As a business, how do you incorporate the indelible aspects of risk management into your project management platform? After all, risks that are unaccounted for can drag any project down before it builds up enough momentum to be viable. The first order of business is perspective: you must begin to see risk management and project management as two sides of the same coin.
Project Management: Definition
First of all, what is project management? It concerns the set-up process for product realization, as well as the final implementation when you bring it to market. The steps that encapsulate this process are the phase initiation, the timetable creation stage, information distribution, adjustment observation, and, finally, the data compilation endgame at the time the project is finished.
Properly Categorizing Risk Identification and Mitigation
One of the first things that your project manager will do involves the identification, categorization and mitigation of risk. All of these must take place before implementation, so that cost overruns don’t become a feature of the project. As such, these are the following types of risk:
Positive Risk: Positive risk entails the risks that may be involved with taking advantage of opportunities. Generally, it doesn’t mean hurting the business directly, but could represent an opportunity to outcompete other companies in your industry. Say, for example, that you can finish a project early; your project manager would assess the risks involved with completing something ahead of schedule. After all, if your sales department isn’t ready by the projected earlier date, this could mean be financially costly due to storing the increased stock, etc. As such, it might not be beneficial to take advantage of the opportunity.
Negative Risk: Negative risk refers to those decisions that directly lead to negative results. What if, for example, in speeding up the process, the project suffers qualitatively and results in a subpar product? You would see these results immediately if you put it out to market, or if you have to delay its release. As such, negative risk is generally more straightforward to discern.
Project Managers and the Bare Bones of Risk Response
Once your project manager has identified and categorized risk, she must make decisions based on the characteristics of the results. Broadly, risk response can be distilled into four categories: risk avoidance, risk transference, risk mitigation and risk acceptance.
I. Risk Avoidance
Usually, risk avoidance is the preferred method of dealing with potential compromises in security. It requires establishing security protocols that stop the threat from successfully attacking your network – such as with software programs, physical barriers, security management devices, etc. Essentially, you stop the threat dead in its tracks.
II. Risk Transference
Risks cannot always be avoided. Think, for example, of a natural disaster – it’s bound to happen sooner or later, generally. Risk transference entails correlating the probability of a risk happening with the damage it can do to your business. This is, effectively, the basis of insurance; you transfer the risk to the insurance company and incur a fee as a result.
III. Risk Mitigation
These are for risks that can’t be transferred or avoided. Your project manager then comes up with strategies for reducing the damage. For example, virtual servers for disaster recovery and business continuity can be seen as risk mitigation strategies.
IV. Risk Acceptance
Lastly, we have risk acceptance. This strategy is reserved for risks that are deemed too costly to protect against when compared to the damage they might cause. It is the crux of a cost-benefit analysis.
The Scope of Automation and Compliance
At their very core, compliance – and then automation, for facilitatory purposes – go hand-in-hand with risk mitigation if the former is incorporated into the lifecycle of your project. There exists software to make all of this a smooth transition. In particular, auditing software that is sufficiently robust can ensure compliance with SOC 2 and SOC 3 regulatory mandates. They can tackle everything from continually evolving cyber-hack attempts, to automated auditing and reporting. These agile tools are essential components of your project manager’s toolbox, and are tailor-made for use across multiple frameworks. They usher in a new age of risk management, compliance and project completion.
To explore how Best-in-Class companies implement an effective operational risk management framework, download this comprehensive report: The Heat is On: How the Best-in-Class Achieve Operational Risk Management Excellence.
Ken Lynch is an enterprise software startup veteran and founder of Reciprocity Labs. He has propelled Reciprocity’s success with the mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially-minded corporate citizens.