A Quick Way To Categorize Project Risks

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December 4, 2013

Looking at my jumbled risk log, I realized I needed a way to categorize my risks so that they were easier to find, understand and manage. I played around with a few ways to categorize them: by biggest impact, by department, by owner and so on. And then I figured out that I already knew how to organize them.

I would use PESTLE. It’s a mnemonic: P for Political, E for Economic, S for Social, T for Technological, L for Legal and E for Environmental. These are great categories for risk, so I could arrange my risk log by putting the risks into those groups. Every risk falls into (or can be made to fall into) one of these categories, so it’s perfect for keeping your risk log in order too.

Here’s more about each of the different categories.

Political

Risks that are political could be due to the nature of government in your country, such as the risk that tax laws will change and you’ll end up paying more for certain items. They could also cover employment legislation. In many countries, governments have a lot of influence over how certain industries, like healthcare, are run so your project may be subject to government guidelines or best practices.

In addition, political risks that make it to your risk log could be about organizational or office politics. For example, the risk that your project sponsor may change and be replaced by someone who is not as interested in the project. Or that team members will not collaborate effectively with each other due to personality conflicts.

Economic

Economic risks are those to do with your project budget and money. An economic risk could be something like the project not meeting its forecasted budget due to unforeseen overspend. Or certain items costing more than you expected due to changes in the price of core commodities. Even something like the cost of travel for your project team members visiting different offices because of an increase in the cost of diesel could be an economic risk.

Project managers can take all of these things into account when they come to put together a comprehensive risk log. And project sponsors love to know that you are actively managing risks to the project budget!

Social

Social risks relate to the team, collaboration, culture, and how the company works. You may have a risk on your project about bringing together people who have not worked together before and having to take them through the process of becoming a team. Or a risk around training materials not being comprehensive, increasing the likelihood that the take up of your new product in the company is not as good as you expected.

You can mitigate some social risks by ensuring good collaboration and teamwork within the project team, and trying to organize some social activities to help the team members get to know each other.

Technological

This is probably the area where it is easiest to come up with examples. Technological risks relate to the IT or equipment areas of your project. They could be about kit not functioning correctly, or technical resource not being available. A technological risk could even be that the software you are building is complex and that the users may not be able to use it without significant training.

You can probably think of lots of examples on your project – everything from a new member of the team joining and having to learn your online project management software to a full-scale potential disaster with your company website. At least if you plan for these problems you can act before they become a real issue!

Legal

There is an overlap between political risks and legal risk, but try to think of political risks as to do with people, policies and organizational structure and legal risks to purely be about complying with the law.

On a building project, for example, you may have a risk that the workers don’t know about (or follow) health and safety law, so one of your actions could be to implement a training program explaining how to stay safe on the site.

There may also be local laws that you have to comply with and risks around not complying with or understanding those.

Environmental

You might feel that your project doesn’t have much to do with the environment. After all, unless you are building a new water treatment plant or a recycling facility, the environment probably isn’t the first thing you think about when you consider your project. But all projects can be a bit ‘green’. You could, for example, have a risk about potential damage to the environment as a result of your project in the form of use of electricity, paper and other resources. You could reduce the environmental risks by keeping all your documents in an online storage facility and not printing them out, switching to environmentally-friendly light bulbs in the office or taking other measures to reduce the impact.

If you are building a new office or relocating staff to a new facility, environmental risks could also be relevant. Equally, all the travel that your project team does could have an environmental impact. Could they spend more time collaborating online and less time on the road? This would reduce the environmental risks to the project.

Environmental risks may not be top of your list, but many companies today have carbon reduction targets or other environmental targets, so it is good to be able to show that your project is taking environmental risks into account to contribute towards these.

Of course, there are a number of ways that you can categorize risks. This approach works for me and my risk log, but other ways may work better for you. Try a couple of different ways to organize your risk log and see which is the most effective for you and your team.