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Common Types of Risk in Project Management 2023

A project risk is any unforeseen thing that might — or might not — occur during a project. A risk isn’t necessarily negative; it’s just an event where the outcome is uncertain. As such, a project risk can have either a negative or positive effect on the project’s objectives.

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What Is Business Risk?

Business risks are uncertain factors, internal or external, that threaten the financial health of an organization. Examples of external business risks would be natural disasters or cyberattacks. Internal business risks are threats that come from within the company, such as falling out of compliance, having too much debt, or labor disputes.       

Most Common Project Risks

In today’s business landscape, it’s necessary for companies to take risks to reach their goal. Among the risks that arise in every project, some are more common than others.

Cost Risk

Cost risk is an escalation of project costs. It is the risk that the project will cost more than the budget allocated for it. Perhaps the most common project risk, cost risk is due to poor budget planning, inaccurate cost estimating, and scope creep. The risk is higher when clients want too much even though the project has few resources only. Cost risk can lead to other project risks such as schedule risk and performance risk.

Schedule Risk

Schedule risk is the risk that activities will take longer than expected, and is typically the result of poor planning. It’s closely related to cost risk, because slippages in schedule typically increase costs and also delay the outcome of the project, including its benefits. Delays result in missed timelines and a possible loss of competitive advantage. Schedule risk leads to cost risk because longer projects cost more. It can also lead to performance risk, missing the timeline to perform its intended mission.

Performance Risk

Performance risk is the risk that the project will fail to produce results consistent with project specifications. This is a common risk that is difficult to attribute to any single party. A project team can deliver the project within budget and schedule and still fail to produce the results and benefits. On the other hand, performance risk can lead to cost risk and schedule risk when the performance of a team or technology results in an increase in cost and duration of the project. In sum, the company lost money and time on a project that failed to deliver.

Read also: Project Risk Management: 10 Golden Rules Every Project Manager Should Follow

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Other Types of Risk

Governance Risk

Governance risk relates to board and management performance with regard to ethics, community stewardship, and company reputation. It is directly related to the behavior of the executives who are project sponsors and stakeholders. This risk is easier to mitigate and manage with proper stakeholder engagement.

Strategic Risk

Strategic risks are types of performance risks. It results from errors in strategy, such as choosing a technology that does not work as expected. A good example would be choosing a project management software that does not help the project team in their responsibilities but instead takes more of their time to work on the software than on the actual project.

Operational Risk

An operational risk includes risks from poor implementation and process problems such as procurement, production, and distribution. It is also a type of performance risk because poor implementation prevented the ideal outcome to happen.

Market Risk

Market risks include competition, foreign exchange, commodity markets, and interest rate risk, as well as liquidity and credit risks. Planning for market risks is difficult and requires expertise because these types of risks are unpredictable. But sound business and financial strategies can help protect the business.

Legal Risk

A legal risk arise from legal and regulatory obligations. They can come from contract risks and litigation brought against the organization. Internal legal issues are also legal risks. These are unpredictable and can come from state policies, business competitors, and employees.

Read also: Deploying Risk Management and Regulatory Compliance Solutions

External Hazard Risks

Risks associated with external hazards can include risks from storms, floods, and earthquakes. They can also result from vandalism, sabotage, and terrorism. Other sources are labor strikes and civil unrest. All serious incidents can have severe impact on cost and schedule.

Project Deferral Risk

In addition to project risks, project deferral risk is another important risk. Project deferral risk refers to the risks associated with failing to do a project. Like project risk, this risk can arise from any of the risk sources. It can also occur if there is only a limited window of opportunity for conducting a project. Failure to conduct the project now creates a risk that makes it impossible to effectively conduct a project later.

As indicated by these examples, project risks include both internal risks associated with successfully completing each stage of the project, plus risks that are beyond the control of the project team. These latter types include external risks that arise from outside the organization but affect the ultimate value to be derived from the project. In all cases, the seriousness of the risk depends on the nature and magnitude of the possible end consequences and their probabilities.

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Project Management Software

Project risks are best avoided and handled by choosing project management software that allows managers to see problems in advance and plan accordingly. The ten project management tools listed below help teams with efficient project collaboration, task management, scheduling, and communication.

1 Wrike

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Wrike is the most powerful work management platform on the market, enabling teams to plan projects and collaborate in real time. Our award-winning software is trusted by 20,000+ companies across the globe, including Sony, Estée Lauder, and Siemens.

Wrike’s customizable features include Gantt charts, request forms, dashboards, cross-tagging, time tracking, and proofing. Integrate with 400+ apps from the likes of Microsoft, Google, and Salesforce. Automate repetitive tasks and achieve 50% faster planning. Work from anywhere with 100% access to your files via our mobile and desktop apps.

Whether you’re a small startup or an established brand, Wrike has the solution for you. Paid plans start at $9.80/user/month. Join our community of 2.3 million — start your free two-week trial today.

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2 monday.com

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monday.com Work OS is an award-winning no-code work management platform that helps teams manage projects and workflows more efficiently.

