10 Common Project Risks (Plus the Steps To Solve Them)

Updated August 8, 2022

A project risk analysis monitors a project’s performance—from start to completion to eliminate or minimize loss or business failure. The causes of risks vary depending on the type, complexity and duration of the project. Goals of a project risk analysis include identifying potential threats and evaluating the consequences, while planning mitigation measures.

In this article, we explain why an organization should analyze and solve project risks, plus provide examples of some common risks encountered in project management, the kind of risks a project risk analysis would find.

Why is it important to analyze project risks?

Project risk analysis is important because it helps project managers identify the weaknesses, strengths and possible opportunities during or after completing a project. To effectively analyze risks, one needs to learn and familiarize themselves with the potential problems or “high risk” threats that might negatively affect a scheduled project's smooth running.

It is vital to list all the unexpected events that might disrupt the processes, resources and technology in an ongoing project to curb or minimize losses. To effectively manage losses, a comprehensive mitigation strategy involves a thorough preparedness plan.

The motive of analyzing project risks is to minimize the magnitude of external and internal risks. The idea is to establish a proactive rather than a reactive project management approach. It aims to assure the stakeholders that the project's objectives will be met despite the challenges.

By analyzing the risks, management provides a platform to seal the loopholes and seize the opportunities that come with those risks. The tasks involved in risk analysis require a formidable force of a qualified project manager and skilled technical staff to handle the risks within the capacity of their specific expertise.

10 common types of project risks

Some commonly experienced project risks include:

1. Technology risk

The technological aspect of running a project is a complex deliverable because there is a high turnover of new and advanced technologies. The tech aspect of a project poses a critical threat to data security, organization services, compliance and information security. Risks associated with technology are more challenging because implementing new IT programs often requires fresh personnel training and software acquisition. There are also other technological-related risks like service outages that might lead to delays and project failure.

2. Communication risk

Effective and timely communication is a significant work ethic that you must strictly observe when you are in charge of a project. Setting up meetings with stakeholders, such as project donors, helps you track any changes, reassign tasks and foster a cohesive team environment. With all the communication channels and gadgets at our disposal, sometimes team members neglect the critical components of effective communication, leading to loss of data or misinformation and eventual project disruption.

3. Scope creep risk

Uncontrolled and unauthorized change to the initial intended project scope may lead to the extra cost of additional features, products or functions. Almost all projects face this risk, and sometimes it poses an irreversible challenge because some of the added functions are significant to the project and desirable to the project's success.

4. Cost risk

A shortage or mismanagement of project funds resulting from an inflated budget or other constraints is a threat to the project's completion. When the project cost is higher than the budgeted funds, the risk might shift to other operations and workforce segments. The reduction of the funds may also contribute to an occurrence of a scope risk.

5. Operational risk

A project may stall or terminate if there is a poor implementation of critical operations and core processes such as production or procurement. The risks could result in a direct or indirect loss owing to inadequacy or failed qualitative, quantitative or strategies. Depending on the project type, operational risks are:

IT system risk
Human and process direct implementation risk
Human and process indirect implementation risk
Financial capacity risk

6.Health and safety risk

Health and safety is a type of risk that can compromise a company's compliance rules. An organization should have its health and safety standards monitored and evaluated regularly to identify potential risks that can lead the company to losses or fines.

The risk can also lead to staff or customers' health complications where a company's reputation might be at stake. The management is responsible for establishing continuous health and safety risk monitoring in the company premises and its products or services.

7. Skills resource risk

Leveraging on internal staff is a potentially high-project risk because sometimes the project activities are staggered in different waves at various locations, requiring in-house personnel attendance. The overlap of the waves becomes a potential distress source. Staff incompetence in various project divisions is another risk that may contribute to the additional cost of personnel retraining or transfers.

8. Performance risk

When a project is unlikely to achieve the results as intended, there is a perceived performance risk. The risk has an inherent impact on the overall performance of the business. Such a problem may lead to the additional need for financing, a likely penalty for nonperformance and it may also leverage the competitors' performance.

9. Market risk

When a project fails to meet the stated results, market risk is likely to occur. Competitors might take the advantage to cripple the business and eliminate it from the market. Another market risk could occur in commodity and foreign market treads, which might not favor the project's initial estimates. Liquidity, credit and fluctuation of interest rates also pose as a potential market distracter to the project's product sales.

10. External hazards risk

A likely adverse event beyond the control of the project management is a potential risk. Such risks manifest in various types and forms, including terrorism, storms, floods, vandalism, earthquakes and civil unrest. A project may stall or discontinue when such events occur. By employing appropriate monitoring measures, organizations can prevent heavy damage or losses resulting from an unforeseen external hazard.

Six guidelines to solve project risks

The uncertainty is inherent in parts of large and most technological projects. The risks often land the organization into trouble due to failure or inadequate project risk mitigation and contingency measures. Here are six project risk mitigation measures that will keep your project on track.

1. Identifying the risks

Prepare and review a list of all possible risks likely to disrupt the project. Ensure that the key stakeholders understand the project's objectives and design by conducting a series of brainstorming sessions. A conclusive report from the meetings should indicate all levels of risks .

2. Prioritize and report the risks

Because the risks have varying impacts on the project, select and develop a workable mitigation strategy that can cause the highest loss. It is prudent to structure a scale and rank the risks to focus their input from the highest threat so that an in-depth discussion with the project steering committee can focus their input. Reporting the risks also helps the project managers keep track of every activity, which provides an accountability platform.

3. Link the possibility of each risk with its impact

Each risk can contribute to a low, medium or high impact. As a team, you can develop a probability matrix that measures the risks versus the impact. Such a matrix or an application will assist in decision-making regarding the likelihood of risk compared to its effect to establish timely measures. Linking a risk to its potential impact is also essential because it provides the management with a roadmap to the project's activities for an effective monitoring purpose.

4. Develop and cultivate responses to the risks

By completing a project risk response strategy, you avert a potential threat from happening or minimize the adverse effects should the problem be unavoidable. It is also prudent to regularly review and monitor the risks to ensure that opportunities to stop a potential threat are not missed.

5. Have a contingency plan for each risk

In case a risk occurs, the team should have a quick and reliable contingency plan ready for action. The plan should neutralize or prevent further damage and prevent a continuation of a crisis. Bring all stakeholders into the planning and implementation of a contingency plan. A contingency plan should seek to answer the following questions:

What should be done to reduce a likelihood of a risk?
What should be done to manage risk if it occurs?
What should be done to utilize effectively the opportunities brought about by a risk?

6. Record and track risks alongside their associated tasks

Recording the risks in terms of their associated task or process level helps the management track potential risks. It is important to record the identified risks in the risk register and store them in the project's central server throughout the project. Because each task may have a different individual to monitor, it is easy to track each potential risk and develop a response. The records also allow the stakeholders to focus on the prevailing situation concerning the project progress.