Gary David Cohn once said,
“If you don’t invest in risk management, it doesn’t matter what business you’re in, it’s a risky business.”
Project manager or not – professionals on all levels have to interact with researching, identifying, and resolving risks. Organizations are struggling with risks on so many fronts including cybersecurity, underwriting, credit, asset and liability, investment, liquidity and more.
Although there is a threat that there might be a shortage of risk management experts and professionals in the coming years, the number of risk management tools designed and developed for helping teams and organizations manage risks efficiently are rising in popularity and number.
The same goes for techniques and frameworks. The foremost stage in managing risks is identifying them.
Risk Identification Techniques
Some of the common techniques used for risk identification include historical data, brainstorming, workshops, Root Cause analysis, checklists, nominal group technique, Delphi technique, Monte Carlo analysis, decision trees, affinity diagrams, and cause-effect diagrams.
However, there is another technique that is mostly used for developing strategies, which has also proven equally useful in risk identification. This technique is called the SWOT analysis.
Before deep diving into how you can use SWOT analysis for risk identification, let’s have a look at what exactly risk identification entails, the significance of risk identification and how often to implement it.
By definition, risk identification is the process of determining risks that could potentially prevent the program, enterprise, or investment from achieving its objectives. It includes documenting and communicating the concern. According to Harry Hall, you can attempt to identify risks in your project development cycle as follows:
- Early in the project
- In an iterative manner
- In a consistent frequency such as every week
- When change control is performed
- When major milestones are reached
According to Dr. James Brown, a seasoned project management professional, if a risk is poorly identified, it means that the project manager will struggle with or fail to communicate the corresponding risk to team members or other high-level stakeholders.
It will be difficult for the parties involved to understand the dimension or magnitude of the risk. Due to this, in lieu of the risk materializing, the project manager and the team will be rendered ill-prepared.
This is because, despite the risk identification, it was not understood or communicated well in the first place.
What is SWOT Analysis?
SWOT analysis, also known as the SWOT matrix, is one of the techniques project managers and organizations have implemented in their risk management practices. SWOT stands for Strengths Weaknesses, Opportunities, and Threats.
It is a framework through which organizations and teams assess the pending internal and external influences that can affect a project, product or institution positively or negatively.
Let’s take a deeper look at how you can employ the SWOT technique to forecast, identify, resolve and guard against pending seen and unforeseen risks for a better project completion and success rate.
When and how to use SWOT analysis for Risk Identification?
Risk identification and management is a complex field that is carried out with different methods and strategies by professionals. There is no one way to go about it. Instead, project managers need to devise methods according to the situation.
Here are a few examples of professionals that have implemented SWOT analysis for risk identification and management in their corresponding fields of work.
SWOT Analysis for Risk Identification – Use Case 1:
Harry Hall is a project management blogger and professional having experience with leading projects and implementing PMOs for an array of organizations including General Electric, IKON Office Solutions, and the Georgia Farm Bureau Mutual Insurance Company.
In a recent blog, Harry sheds light risk management and the use of SWOT analysis. Harry states some of the possible scenarios in which his organization uses SWOT analysis for risk identification and management.
These include the evaluation of business processes, technology interfaces, existing software, proposed solutions, and customer service centers.
In the same blog, Harry recommends the following procedure for efficiently carrying out SWOT analysis for risk identification and management.
- For the strengths, brainstorm corresponding strength and record them.
- Analyze and collect suitable strengths.
- Prioritize strengths in a forced rank order or the nominal group method.
- Follow the same steps (i.e. 1-3) for weaknesses, opportunities, and threats.
- Define the strategies.
Harry suggests the following ways for strategy definition:
- Define strategies that minimize weaknesses and avoid threats.
- To avoid threats, define strategies that use strengths.
- To maximize the advantage of the opportunities at hand, define strategies that use strengths
- Define strategies that take advantage of opportunities by overcoming weaknesses.
He further recommends documenting and storing the risk related information after the SWOT analysis is completed.
SWOT Analysis for Risk Identification – Use Case 2:
Matt Johnson is the Founder and President of OmniStrat. With about three decades of professional experience, Matt Johnson has had a fair share of strategy generation and risk identification. In a recent discussion on a forum, Matt explains his method of using SWOT analysis.
Matt explains that contrary to the norm, he does not use SWOT analysis for assessing initiatives. Instead, he adopts the SWOT analysis method for generating possible strategic initiatives and then connecting risks to those initiatives.
According to Matt, risks should be viewed as weaknesses and threats and implement mitigating strategic initiatives to overcome these weaknesses and strengths.
He goes on to elaborate the possible scenario in this regard. He presents the following example for performing SWOT analysis for a product, clock radios:
- Strength: Good product design and strong branding
- Weakness: Incompetent manufacturing skills
- Opportunity: Clock radios (the product) are a fast-growing market
- Threat: A big OEM manufacturer (a competitor) wants to launch their own branded consumer electronics lines
Here is how he will go about it:
- Strategic Initiative: Partnering with the big OEM manufacturer. Combine our design expertise with their manufacturing prowess.
- Initiative Risk: Convincing the big OEM manufacturer that the product is labeled under our existing brand and not a new one.
SWOT Analysis for Risk Identification – Use Case 3:
Catherine Smith is an IT Project Manager at LaserShip. In a post discussing risk management with reference to SWOT analysis, Catherine claims SWOT analysis as a favorite tool. Catherine lists down a number of uses for SWOT analysis including strategic planning, problem-solving, options analysis, and appraisal, as well as vendor and/or tool selection.
According to Catherine, SWOT analysis can be done by individuals or in groups through brainstorming or planned sessions.
Other than the uses mentioned, she further elaborates usage of SWOT analysis for risk identification. Instead of taking the regular route of listing strengths, weaknesses, opportunities, and threats in the matrix, you can list the strengths and weaknesses as an opportunity or a threat.
This can be achieved by setting the opportunities column as the positive risks you can use to your advantage and setting the threats column as negative risks i.e. those you may want to avoid, mitigate, transfer or accept.
After these entities have been transformed into the matrix, proceed with the risk planning cycle as usual, identifying and prioritizing the actions and action triggers that can be applied.
These examples depict that SWOT analysis can be an effective tool for identifying risks on time. Instead of using the SWOT matrix for other purposes, it can prove to be quite useful in highlighting the potential and existing risks for any project or organization.
Have you or your team adopted SWOT analysis for risk identification and management in your projects? How effective was the experience for you? Share your story with us in the comments below.