Project risk management strategies for dealing with threats and opportunities are essential because they help project managers minimize project threats while maximizing opportunities. So, in this article, we’ll discuss project risk management strategies needed to deal with threats and opportunities.
Table of Contents
What Are Project Risk Management Strategies?
Project risk management plays a vital role throughout the project life cycle. Accordingly, it aims to minimize project threats while maximizing project opportunities. As a project manager, you can use project risk management strategies as a technique during the plan risk response process. So, team members should proactively identify project risks (individual and overall project risks) throughout the project to avoid or mitigate the impact of threats or maximize the impacts of opportunities. Both threats and opportunities have a set of possible response strategies that can be planned for execution should the risk occur.
Accordingly, project risk management strategies help project managers deal with threats and opportunities in any project. So, let’s explore the risk management strategies needed to minimize project threats and maximize project opportunities.
Strategies for Dealing with Threats
A threat is an uncertain event or condition that has a negative impact on the project objectives. As a project manager, you are responsible for minimizing those threats using appropriate tools and techniques. Here are five strategies that may be considered for dealing with threats.
Risk Avoidance
Avoidance is the crucial strategy for dealing with threats if they occur in the project. Accordingly, using avoidance will help project team members act to eliminate the project threat or protect from its negative impacts. Furthermore, avoidance may involve changing some elements of the project management plan or the objective. However, The risk owner may take action to protect the project objectives from the risk’s impact if it were to occur. Here are some examples of the avoidance actions.
- Changing the project strategy
- Extending the project timeline
- Reducing the project scope
But keep in mind! Some risks can be avoided by improving communication, obtaining relevant information, or clarifying requirements.
Risk Escalation
Escalation strategy is suitable when the team members or sponsor agree that the threat is outside the scope of their project or that the proposed response would exceed the project manager’s authority. Escalated risks are not managed on the project level because they should be managed at the program, portfolio level, or other appropriate parts of the organization. Furthermore, project managers determine who should be informed about the threat and communicate the details to that person or part of the organization. However, ownership of escalated threats must be accepted by the relevant party in the organization.
However, escalated threats are not monitored further by team members after escalation, although they may be recorded in the risk register for information.
Risk Transfer
Transfer strategy means shifting ownership of a third party to handle the risk and to bear the impact if the threat occurs. Typically, this may involve payment of risk premium to the party taking on the threat. However, transfer can be achieved by a range of actions as follows.
- Performance bonds
- Warranties
- Guarantees
- Insurance
However, keep in mind! Agreements may be used to transfer ownership and liability for specific risks to another party.
Risk Reduction
In risk reduction, project managers should take action to mitigate the probability of occurrence or impact of a threat. Furthermore, risk reduction may depend on the fundamental principle that earlier the action taken to decrease the probability or impact of a risk is more effective than typing to repair the damage after the threat has occurred, for example, the introduction of a quality management system to minimize the manufacturing defects of products.
With this strategy, project managers can adopt measures and tactics to help them handle risk more effectively. Therefore, risk reduction may involve prototype development to measure the risk level.
Risk Acceptance
If there is a threat, but won’t proactive action is taken. So, this strategy is suitable for low-priority threats. Risk acceptance can be passive or active acceptance. Accordingly, the active acceptance is to establish a contingency reserve. Typically, this may include the amount of time, money, or project resources to manage the threat if it occurs. Passive acceptance involves no other action apart from a periodic review of the threat to ensure it does not change notably.
Strategies for Dealing with Opportunities
An opportunity is an uncertain event or condition that can positively impact the project objectives. For instance, An opportunity could be a time and resources-based subcontractor who finishes work early, resulting in schedule savings and lower costs. As a project manager, you should use strategies because they will help you maximize the opportunities in your project. Here are five strategies that may be considered for dealing with opportunities.
Exploit Opportunity
The exploit is another vital strategy for dealing with opportunities. So, this strategy can be selected for high-priority opportunities where the organization needs to ensure that the opportunity is realized. Furthermore, the exploit strategy seeks to identify the benefits associated with a particular project opportunity by ensuring that it actually happens, enhancing the probability of occurrence to 100%. For example, use the new technology upgrades to reduce cost and duration.
Escalate Opportunity
Escalation is another vital strategy for dealing with project opportunities. So this is suitable when the team members or sponsor agree that an opportunity is outside the scope of their project or that the proposed response would exceed the project manager’s authority. Escalated opportunities are not managed on the project level because they should be managed at the program level, portfolio level, etc. However, ownership of escalated opportunities should be accepted by the relevant party in the organization. Furthermore, escalated opportunities are not monitored further by the team members after escalation, although they may be recorded in the risk register for information.
Share Opportunity
With this strategy, project managers can transfer ownership of an opportunity to a third party. Accordingly, it shares some of the benefits if the project opportunity occurs. Furthermore, it is crucial to choose the new owner of a shared opportunity carefully because they can identify the opportunity for the benefit of the project. Here are some examples of sharing actions.
- Joint venture
- Forming risk-sharing partnerships
- Special-purpose companies
Improve opportunity
With this strategy, project managers can maximize the probability or impact of an opportunity. Typically, early improvement action is more effective than trying to enhance the benefit after the opportunity has occurred. However, the probability of occurrence of an opportunity can be increased by focusing attention on its causes. Instances of improving opportunities include adding more project resources to an activity or tasks to completed early.
Acceptance Opportunity
If there is an opportunity, but won’t proactive action is taken. Therefore, this strategy is suitable for low-priority opportunities. Risk acceptance can be passive or active acceptance. Accordingly, the active acceptance is to establish a contingency reserve. Typically, this may include the amount of time, money, or project resources to take advantage of the opportunity if it occurs. Passive acceptance requires no other action apart from a periodic review of the opportunity to ensure that is doesn’t change significantly.
Conclusion
Risk management strategies are crucial because they help project managers to deal with threats and opportunities in their projects. Accordingly, risk avoidance, escalation, transfer, reduction, and acceptance are strategies for dealing with threats. On the other hand, exploiting, escalating, sharing, improving, and accepting are strategies for dealing with opportunities.
