How to Manage Risk in Agile Projects

No matter how flexible they are, Agile projects are also prone to risks. Thanks to dividing the software development process into smaller increments (aka sprint planning), the risk of failing the entire project drops. But it’s still there. The question is, what risk management processes should you use?

In this article, we discuss how to manage risks in Agile projects based on general practices and our own experience. Starting with the difference between traditional and Agile risk exposure, we describe the principles of integrating risk monitoring and management throughout the project.

So keep reading to discover how to get the most business value from your Agile projects.

Risk Management in Traditional and Agile Project Management

If you’ve been in the software development industry long enough, you know that issues and obstacles arise regardless of the methodology used. Even with Agile, the most flexible and adaptive methodology. Yet, some might argue that the very iterative nature of Agile projects is what makes them more prone to hiccups and setbacks, in part because developers assume that risk management is not necessary.

But what about traditional Waterfall project management approaches? Does the holistic approach suffer less or more from risk exposure?

As with everything else, traditional project management follows a detailed and structured approach to managing risk. It involves identifying, analyzing, and prioritizing risks before the project starts, followed by developing a plan to mitigate or avoid them.

There are (at least) two problems with this approach. First, people are not psychics, no matter how good at risk assessment they are. Second, since Waterfall projects are strictly constrained by resources and schedule, there’s hardly any place for risk management.

Of course, there are regular meetings aimed at reducing risks, but what project team members can do about them is limited by the scope and software development speed.

In contrast, Agile project management involves an iterative and flexible approach to risk management. It requires a high level of communication and collaboration among agile teams and their members, plus the ability to quickly adapt to changing circumstances. Just what the Scrum Master ordered.

One of the key differences between traditional and Agile project management is the level of detail in the risk management plan. In traditional project management, the plan is often detailed and extensive, covering all potential risks and their associated strategies. In Agile project management, the plan is more high-level, focused on identifying and mitigating risks when they occur.

Another difference between the two approaches is the level of control over the project’s scope. As we’ve mentioned, in traditional project management, the scope is often fixed, and risks are managed within the defined boundaries. In Agile project management, the scope is more fluid, and risks are managed within the context of the project’s goals.

Speaking of identifying risks in agile teams, let’s get a closer look at the known risks you may encounter.  

Common Risks in Agile Projects

You can roughly divide Agile project risks into project-related and sprint-related. Project-level risks, such as scope changes or stakeholder misalignment, impact the project overall. Sprint-level risks, on the other hand, affect sprint planning and may result in underestimated efforts or technical challenges. Both types of risks need to be identified and addressed, as they have different magnitudes and consequences.

Another popular classification of risks in the Agile process includes cost, business, performance, adoption, and schedule risk. But this isn’t an exhaustive list, and your Scrum team may face others — or none of these. This is what you may come across during risk identification:

Cost risk

This one is self-explanatory: cost risks refer to the project’s financial feasibility. This risk factor considers the project’s resources, budget, and financial requirements. Will the flexibility of agile teams make budgeting a giant headache? What is the right way to calculate the overall cost of the project? Is charging for each sprint a beneficial strategy? You will have to sort this all out with your Scrum team.

Business risk

Business risk assessment identifies the project’s marketability and whether it will address the intended problem. This type of risk considers the product‘s alignment with user preferences. Simply put, it tries to answer whether the product will be used and adopted as intended.

Performance risk

Performance risk identification concerns the feasibility of developing and implementing the project from a technical standpoint. This risk factor considers resource availability, the skillset of the development team, and their ability to meet software requirements. In some cases, performance risk is linked with cost risk, like when the project can be built but is too expensive to implement. Because it requires to bring in additional developers with niche skillsets for example.

Agile adoption risk

What is your team’s knowledge of the Agile methodology, and can they follow it effectively? Because it’s one thing to call yourself a Scrum team, and a whole other thing to follow the Agile principles with their daily Scrum meetings, a sprint backlog, code freezes, and more. Also, some projects are simply not built for Agile, like those with strict, legally regulated requirements and rigid delivery timeframes.  

