Project management encompasses a wide range of activities in which everyone involved in the task strives to achieve a common goal. Risk management is one of those activities, and it refers to the identification, assessment, and response to any events that could adversely affect the project.
On the other side, there are issues – problems that have already arisen and are inhibiting successful project completion. And the difference between risks and issues is vital throughout the project management process.
To make the right decisions and let the project flow as planned, it is essential to understand the risks and how they differ from issues. Let us take a closer look at the definition of each term and find out how they influence key project management processes.
What Is a Risk?
In project management, a risk is an uncertain event or condition that, if it occurs, could impact the project’s objectives. Although the name might suggest otherwise, risks are not necessarily harmful – they can also benefit the project, like the emergence of a new technology that could make the project cheaper or easier to complete.
Risks can come from many different sources, from the project environment, team members, clients, or any other external factors that show the potential to alter the project’s outcome. The critical task for every creative project manager is to identify risks early on and devise a plan for how to respond if they occur.
Types of Risks in Project Management
Depending on the type of business or project, the risks will vary – for an SEO link-building agency, like Amplifyed, a change in Google’s algorithm might affect the entire industry. While for an automotive company might be a new regulation prohibiting using specific materials in car manufacturing.
The common risk types can be classified into:
- Technical risks – it’s safe to assume that your project relies at least to some extent on technology. Technical risks can include problems with the software you’re using to hardware failure.
- Organizational risks usually arise due to issues within the company, like changes in the management team or company culture. This also includes external factors like mergers, acquisitions, or company ownership changes.
- Market risks – these are connected to anything that might happen in the market, whether it be a change in the customer’s needs or a new competitor entering the market.
- Operational risks – Suppliers’ inability to deliver material on time or unexpected changes in the production process can lead to operational risks. Human and material resources can also pose a risk if they’re not managed properly.
- Financial risks – everything connected to the project’s funding, from changes in the interest rates to problems with attracting investors, can be classified as financial risks.
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What Is an Issue?
Unlike risks, which are potential problems that might occur, issues are actual problems that have already arisen and need to be addressed. Issues can occur at any stage of the project, and they threaten the successful completion of the project goals.
The obstacle an issue presents can vary in severity, from a minor hiccup that can be quickly patched up to a significant setback that completely halts progress. With that, it puts risk management strategies to the test, as ignoring the issue may lead to even more significant problems.
Types of Issues in Project Management
It’s safe to assume that most issues come from risks, assessed or not, that have materialized. One way to categorize them is by means of their occurrence:
- Internal issues – communication gaps, conflicting goals, and team members not pulling their weight are only some of the internal problems that can lead to issues. Team members should be well-versed in the project management process and their role in avoiding misunderstandings.
- Time-related issues – these include anything from delays in project tasks to missed deadlines. A clear and achievable timeline is crucial for every project, as it sets expectations and gives everyone involved a reference point.
- Cost-related issues – going over the budget is one of the most common problems project managers face. Yet, as long as it is manageable and doesn’t jeopardize the project, the occasional cost overrun is not necessarily an issue.
- External issues – anything from political instability to bad weather can become an external issue if it disrupts the project. Preparing contingency plans for such events is the best way to minimize their impact on the project.
Key Differences Between Risks and Issues
When planning a project, keeping the differences between risks and issues in mind is essential, as you should plan your risk management strategy and issue response differently. The key differences are:
- Inevitability – risks concern events that may or may not occur, meaning that you can keep your hopes up that they won’t happen. However, if you stumble upon an issue, it means that the problem has already occurred, and you need to take action.
- Severity – risks can be either positive or negative for the project, while issues are always negative. Risk can present an opportunity for the project, while a problem will always be a hindrance. The outcome of solving an issue may still be beneficial, albeit it may take more time and effort.
- Response – the goal of risk management is to be proactive and prevent risks from happening (if possible) while dealing with issues revolves around solving the problem to return the project to its original state.
Risk monitoring also plays a significant role in the early identification of issues, as it allows you to keep track of all possible adverse events and their likelihood of occurring. This can prove to be quite a costly and time-consuming endeavor.
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Risk and Issue Documentation
When designing a project, it is important to take risks and issues into account – and risk registers and issue logs are two of the most common tools used to document them. Both should include data relevant to the project at hand and be updated regularly.
A risk register is a list of all risks identified during the project and complete descriptions of the given risks, expected impact, and contingency plans. On top of that, the register is also used to track the status of each risk, from identified to mitigated.
On the other hand, an issue log is a list of all events that inhibited or are currently inhibiting the project’s smooth flow. It includes a description of the issue, the date of its occurrence, an assessment of its impact, and the steps and actions taken to resolve it. Solved issues are also kept in the log for future reference.
Assumptions and Constraints
Besides risks and issues, project managers must also be aware of assumptions and constraints. Both conditions still need to be verified but are treated as accurate when planning the project.
Assumptions make calculations more accessible, for instance, when you need to estimate the project’s budget but don’t have all the information yet. Constraints are limitations that impact the project, like a limited budget or time frame.
Those two are relevant when planning the project but can quickly become issues if they’re not managed properly. At the same time, acknowledging them early on can help you plan your project better and avoid potential pitfalls.
