Reelay in your meetings to get a comprehensive meeting minutes document for every discussion the assistant joins. 

This helps you communicate any changes requested to relevant team members, who can adjust the project’s plan accordingly while managing expectations. 

Going over budget

Budget overages threaten the financial health of the entire business. They can happen due to poor planning, leading to overspending on materials, labor, or other necessary items.

Let’s take a situation. Imagine a company that plans its project expenses perfectly but forgets to account for emergencies. Halfway through the project, a mistake requires redoing some work. Because the project managers didn’t plan for this, no money is left to fix the error. The project will cost much more, and employees must work longer hours.

You need to start with a realistic budget projection, followed by detailed research and planning to account for any unprecedented changes in the project. It’s advisable to always leave some room for emergencies. 

Improper resource management

Employee attrition affects a project, making it harder to plan and realistically allocate people to projects. When it happens, allocating the remaining resources to the project further stresses out the people working with you. 

These conditions make it challenging for project managers to effectively create a resource allocation matrix that will be relevant (with minimum changes) throughout the project. 

You need your workforce to be satisfied and well-compensated to keep working with you. This will empower you to control project disruptions, giving you better chances of minimizing unprecedented losses. Moreover, you must manage them properly and keep some in reserve for emergencies. 

Apart from these major risks, a few common ones impact a project. Here are ways to manage them

• Low sales performance. To mitigate low sales performance, perform in-depth market research before starting a new project. Ensure your offerings match customer demand and are priced appropriately.
• External hazards. Anticipate what you can and have an emergency fund and insurance for what you can’t predict.
• IT risks. To mitigate data losses, regularly back up data and keep systems up to date. Train staff on equipment and application use, and consider hiring an IT expert for larger companies.
• Construction risks. Ensure all legal needs are met and adjust plans to avoid surprises.

Do all risks really need mitigation? 

All risks are not equal. Tackling an internal risk, for example, involves a much different process than mitigating an external risk. 

Conduct these checks and employ relevant approaches when you encounter a risk in project management. 

• Avoid. Risk avoidance is an approach to avoiding risks whenever possible. For example, if a task is too risky, you might decide not to do it. However, some risks are unavoidable and require other strategies.
• Retain. The risk-retention approach is used when the risk’s impact is minor or when accepting the risk prevents additional risks later. For instance, if a minor delay is expected, you can plan around it without significant disruptions.
• Share. Sometimes, you can share risks with another company, team, or individual. For example, you might outsource IT operations to share technological risks. This way, both parties handle the risk together.
• Transfer. You can transfer some risks to another party. For instance, insuring raw materials for a construction project transfers the risk to an insurance company. If something goes wrong, the insurance covers the loss.
• Reduce. Use risk reduction when a risk is unavoidable. Take steps to reduce its potential impact. For example, if a project delay is likely to occur, you can plan additional resources to speed up other project parts. Make sure to reflect this reduction in your risk assessment matrix. 

However, if the risk on your plate is too risky to avoid, retain, share, transfer, or reduce, follow these best practices to manage it effectively in your projects.

• Adopt Agile. Use project management strategies that handle risks well. For example, Scrum is all about risk management. It helps manage high-risk projects by breaking them into short, pre-defined periods called sprints. Agile sprints allow teams to focus on specific tasks and deal with issues as they come up.
• Quantify risk effects. Different risks have different costs. Attaching real-time data or specific costs to risks makes it easier to prioritize mitigation and communicate their severity to stakeholders. 
• Encourage communication. Ensure communication flows both ways. Do not punish people for bringing up issues. Communicate potential risks to project sponsors as soon as they’re identified. It’s advisable to involve key leadership in projects to provide reassurance and create an ownership mindset.
• Stay organized. Visualizing different phases of the project is important for effectively identifying, tracking, and managing project risks. Project management software can help. Many tools allow you to expand the view to look at the project from a higher level, helping you foresee risks before they arise. 
• Be proactive. Address project risks proactively rather than reactively. Make risk assessment a part of your project plan that you revisit periodically. When you identify and catch problems early, they’re less expensive to fix. 

Identify and mitigate risks effectively

It’s a team effort, not an individual's job. 

When you’re in the project planning or scheduling phase, bring the whole team together to ensure everyone is on the same page.  There might be time zone differences or other challenges with stakeholders' availability. Equip your team with Reelay to keep them informed and updated about highlights, action items, and other important decisions without them being present on calls. 

When convenient, they can revisit the entire conversation or skim through the takeaways to highlight their perspective on potential risks in an async manner.

It ensures risks don’t go unnoticed by your team, and you can proactively plan their mitigation. 

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Learn more about Reelay and how it can help you cultivate a more productive meeting culture. 

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