Even the most well planned project comes with risks. In fact, creating a risk-free project is virtually impossible. However, there are ways that you can minimize the risks that threaten your project’s success the most. An important step in doing so is to place your identified risks into categories. Creating and understanding risk categories in project management can help you identify more risks and use informed strategies to mitigate them.

What are Risks in Project Management?

According to the Project Management Institute, a risk is “An uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives.” Essentially, risks are issues that can arise before or during the project that can impact the success of the project in areas like the project’s budget, duration, and delivery. 

Why Are Risks Important to Consider?

Every project has negative risks that have the potential cause major disruptions. That’s why it’s so important for project managers to identify, categorize, and take steps to mitigate them. Before we get into how to identify risks, it’s important to understand the four most common risk categories. Doing so can actually aid you in identifying risks in your project.

The Four Most Common Risk Categories

There are four main risk types in project management: technical risks, environmental risks, financial risks, and organizational risks. Within those four risk types, there can also be smaller subset categories of risks- however, for clarity we’ll just focus on the four main categories for this article. 

1 | Technical Risks

Technical risks are what they sound like – anything that can go wrong with your software, hardware, and digital documents. For example, data breaches, data corruption, hardware breakdowns, platform incompatibility and more. 

*A great way to prevent technical risks from the beginning of your project is to ensure that you 1. Have user friendly project implementation software 2. You have staff or external vendors who can fix technical issues and 3. That you have proper devices for your staff that are updated and ready to use.

2 | Environmental/External Risks

Environmental/external risks are risks that can arise from outside of your organization. For example, shifts in government regulations, policies, and environmental standards that can impact your project. 

*Project managers should stay informed about such external changes and be ready to adjust the project as needed. Be sure to review local, state and federal regulations. You should also consider problems that may arise with your vendors, suppliers, and sub contractors in order to be prepared for every scenario. 

3 | Organizational Risks

Organizational risks are risks that can occur as a result of internal issues in your company. For example, changes in leadership, stakeholder priorities, and staff changes can all be an organizational risk. Even interpersonal issues in your team can constitute an internal risk. 

*To prevent organizational risks, it can be helpful to ensure you have the right amount of staff, communicate regularly with stakeholders, and have plans in place in case of a leadership change. In your smaller team, ensure proper communication channels and try to foster inclusion and trust to mitigate interpersonal challenges. 

4 | Financial Risks

Financial risks are risks related to your project’s finances. Issues with your budget, limited funding and resources can hinder project success, cause scope limitations and other project risks. 

*From the start of your project, you should monitor the project’s budget, track expenses, and make careful decisions about allocating your resources. 

Why Categorize Risks?

Categorizing risks is important because it can not only help you identify possible risks, the practice can also help you mitigate them. That’s because there are different strategies that you can employ to mitigate your risks depending on what categories they fall into. Plus, if you don’t categorize your risks you may unintentionally use improper or overlapping mitigation tactics that can slow down your project. 

Identifying Risks

Now that you understand the four main types of risks, you can begin to identify your risks and which category they belong in.

  • To identify your risks, you can begin by getting the whole team involved in brainstorming what risks may impact the project. Each person on your team will bring different expertise and awareness that can diversify your list of possible risks. You may want to consult people both inside and outside of your organization like IT, entry level staff, and even customers. The key is to gain perspective from a variety of sources to unearth all possible risks. 
  • Once you have exhausted your list of potential risks, you should try to place them in one of the four main categories listed above. If the four main categories don’t quite cover your risks, you can create other subcategories that make sense for you.
  • It can be helpful to go through the main categories as you are brainstorming possible risks to create an even more comprehensive and focused list. This may also lead you to discover that many of your risks occur in one specific category. This can be helpful as it can help identify larger problems in your project that if solved, can eliminate recurring risks. For example, if you find that most of your risks fall into the financial risks category, you may be able to fix a larger problem with your budget that can eliminate a lot of your risks. 

Strategies to Mitigate Risks

Assign a Lead to Each Risk

After you have identified and categorized your risks, you should assign someone to track each risk. This person, “the lead” should ideally have intimate knowledge of the area of risk and the ability to track and manage it effectively. 

Avoid Risks Where Possible

Of course, the best strategy to manage risks is to avoid encountering them altogether. In the planning phases of your project, you can take actions to avoid risks by changing the project plan, reallocating resources, etc.

Transfer Risks

Sometimes you can transfer your risks onto a third party – for example, an insurance company or a subcontractor.” This can lessen the burden for project managers and ensure that risks are handled by professionals with appropriate experience. 

Reduce Risks

Take actions to reduce your risks. This can be done through robust budget tracking, quality control processes, inspections, and more. 

Accept Risks

You can’t completely avoid all risks. After you’ve done everything you can to avoid, transfer, and/or reduce risks, you can accept that your project will carry some risks. For unavoidable risks, you’ll want to use risk management strategies to ensure they do not severely disrupt your project.

Summary

Understanding risk categories in project management can aid you in identifying and mitigating risks that would otherwise derail your project. Risks are an inherent part of any project, but you don’t have to face them blindly. By identifying and categorizing risks, you’ll find that you are better able to manage and even eliminate harmful project risks.

 

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