Schedule risk

This risk is one of the greatest among Agile practitioners since it considers the probability of delays and changes in the project’s timeline. This can be caused by poor time estimation, the exit of a team member, or shifts in the project scope. This type of risk can greatly affect the overall project, resulting in cost overruns and dissatisfied stakeholders, and that’s why it’s so important for the project manager to keep an eye out for any worrisome changes.

Regardless of the risk type, it needs to be managed in the context of the project lifecycle. Let’s take a look at how risks are managed in Agile projects during each lifecycle stage.

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Managing Risks Across the Agile Project Lifecycle

To effectively apply risk management in Agile projects, a Scrum team has to understand its impact on different project stages. Ideally, risk management should be integrated at the outset, during the development, and at the end of each project. Observe.

Initial Stage: Project Planning

At the beginning of a project, the Agile team identifies potential risks together with the project manager and creates a plan to reduce them. This plan (which includes iteration planning) then serves as a roadmap for the team to mitigate risks throughout the project lifecycle.

Development Stage: Continuous Risk Management

Agile risk management should be ongoing during the development process. The team continuously monitors and evaluates risks as the project progresses. When new risks arise, the team should identify appropriate mitigation strategies and update the risk management plan. Agile encourages regular team meetings (like daily Scrum) to discuss project progress, thus giving each member a shot at project risk management.

Final Stage: Project Closure

At the end of a project, Scrum teams gather for a retrospective review of the project’s success and any new knowledge or lessons learned in the process. This review includes an analysis of the Agile risk management plan, its effectiveness throughout the project, and the identification of areas for improvement.

Many teams use retrospectives as an opportunity to get better at what went wrong with the project: writing better user stories, more detailed release planning, setting up an effective prioritization process, and, of course, more careful risk planning.

Now, let’s zoom in on specific risk management methods every Scrum master should know how to apply.  

Agile Risk Management Activities

Agile management means seeing the whole picture and working at the iteration level at the same time. The same applies to agile risk management — while Scrum masters consider the entire project, they also work with each risk individually by:

• Identifying risks
• Evaluating risks
• Developing risk responses
• Implementing risk management practices
• Assessing and monitoring risks.

Why don’t we look at each risk management activity in more detail?

Identifying Risks

Naturally, the first step in managing risks in Agile projects is brainstorming the risks associated with the project and documenting them. This identification process involves all stakeholders, including the product owner, development team, and/or a business analyst, so that you can benefit from collective knowledge and experience.

The best way to organize risks during the brainstorming session is using a risk breakdown structure. For instance, you can list the discovered risks according to their level of detail, with high-level risks at the top and more specific ones at the bottom. This visual approach will give the team an idea of what to expect when planning tasks for the project.   

Once you’ve identified risks, it’s crucial to create a project risk register to monitor and track them throughout the project. This log acts as a comprehensive database of potential risks that allows for managing current risks and referencing past projects to improve planning. With the inclusion of relevant data points in the risk register, you can quickly and accurately point out potential threats and reduce risk overall.

Evaluating Risks

After identifying the risks, it’s time to evaluate and prioritize them. Our go-to approach is prioritizing risks based on their potential impact on the project and their likelihood of occurring. To do that, you’ll need to consider a range of factors, including financial impact, time loss, and severity of impact. This lets your team focus on the most critical risks first and allocate resources to those requiring immediate attention.

Here’s what you should do to prioritize risks:

1. Describe the uncertainty

Describe the potential uncertainty associated with each requirement, considering all possible scenarios that could impact the implementation of a feature (schedule risk, cost risk, performance risk, etc.).

2. Determine the impact and probability

Next, you need to determine the impact (I) and probability (P) of each risk. Both should be rated on a scale of 1 to 5, where 1 represents a low impact/probability, and 5 represents a high impact/probability.

3. Calculate risk value

To calculate the risk value (R), you need to multiply the impact (I) by the probability (P). The resulting value represents the risk value associated with the requirement (R = I x P). The higher the risk value, the more critical the risk. After completing your calculations, you’ll have a list of potential risk values to help you prioritize and develop appropriate risk mitigation strategies.

