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What are the Components of Risk?

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Every enterprise has to deal with some amount of risk. According to a recent study by PwC, 40% of executives cite cyber risks as their topmost concerns for today, but there are others, too. Talent retention, skyrocketing production costs, supply chain disruptions, and the current rate of inflation all present serious business risks.

From a project manager’s perspective, there are three components of risk management:

  • The actual risk, or event, itself
  • The likelihood that the event will occur
  • The final consequences of the event

Examining the Key Components of Risk

Project management risks can be broken down and separated into one of two categories: internal or external risks. Not only does this make it easier to prioritize and address risks, but it helps your entire team understand the potential consequences.

Understanding internal business risks

Internal business risks affect your organization and, more specifically, your project management team. Although these can be some of the most challenging risks to overcome, they are controllable with an expert project manager at the helm.

Some internal business risks include:

  • Operational Risks: These risks usually stem from issues with production, distribution, or procurement. You can minimize these risks by leveraging reliable and efficient supply chains and distribution networks.
  • Project Costs: The potential for a project to exceed its forecasted budget is always a risk to consider. For best results, make sure you’re considering all project costs before establishing your budget.
  • Talent Acquisition, Recruitment, and Retention: Certain projects might require specialized talent, which may or may not be readily available. As a result, you might need to budget for new talent acquisition, onboarding, and training.
  • Scheduling: Most projects need to be completed within a certain timeframe. In most cases, deadlines are missed as a direct result of poor planning.
  • Quality: A certain level of quality needs to be maintained at all times, even in the presence of tight deadlines, employee turnover, or poor planning.

As any experienced project manager knows, internal risks aren’t the only consideration. External risks can be just as challenging and, if left unchecked, every bit as harmful to your next project.

Analyzing external risks

External risks represent events you cannot control, including those that affect your clients. While it’s easy to ignore these risks in favor of minimizing and addressing internal challenges, doing so is a risky endeavor in and of itself.

Common external risks include:

  • Cyberattacks and Other Cybercrime: Enterprise networks are prime targets for today’s hackers and cyber criminals, but you can minimize the risk by maintaining strict network and data security controls.
  • Market Risks: While stable markets pose much less risk than their unpredictable and volatile counterparts, nearly all market conditions have the potential to change overnight.
  • Natural Disasters: A natural disaster can strike at any time, and with little to no warning at all. For best results, make sure your business continuity and disaster recovery plans are up-to-date.
  • Legal Risks: Legal and regulatory risks can wreak havoc on an otherwise well-planned and successful project. Potential issues can arise from state and federal agencies, business competitors, and even the general public.
  • Economic Factors: Take some time to consider economic risks, too, including interest rates, tax policies, international relations, and even the threat of another pandemic.

As a project manager, it’s your duty to mitigate and control all of the components of risk on behalf of your entire team.

Controlling Project Risks

All risks are controllable to an extent. While there are numerous strategies for project managers to use, most organizations use a risk management framework (RMF) to address the most common concerns.

Some industries already maintain their own, standardized RMF, like that of the NIST (National Institute of Science and Technology) RMF or the COBIT (Control Objectives for Information and Related Technology) RMF.

In other industries, individual organizations are free to create their own RMFs. However, it’s important to keep in mind the five components of risk management framework in general.

What are the components of the risk management framework?

There are five components of enterprise risk management, including:

  • Risk Identification: Identifying specific risks allows you to prioritize, classify, and categorize risks appropriately.
  • Risk Assessment and Measurement: By considering factors like risk exposure and the potential for loss, your team can come up with a standardized risk measurement.
  • Risk Mitigation and Control: Categorizing and measuring risks makes it easier to eliminate, minimize, and control risks.
  • Risk Reporting and Ongoing Monitoring: Keep your team up to date on the latest risks through continuous risk reporting and day-to-day monitoring.
  • Risk Governance: Clarify team roles and ensure everyone performs their duties through risk governance.

Not only will a thorough RMF help you control business risks, but it will also help you minimize those risks that cannot be controlled.

Minimizing Your Risks

The most successful project managers understand how to minimize risks before beginning a new project. Some common strategies include:

  • Identifying Risks Worth Taking: Some rewards are so great that they’re worth the risk. Perfect that art of identifying these risks, and avoid any risks that simply aren’t worth it.
  • Maintaining an Active Insurance Policy: Insurance can help cover many of your business risks, particularly those affecting your physical property and employees.
  • Diversifying Your Portfolio of s or Services: You can mitigate or offset some of your business risks by offering new products or services. These can be add-ons to your current offerings or brand new solutions altogether.
  • Keeping Detailed Records: Diligent recordkeeping is just as important in the digital age as it was in years past. Not only can these records be used as called upon, including during legal cases, but they can often be used to extract business intelligence and other actionable insights.
  • Utilizing Risk Management Software: Modern technology provides some of the best tools for minimizing business and project risks. Today’s solutions come in all sizes and include all manner of features, so you’ll want to do some research before deciding on the software that’s right for you, your project, and your enterprise.

But, that’s just the start of your risk management responsibilities. Since every project has its own, unique risks to overcome, a successful project manager has to create their own strategies for minimizing and overcoming that risk.

Risk Management for Project Managers

Project and risk management go hand-in-hand. Not only do you need to pay attention to your project-specific risks and those that directly affect your team, but you’ll need to consider organizational risks and client risks, too. It’s a delicate balancing act that is only achievable through hands-on experience, professional diligence, and a genuine passion for team leadership.

Project Management Tools to Help Manage Risk

Businesses can assess and manage risks using project management software: in fact, it’s probably one of the most helpful ways to do so. These tools have charts and features for planning projects and analyzing risks, allowing team members to access details they need to successfully manage risk. The ten listed below are some of the best project management tools.

1 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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2 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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3 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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4 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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5 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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6 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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7 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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8 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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9 ClickUp

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ClickUp is one of the highest-rated project management tools today. Use Docs, Reminders, Goals, Calendars, Chat, scheduling, assigned comments, custom views, & more with this all-in-one project management tool.

Used by 800,000+ teams in companies like Airbnb, Google, and Uber, it brings all of your projects into a single app! Built for teams of all sizes and industries, Our fully customizable & proprietary features make it a must-have for anyone wanting to keep project management in one place.

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10 Trello

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Organize anything, together. Trello is a collaboration tool that organizes your projects into boards. In one glance, know what’s being worked on, who’s working on what, and where something is in a process.

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