90% of startups fail within the first 5 years. The reasons behind that standard are up for debate, but it is fair to assume that a big part of it comes from a lack well-developed systems.
Among them, are concepts that relate to project management. For the successful 10%, knowing how to overcome its initial challenges and struggles is simply a matter of designing a well-functioning project management strategy. And that includes remote-friendly planning, given the uncertain period that we are currently going through.
But with great importance comes great risk too. And, when it comes to startups, there are many different types of risk in project management that you will need to keep in mind. In this article, we will break them down and help you prevent them from occurring.
Types of risk in project management
Before discussing the types of risk in project management, it’s important to give a contextual definition. In short, a risk is an event or action that could negatively affect the outcome of the project.
While there are quite a few risk categories in project management, they are typically split into 3 vital types that you need to remember:
1. BUDGET RISKS
Financial risks represent the possibility that the budget estimates within the project turn out to be inaccurate. Typical examples of budget-related risks include:
- Unplanned additional costs to complete a project
- Client(s) asking for additional services
- Third parties failing to carry out their share of responsibilities
- A project ending up being over budget due to the project manager’s poor estimation
- More manpower required to meet the project’s deadline
Budget risks are always present and need to be accounted for. That being said, these risks are relatively easy to prevent when planning properly. An easy way to reduce the risk of a project going over-budget is to simply estimate its cost to be 10% more than your initial assessment.
2. TIMING RISKS
Another important type of risk in project management is the risk of not meeting deadlines. If a project ends up taking longer than expected, it can result in severe consequences and disappointed clients. Not to mention that most missed deadlines come with an extra cost – resulting in an increased financial risk.
Similar to the budget risk, scheduling issues can often be out of one’s control. However, there’s also a possibility that team members fail to meet deadlines provided by the project manager. In that case, it’s crucial to take actionable steps and prevent the event from further damaging the startup.
To mitigate time-related risks in project management, you could take the following actions:
- Be very specific in the task outlines to ensure there’s no confusion within the team. You can organize meetings with your team to decide the best approach for doing this.
- Create an SOP document for new employees and/or freelancers.
- Include some time-related flexibility within the project’s scope.
- Organize reviews on a regular basis to understand why certain issues occur. Then, try to streamline your communication efforts to prevent the issues from happening again.
3. PERFORMANCE RISKS
The third most common type of risk in project management is that of performance. We see this happening often when the results of a project do not meet the expectations set beforehand.
Performance risk is especially important in startups, where a group of people (or even a single person) have key responsibilities within the team. In many cases, a small setback can snowball into a real problem that spans across different departments.
Here’s how you can avoid performance-related risks:
- Discuss the solutions as soon as an issue occurs to ensure the problem has minimal consequences on the outcome of the project.
- Make sure that the employee or freelancer that is assigned a particular task is both certified and qualified to complete it.
- If multiple departments are involved in the completion of a (high leveled) tasks, it might be a good idea to organize regular progress meetings on predetermined timeframes.
OTHER RISKS TO KEEP IN MIND
Aside from the 3 most common types of risk in project management, there are a few more that you should keep in mind:
- Legal risks - e.g. breach of contract, or unexpected litigation against the startup.
- Technical risks - e.g. a sudden performance issue of essential software.
- Market risks - competition-related issues, differences in foreign exchange and interest rates, etc.
- External hazards - natural disasters like fires, earthquakes, floods, etc. Remote-based organizations will most likely not be affected by such setbacks.
- People-related risks - a client may simply decide to stop collaborating with you, resulting in a contract breach. The same can be said about an employee that either doesn’t want or is not capable to keep working on a project.
These risks are usually hard to predict and, as such, there’s not much you can do about them. It’s best to pick your battles and concentrate your efforts on the events that are most likely to occur in your company.
Another thing you need to keep in mind is that project management risks are often interconnected. For example, if a decline in performance occurs you will need to take the time to mitigate and resolve the problem, resulting in a higher schedule risk and potential budgeting issues.
Are all risks bad?
We mentioned that risk in project management can affect the outcome of your project. However, not all risk is bad. While negative outcomes require immediate attention, there is such a thing as a positive risk in project management as well.
Here are some examples:
- You might discover that a particular piece of software allows you to quickly complete parts of the project that would normally take longer.
- A project ends up finishing under budget, usually due to the miscalculation of the project manager.
- Your team might finish a project earlier than expected.
- Policy or regulatory changes positively affect the growth of your product.
Mitigating project management risks
Now that we’ve briefly discussed the different types of risk in project management, it’s time to learn how to concentrate your efforts to ensure the best possible outcome. Consider the following points:
1. PLAN AHEAD
The simplest, yet most effective way to decrease the possibility of an unfavorable event is to include risk management calculations into your project(s). This can be done by creating a risk mitigation monitoring and management plan.
Just a few years ago, the Project Management Institute conducted a study to understand the effects of proper risk aversion. They discovered that a whopping 83% of successful organizations have some form of repeated risk management system, as opposed to just 49% of their under-achieving counterparts. These findings illustrate a clear connection between the success of a startup and its ability to manage and mitigate risk.
2. COMMUNICATE EFFICIENTLY
Effective communication is very important within a business environment, especially for remote teams. By incorporating different parties and/or departments into the risk management process you will be able to get a clear picture of everyone’s needs and responsibilities.
The best way to do this is by creating a comfortable and accepting team environment, where each person can speak up on the potential issues within their scope. Brainstorming sessions can help as well, since your team may discover risks that you may have overlooked.
Naturally, achieving success requires a strong team with a communicative dynamic. With more and more people working from home, exchanging ideas is significantly harder to achieve. To improve communication and productivity, consider investing in remote project management tools.
3. UNDERSTAND THE RISK MANAGEMENT LIFECYCLE
All risk management goes through a simple 5-step process:
- Identifying the events that could lead to a negative outcome;
- Assessing the likelihood of such events happening and what consequences they may bring;
- Treating the risk using specific risk mitigation strategies;
- Monitoring the risk to ensure it doesn’t scale further;
- Reporting the risk at every stage of the lifecycle.
Make sure to also watch the following video to gain additional knowledge on some of the best risk aversion practises and their planning.
If you made it this far, you should understand the importance of project management and the risks it can entail. To sum up, here are the points you should remember:
- Project management is a key element of every growth strategy. Due to this, it’s important to be aware of its risks and plan ahead to mitigate them.
- The three most common types of risk in project management are those related to finances, scheduling, and performance.
- Risk management can play an important role when it comes to the performance and productivity of a startup team.
- Using effective communication strategies in remote-based teams lowers the risk potential within projects.
All in all, any business venture comes with its fair share of risk. However, when planning ahead and establishing a well-developed system, you should be able to navigate through potential dangers with relative ease and not stress over small details.