Identification of risks

Identification of risks is the process of recognizing, analyzing, and documenting potential issues that could affect the success of a project. It entails collecting information about the project, the team, and the environment and using that information to identify and assess possible risks that could threaten the project's objectives. Identification of risks is a critical part of project planning and management, as it helps determine the likelihood of risk occurrence and mitigate any potential negative impacts.

Example of identification of risks

• Product Quality Risk: Poor product quality can lead to customer dissatisfaction and lost sales. To mitigate this risk, organizations should ensure that the products they develop and produce meet standards of quality and performance. This can be done by conducting thorough testing, implementing quality control measures, and offering warranties and customer support services.
• Financial Risk: Financial risk can arise when a company’s expenses exceed its income. To mitigate this risk, businesses should carefully assess their current financial situation and develop strategies to ensure they are able to meet their financial obligations. This may include increasing revenue, cutting costs, reducing overhead expenses, and/or securing additional financing.
• Security Risk: Security risks are a common issue in the digital age. The risk arises when organizations fail to adequately protect their data and systems from external threats. To mitigate this risk, organizations should implement strong security protocols and procedures, such as encryption, two-factor authentication, and regular software updates.

Best practices of identification of risks

1. Involve stakeholders in the identification process: Involving stakeholders in the identification of risks helps to ensure that all potential risks to the project are considered. Stakeholders can provide valuable insights into the project and help identify areas of high risk.
2. Utilize risk identification tools and techniques: Risk identification tools and techniques, such as brainstorming, cause-and-effect diagrams, and risk checklists, can be used to systematically identify risks in a project.
3. Analyze the project environment: The project environment should be analyzed to identify potential risks and to see how the project's objectives may be affected by external factors.
4. Identify risks in each project phase: As the project progresses, new risks may emerge. Therefore, it is important to identify risks in each phase of the project and address them before they become significant.
5. Monitor identified risks: Identified risks should be monitored to ensure that they are properly managed and mitigated. This can be done through regular risk reviews and risk tracking.

When to use identification of risks

Identification of risks is an essential part of project management and should be done early on in the project planning stage. The process helps to identify, analyze, and document potential issues that could affect the success of a project. Here are some examples of when it should be used:

• During the project planning stage, to identify, analyze, and document any potential risks to the project objectives.
• During project execution, to monitor and assess the progress of the project and identify any changes in the environment or team that could cause risks.
• During project closure, to evaluate the project results and identify any lessons learned that could help prevent similar risks in future projects.

Types of risks

• Financial risks - These risks involve the potential financial losses that may occur due to changes in market conditions, price fluctuations, or other economic factors.
• Technical risks - These risks involve the potential for technical or engineering issues to arise that could prevent the project from meeting its goals and objectives.
• Operational risks - These risks involve issues related to the day-to-day operations of the project, such as staffing, scheduling, and governance.
• Strategic risks - These risks involve potential changes in the strategic direction of the project that could lead to unexpected results.
• Legal risks - These risks involve the potential for legal issues to arise that could threaten the project's success.
• Political risks - These risks involve the potential for political interference or instability that could disrupt the project.
• Environmental risks - These risks involve the potential for environmental issues to arise that could affect the project's progress.

Limitations of identification of risks

Identification of risks is an important part of project planning and management, but it is not without its limitations. The following are some of the limitations of identifying risks:

• Risk identification is often subjective and can be biased. It relies on the team’s ability to identify potential risks, which can be challenging if the team is inexperienced or lacks diversity.
• It can be difficult to accurately assess the likelihood of risks occurring, as well as the potential impact if they do occur.
• It is impossible to identify all potential risks, as some may not be apparent until the project is underway.
• It may be difficult to identify risks that are outside of the scope of the project.
• Risk identification can be time-consuming, as it involves collecting and analyzing a lot of data.

Identification of risks — recommended articles

Sources of risk — Risk assessment framework — Risk of software development — Software risk — Failure of project — Portfolio risk management — Construction project risk — Lack of information — Level of risk

References

• Baghdadi, A., & Kishk, M. (2015). Saudi Arabian aviation construction projects: Identification of risks and their consequences. Procedia Engineering, 123, 32-40.