According to studies published over the last decade, over 90% of new businesses fold before they even go to market or reach their fifth anniversary. The failure rate has become so prevalent that some entrepreneurs have taken it to be normal. However, nothing about failure, especially where money is involved, is normal.
Is it possible to reduce failure rates in the startup world with today’s business intelligence tools? The answer would be a resounding “yes” if we look at it from a risk management perspective. Risk management involves identifying problems before they occur and preparing for them.
Many startups fail because they don’t have a risk management or risk assessment strategy in place. For the few businesses that do, the risk management strategy often does not cover all the bases or inform their decision-making processes.
By using a risk management matrix, startups can make risk assessment and risk management part of their decision-making process. This means including risk management in project management.
What Risks Do Projects Face?
When looking to launch any project, you should determine the imminent risks of your startup as part of the risk management matrix. For instance, ask yourself the following questions:
- How will the project be funded?
- Who is responsible for the project?
- What resources are needed for the project to succeed?
The answers to these questions can help to identify the potential risks facing a project.
Analyzing a project with a view of identifying risks also involves looking at historical data, getting insights from external consultants, and analyzing the regulatory and policy environment. Things like permits, standardization requirements, compliance, competition, and market dynamics should be regarded as risks facing a project.
Risk Management Matrix Explained
Project risk management can be a tedious undertaking, especially when you are trying to get a product to market. This is where using a risk management matrix could help. The matrix can help you prioritize risk, analyze risk, and determine the impact of risk on a project. You should use a risk management matrix to integrate risk assessment into a new or ongoing project.
The risk management matrix rates project risks using a predefined methodology. The probability of risks is divided into six categories, i.e. very likely, likely, possible, unlikely, rare. The probability is then multiplied with the impact it could have on the project using the following parameters; very low, low, medium, high and very high.
Analyzing Threats and Risks
Part of the project risk assessment process involves analyzing threats and ranking them according to their severity. Risk managers use various tools to analyze risks and categorize them in terms of perceived impact/severity and urgency. This is similar to the risk assessment matrix and could, therefore, be integrated into it.
Risk Appetite and Risk Management Frameworks
Risk appetite refers to the amount of risk you are willing to take to achieve your goals. Risk appetite informs the type of risk management strategy you should take or how far you can go until you need to stop and reevaluate. Startups tend to have a low-risk appetite, unless they are dealing with groundbreaking technology or have strong financial backing.
Readymade risk management frameworks such as ISO 31000 come in handy when an organization is trying to adopt risk management as part of project management. These frameworks provide a set of strategies and best practices that can be used by businesses in any industry to manage project risks.
Carry Out Regular Risk Management Training
Over 80% of the risks in a project emanate from the people responsible for the project. Common staff-related risks include non-performance, staff turnover, human error, poor communication, lack of responsibility, and group dynamics.
It’s therefore important to include the human element into the risk assessment and risk management strategy. This can be achieved through awareness campaigns and capacity building programs on risk management.
For instance, data security is a common risk that affects projects where data is in use. Staff training on data security policies and best practices should, therefore, form part of your overall risk management strategy in all projects.
Continuous Evaluation and Refinement of Risk Management Strategies
With new projects and rapidly changing requirements, there is a need to reevaluate threats and revise the risk management approach for success. This borrows from the ISO 31000 Revise and Review section that calls for the continuous refinement of risk assessment and management approaches.
Project risk management cannot be a one-off exercise. Rather, it should be subjected to continuous evaluation over the project life-cycle with a view of adapting to changing needs and emerging threats.
Managing projects in a startup can be a chaotic and challenging experience. So many things happen at the same time, and there isn’t much historical data to rely on decision making. This is the key reason why startups must incorporate risk management into project management.