Used by 152,000+ customers worldwide, this fully customizable software lets you plan, manage, and track every project in one place. monday.com offers time-saving and easy-to-use features such as automations, time tracking, document sharing, and real-time collaboration. Multiple board views such as Gantt and Kanban help you structure and navigate tasks and projects the way you prefer, and dashboards give a high-level overview of your progress.

In addition, integrations with apps such as Outlook, Microsoft Teams, Gmail, and Excel, allow you to easily continue working with your favorite tools from within the platform. monday.com also offers dedicated solutions, such as monday dev and monday sales CRM, designed to answer the needs of specific industries.

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3 Productive

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Start and deliver each billable and non-billable service by centralizing communication. Collaborate with teammates on tasks in real-time, streamline best practices, and let clients in on progress.

Stop spreading work across platforms. Subscribe to tasks to track progress, assign date ranges and deadlines, and check granular steps off with TODOs.

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4 Smartsheet

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Smartsheet is a leading work execution platform that has real-time work management features, collaboration and automation tools. Users are presented with a familiar and easy-to-use spreadsheet-like interface. However, it has enterprise-grade capabilities that even Fortune 500 companies like Cisco, Bayer, HP, and PayPal are confident to adopt in their business. Strong project management features enable teams to utilize different views of real-time data, and switch easily from Gantt, card, grid and calendar views. Smartsheet has automatic update requests, and can be used for waterfall and agile projects, product launch, sprint planning, and more. The resource management feature provides users the visibility who is busy, and who is not, in real-time. They can also attach files, share sheets, get notified, view the activity log, export, email, and print.

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5 BigTime

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BigTime is a leading Professional Services Automation (PSA) software that helps you scale your business by giving you the ability to track and act on your operational metrics. Even with remote work, easily manage time, expenses, and billing for multiple projects all at once, and quickly identify areas of opportunity with advanced features like resource allocation and custom reporting. With BigTime Wallet and client portal, you can get paid faster using custom invoicing and payment processing.

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6 Zoho Projects

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Zoho Projects is an online project management application that helps its users to plan projects, collaborate with employees and clients, keep track of time, manage documents, and generate charts and reports. Users work on a central platform where they can keep track of progress, discuss ideas, communicate easily and stay updated. It is cloud-based and highly accessible, where user data is kept safe with stringent security systems. The software is also scalable depending on the number of projects, with the option to add more features. Zoho Projects is a cloud-based project management tool that helps you plan your work, track it efficiently, and collaborate with your team wherever they are.

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7 WorkOtter

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WorkOtter is the #1 ranked SaaS project, resource, and portfolio management solution. WorkOtter is disrupting PPM with features, world class support, and visual dashboards that make your PMOs look brilliant.

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8 Cerri Project

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Cerri Project is a comprehensive PPM solution integrating project portfolio management and strategic planning features to drive value for your business.

Strategic execution of project portfolios, business initiatives and objectives.
Global capacity planning and visibility.
Streamlined workflows with process-driven project management.

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9 Resource Guru

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Resource Guru is the fast, flexible way to schedule teams and keep projects on track. Get full visibility of who’s available and who’s overworked, so people and projects succeed in harmony. Assign work, balance workloads, and edit schedules in seconds. Keep your team up-to-date with personal dashboards and daily schedule emails. Analyze utilization rates, clients, and projects for more accurate forecasts and budgets. Trusted by companies including NASA and L’Oreal. Try it free for 30 days!

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10 Jira

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Jira is an agile project management software used by development teams to plan, track, and release software. It is a popular tool designed specifically and used by agile teams. Aside from creating stories, planning sprints, tracking issues, and shipping up-to-date software, users also generate reports that help improve teams, and create their own workflows. As part of Atlassian, it integrates with many tools that enable teams to manage their projects and products from end to end. Jira Software is built for every member of your software team to plan,track, and release great software. Every team has a unique process for shipping software. Use an out-of-the-box workflow, or create one to match the way your team works.

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Managing Risks Step-by-Step

Risk management is a process that guides the project team to come up with a contingency plan so they will be ready in case risks become actual problems. This simple 5-step outline raises questions to help manage risks:

  1. Identify risks – what could go wrong?
  2. Measure the likelihood and impact – how likely will that risk become a problem, and what will be the impact?
  3. Make a decision – given the risks, do we accept them and continue with the project?
  4. Come up with potential solutions – knowing and accepting the risks, how can we mitigate them?
  5. Keep an eye on the risks – which risks are increasing, and is our plan for that risk updated?

Risk management process

Properly identifying risks and analyzing them is an effective way to manage risks. It is crucial to know what the risks are, how likely they are, and what their impact might be. In contrast, inadequate or untimely characterization of risks will always have consequences detrimental to the project. We are happy to announce that we have partnered with Master of Project Academy to bring you a real Risk Management Plan Template you can download. They offer 50 Project Management Templates, and one of them is a Risk Management Plan Template.

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