Many projects I’ve consulted on over my 15 years as a software development professional have suffered from risks that materialized unexpectedly. Risk burndown charts are an excellent solution to visualize and effectively manage project risks.
They show you a graph of your remaining risk over time, which empowers you with the data you need to make risk-based decisions and take action to prevent future problems. Let’s discuss how these charts can increase the likelihood of your project’s success.
Tracking Project Hazard Reduction
Risk burndown charts are visual representations of project risks over time. They illustrate the total risk exposure as the project progresses. These charts are useful for project managers and teams to monitor and address risks throughout the project lifecycle.
The x-axis of a risk burndown chart is time, often broken into iterations or sprints. The y-axis is the total risk exposure, generally in currency. Risk items and trend lines are plotted on the chart to show how the risks change over time.
The risk exposure is calculated as the probability of a risk occurring multiplied by the potential impact. For example, if a risk has a 30% chance of occurring and the impact is $50,000, then the risk exposure is $15,000.
Risk burndown charts are unique from other project management charts in that they focus on the trends of project risks. While Gantt charts display the schedule of tasks and burndown charts chart the progress of work, the risks burndown chart is specifically monitoring how the project risks are trending.
This gives the chart a unique perspective on project health. You can see the efforts to reduce risks and you can identify when risks are trending up. This allows you to make data-driven decisions on your risk management strategy.
Creating a Risk Burndown Chart
You can build a risk burndown chart by:
- Identifying project risks
- Assessing each risk’s probability and impact
- Calculating risk exposure
- Plotting initial risk exposure on the chart
- Updating it regularly
First step: Gather your team and brainstorm potential project risks. Then, assess each risk’s probability of occurring and its potential impact. Finally, calculate the risk exposure.
For example, suppose a risk has a 20% chance of happening and would cost $100,000. The risk exposure is $20,000. Plot this initial risk exposure on the risk burndown chart.
Any time you complete an iteration or sprint, update the chart. Check existing risks, add new ones, and recalculate risk exposure. This ensures the chart is always up to date.
Most project management software offers the ability to create a risk burndown chart. Microsoft Excel, Jira, and specialized risk management software all have the functionality you need to build and update the chart.
The key to an effective risk burndown chart is updating it consistently. If you keep the chart up to date, it will always accurately show the current risk profile of your project.
Interpreting Risk Burndown Charts
Interpreting a risk burndown chart requires an understanding of the chart components and patterns. The total risk exposure line is the most important chart component as it illustrates how the overall risk of your project is changing over time.
The key insight from a risk burndown chart is the overall trend of the total risk exposure line. You want to see this line trending downwards, as this indicates effective risk management. In other words, your team is proactively mitigating risks as the project progresses.
If the risk exposure line is flat, the team may not be making progress in mitigating risks. If the line increases, the team may be adding new risks or the impact of existing risks may be growing.
Pay attention to how each individual risk item adds or subtracts from the total risk. Some risks may decrease as others increase, which is helpful information for prioritizing risk management efforts.
Lastly, use the chart to make decisions. If the overall risk exposure line isn’t trending down, the team may need to rethink their risk management strategy or allocate more resources to risk mitigation.
Benefits of Using Risk Burndown Charts
There are several benefits of using risk burndown charts for project management. They offer a visual representation of project risks over time, making it easier for team members and stakeholders to grasp the risk profile of the project.
Risk burndown charts are a great communication tool for risk management. They can serve as a single source of truth about the project’s health and the team’s plan to mitigate risks.
By consistently tracking risks, risk burndown charts enable proactive risk management. You can identify trends early and take steps to mitigate the risk before it grows into a bigger problem.
They are also helpful for assessing the effectiveness of your risk mitigation strategies. You can easily see which activities led to a major reduction in risk and which might need refinement.
Finally, risk burndown charts are great for project planning and resource allocation. They provide data to help you determine where you should spend your time to reduce the most risk.
Constraints and Hurdles of Visual Risk Tracking Tools
However, the effectiveness of risk burndown charts is limited by the accuracy of your risk identification and assessment. If you miss a significant risk or misjudge its impact, the chart will be misleading.
These charts need to be regularly updated to be helpful. Updating them can be a time-consuming task, especially if you have many risks in a large or complex project.
Another limitation of risk burndown charts is that they oversimplify the risk interactions in complex projects. For example, if several risks are related or depend on each other, this can be challenging to capture in a risk burndown chart.
It’s difficult to accurately estimate long-term risks. The project will likely evolve in ways you didn’t predict, affecting the long-term risks.
Despite these limitations, risk burndown charts are still a powerful tool when used intentionally in combination with other risk management strategies.
Effective Strategies for Tracking Project Risk Reduction
To get the most out of risk burndown charts, here are the best practices to follow:
Ensure the risk identification and assessment is accurate. Talk to different team members to ensure you have a comprehensive view of potential risks.
Keep the chart up to date throughout the project. Updating the risk burndown chart frequently (ideally at the end of each iteration) is key to keeping it relevant.
Get the entire project team involved in risk management. This will help you identify more risks and create a culture of risk awareness.
Use other tools in conjunction with the risk burndown chart. SWOT analysis, decision trees, and other risk management tools can complement the risk burndown chart.
Modify the chart to fit your project and industry. While the general concept remains the same, you may need to tweak the format or metrics based on your project.
Risk Burndown Charts in Agile and Scrum Methodologies
Risk burndown charts are a natural fit with Agile methodologies. Within Scrum, you can simply update your risk burndown chart at the end of each sprint as Agile is all about iteration.
They also align with Agile’s principle of adaptability. You receive frequent feedback on the level of risk remaining in the project, which allows the team to adjust its strategy accordingly.
Using risk burndown charts with Agile methodologies can be tricky, though. Agile projects move quickly, so you may struggle to keep the chart updated at the end of each iteration.
The effort is typically worth the reward, though, as risk burndown charts increase transparency and enable Agile teams to make data-driven decisions about managing risk throughout the project.
Advanced Techniques and Variations
Risk burndown charts are versatile and can apply to various industries and project types outside of software development. Construction projects, for example, might assess safety risks, while a financial project might assess market risks.
There are advanced variations of the risk burndown chart. Adding probability distributions to the risk assessment allows for a more nuanced understanding of potential outcomes.
You can also use Monte Carlo simulations with the risk burndown chart to model different risk scenarios. This technique accounts for uncertainty and provides a range of potential risk exposures.
Again, your ultimate objective is to optimize the burndown chart specifically for your project and company. Feel free to tweak the risk burndown chart as needed.
To further enhance your risk management strategy, consider incorporating agile estimation techniques to improve the accuracy of your risk assessments. These techniques can help you better quantify potential risks and their impacts on your project.
To Sum It Up
Risk burndown charts are excellent for visualizing and controlling project risks over time. They offer a visual representation of risk exposure, allowing teams to make data-driven decisions and take action proactively. While they are not without limitations, risk burndown charts are a best practice in risk management if used appropriately. Just be sure to accurately assess risks, update the chart regularly, and involve the team. If you use risk burndown charts, you’re one step closer to better project management and higher likelihood of success.