Developing Risk Response Strategies

It’s impossible to foresee all risks: some will have a lower probability, others — a higher one. But our tips are sure to give you a big advantage. With the top-priority risks identified, you can assign your team to address the issues or mitigate them to eliminate the threat to the project.  

Depending on the risk type and value, choose one of the four risk response strategies:

• Avoidance. It means taking action to prevent risks. For example, you can avoid the risk of a critical team member leaving the project by holding regular one-to-one meetings and having honest conversations with them.
• Mitigation. It means taking action to reduce the impact of a risk. For example, you can mitigate the risk that a key vendor may not deliver on time by identifying alternative vendors as a backup.
• Transfer. It means transferring the risk to another party. For example, if there is a risk that a project might be delayed due to a third-party issue, negotiate a contract that places responsibility for the issue on the vendor.
• Acceptance. It means accepting the risk and taking no action to mitigate it. Agile teams often take this strategy for low-priority risks with a low probability.

Another way to mitigate risks in Agile projects is by shortening sprint duration. Scrum sprints typically last two to four weeks, but using shorter sprints of one to two weeks can increase focus and pressure the team to deliver. Additionally, frequent retrospectives improve collaboration and productivity, ultimately reducing the number of project risks. Plus, the shorter sprints of the Agile approach let the product owner check progress and instantly take corrections if they identify issues.

Reviewing and Monitoring Risks

Now that you have risk response strategies in place, the project team has to implement them and monitor risks’ effectiveness. By scrutinizing each one, you can indicate recurring issues across the project and refine your risk management process for the next iterations or future projects.

One way to do that is by holding a dedicated review meeting that focuses on evaluating your risk management efforts and basically shows you how the team can manage risk. In Agile project management, sprint review meetings and sprint retrospectives can also serve as opportunities for risk review on the iteration level. 

However, there’s no cookie-cutter solution for every project. While typical Agile practices work well for transparently managing risk, they may fail you when dealing with multiple teams collaborating at different levels within a large organization. 

As more organizations adopt Agile at scale, they need a scalable approach to incorporate risk management in Agile projects. This is where ROAM risk management comes in. ROAM risk management provides a framework for managing risks in Agile projects at scale, allowing organizations to effectively identify, evaluate, and address risks on the project level.

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Implementing ROAM Risk Management in Agile Projects

The ROAM risk management model facilitates collaborative and proactive risk management for large organizations that use scaled Agile methodologies. The acronym ROAM stands for Resolve, Own, Accept, and Mitigate — four strategies to address risks during SAFe Agile software development or other scaled Agile approaches. You can use this method to implement the risk management activities mentioned in the previous chapter.

Initially, the team identifies risks and assigns each risk to one of the following categories:

• Resolved. The risk is no longer a threat and doesn’t require any further action except documenting the steps taken to resolve it.
• Owned. If the risk cannot be resolved immediately, a team member is assigned to “own” or manage it.
• Accepted. If the risk cannot be neutralized, the team accepts it and manages it as it arises.
• Mitigated. When the risk has been partially addressed, it’s considered mitigated. But even with some actions taken, mitigated risks require your attention and should be monitored.

As new risks arise throughout the project lifecycle, you’re free to handle them using ROAM.

The Bottom Line

As if the whole software development ordeal wasn’t complicated enough, you also have to manage risks before the start, in the process, and even after you’ve got a working software. And you thought Agile was going to save you from all that.

Indeed, Agile software development has its risks, both at the sprint level and the overall project level. But there’s nothing you can’t do without a little help. To effectively run risk management in Agile projects, you need someone with a good understanding of the popular risk management approaches and practical experience implementing them. 

At Expert Remote, we help source talented IT professionals precisely with experience in risk management in Agile projects. Our experts will help you identify risks before they become problematic, develop effective risk management strategies, and improve risk management with each iteration of your project. Contact us to hire tech talent equipped for any challenge!