Project Assumption and Constraint Types
Assumptions and constraints, just like risks and issues, can be based on different factors and, as such, can be classified into several categories:
- Project assumptions – any form of speculation in project management that stems from the nature of the project itself. This can include the client’s needs to the team’s skills.
- Market assumptions – anything that has to do with the market conditions, i.e., the current state of the industry and its trends. Such beliefs have to do with the viability of the project and its potential for success.
- Technical constraints – on paper, the project might seem perfect, but certain technical limitations (like outdated software) can make it difficult or even impossible to execute.
- Business constraints – related to the state of the organization, from project resources to company culture. This type of constraint often impacts the project’s outcome as it can be hard to change.
How to Identify Risks
The primary goal of risk management is to prevent risks from happening or at least minimize their impact if they do occur. To achieve that, you need to identify risks early on and devise a plan for how to respond if they occur.
But the question of how to identify risks is not as simple as it might seem. There are countless factors that can impact the project, and it’s impossible to predict them all. Not to mention that, even if you could, some of them would be so unlikely that spending time and resources on preparing for them would be a waste.
There are, however, some methods that can help you narrow down the list of potential risks:
- Brainstorming – get the project team together and try to come up with all the potential risks that might occur. This is a great way to get everyone involved in the risk management process and ensure that no stone is left unturned;
- Historical data – if your company has been working on similar projects in the past, try to identify the risks that occurred then and see if they’re relevant for the current project;
- SWOT analysis – this is a business strategy tool that can be used to identify both internal and external factors that might impact the project. It takes into account Strengths, Weaknesses, Opportunities, and Threats;
- Interviews – talking to people who are familiar with the project (clients, suppliers, etc.) can give you valuable insights into potential risks that you might have missed.
Early Warning Indicators
Proactive risk identification methods come with their own set of challenges – while some risks can be quite easy to predict, others are impossible to anticipate. Yet, there is a series of early warning indicators that can give you a heads-up that something might be going wrong and require your attention.
This greatly depends on understanding the critical success factors of your project, that is, being able to assess the project baseline and the progress made against it on a regular basis. Poor project definition, constantly changing scope, and other management incapability are some of the most common early warning indicators of project failure.
Approaches to Risks and Issues
It is safe to assume that every single risk or issue is unique and, as such, requires a different approach. However, there are some general risk management strategies that can be used in most situations. The five most common approaches are:
In some cases, it might be possible to avoid the risk altogether by changing the way the project is being carried out. For example, if there’s a risk that a certain material won’t be delivered on time, you can switch to another supplier or find a different material that can be used instead.
If avoidance is not an option, the next best thing would be to try and mitigate the risk. This means that you take action to reduce the probability of the risk occurring or lessen its impact if it does occur. For example, if there’s a risk of bad weather disrupting the project, you can put together a contingency plan that would allow the work to continue in the event of strong winds or heavy rain.
It might be possible to transfer the risk to another party that may be better prepared to deal with it. For example, if you’re working on a project that requires specialized equipment, you can rent it from a company that focuses on such things instead of investing in it yourself.
Chances are that the risk is not as severe as you initially thought, or the probability of it happening is so low that it’s not worth taking any action. In such a case, the better course of action would be to simply accept the risk and move on, including the potential impact on your project budget.
The risk or issue you are facing often can be divided into smaller, more manageable parts. This way, you gain more information about the problem and can better assess the best way to deal with it. With that, you also find precise points where you can intervene to prevent the risk from escalating.
Project Management Perspectives on Risks and Issues
As mentioned above, project management encompasses a wide range of activities, from planning and budgeting to execution and monitoring. As such, there are many different perspectives on how to identify risks and deal with issues. Those change throughout the life of the project as different tasks and priorities come into play.
On the strategic level, the main focus is on identifying and assessing risks. That means looking at the big picture and trying to identify internal, external, and inter-project risks that could have an impact on the project.
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During project planning, the focus shifts to developing response strategies for identified risks and issues at the program level. There, the project manager creates a contingency plan that will put the benefits of a given organization at the forefront.
When the project enters its execution phase, the outcomes of different tasks within a program will start to emerge, and with them – new risks. Similarly, some of the risks that were identified at the beginning of the project might no longer be relevant.
Lastly, as the project is being closed, and all that’s left is to tie up loose ends, the focus shifts back to the risks and issues identified throughout the project in order to apply the lessons learned and prevent them from happening in the future.
Why Does Effective Risk Management Matter?
Projects are, by their very nature, uncertain – there is always a chance that something will go wrong. The goal of risk management is not to completely eliminate all risks but rather to minimize their impact and ensure that the project can still be completed successfully despite them.
An effective risk management strategy allows you to assess the potential impact of the risks identified and plan your response accordingly. Remember, stakeholder analysis can play an important role in this strategy. Which, in turn, gives you a better chance of delivering the project on time and within budget. Risk management is also about being proactive, which prevents issues from arising in the first place.
Risks and issues are two important concepts in project management that should not be confused. Risks are potential problems that might occur, while issues are actual problems that have already arisen and need to be addressed.
Both risks and issues can come from many different sources, and their impact on the project can vary in severity. The key difference between them is that risks can be either positive or negative for the project, while issues are always negative.
Early identification of risks is crucial for the success of every project as it allows you to put together a plan for how to respond if they do occur. On top of that, understanding the process behind risks and issues can help you design better projects in the future.
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