Effective Risk Management for Agile Projects

Enterprises are embracing digital transformation, incorporating emerging technologies like artificial intelligence, and devising novel ways to offer their products and services more efficiently to succeed in the post-pandemic landscape. To achieve their goal of digital acceleration, which is to reduce the lead time to market, many enterprises are adopting Agile approaches for their business, technology, and process-oriented projects. Agile projects typically involve small, agile teams that work in short cycles called “sprints,” lasting usually two weeks, to develop and deploy solutions. The objective is to quickly implement changes in technology and business and to facilitate a faster time-to-market for products and services.

With the adoption of Agile methodologies, enterprises must reconsider their control functions, such as risk management, to keep up with the more frequent release cycles and build the ability to provide prompt advice to risk owners. To address this requirement, an Agile risk management process combines project and enterprise risk management practices with Agile methodologies to establish a flexible, risk-based approach to project delivery. This process enables enterprises to determine which risks can be tolerated in pursuit of digital acceleration while taking into account their risk appetite and tolerance thresholds. The aim is to assist enterprises in making informed decisions by integrating risk management into Agile delivery processes and creating a risk-driven culture.

What is Agile Project Delivery?

Agile project delivery employs a collaborative, iterative approach to project management that prioritizes the prompt and incremental delivery of a solution and emphasizes the business value and progress transparency. Instead of creating rigid schedules and tasks, Agile divides time into sprints, which are defined periods (typically lasting between one to four weeks) during which specific deliverables are planned and executed. These deliverables are determined based on a running list of requirements, which is planned one sprint in advance.

Before commencing the sprint cycle, the product owner solicits input from stakeholders to identify the objective for the solution and prioritizes the product backlog (as shown in Figure 1). During sprint planning, the developers select prioritized features from the product backlog, determine how to accomplish the sprint, establish a deadline for completion, and create a sprint backlog. Throughout the sprint cycle, the team conducts daily scrum meetings to monitor progress toward the sprint goal, discuss obstacles, and plan for the following day. The sprint concludes with a potentially shippable solution that is prepared for customer review and use. The team then conducts a sprint review of the finished solution and a retrospective analysis of the completed sprint cycle, utilizing insights gained to inform the subsequent sprint cycle. This process repeats itself with a sprint planning session to devise the next incremental solution.

Figure 1 – Agile Risk Management Process

In Agile project delivery, the scrum team relies on frequent planning, objective-setting, and feedback loops to concentrate on the sprint’s objectives, ultimately leading to improved productivity, quality, and customer satisfaction.

What Is the Role of Risk Management for Agile Projects?

According to the 2020 Standish Group Chaos Study, Agile software projects have a threefold greater likelihood of succeeding than Waterfall, while Waterfall software projects are twice as likely to fail. Nonetheless, it is crucial to recognize that “Agile is not a cure-all.” The necessity for organizational agility has not removed the need to handle uncertainty, which is commonly referred to as risk.

According to ISACA, risk is defined as “the likelihood and impact of an event,” which encompasses both opportunities for benefit (upside) and obstacles to success (downside). Risk and opportunity are interrelated. To deliver business value to stakeholders, enterprises must undertake numerous activities and initiatives (opportunities) that involve varying degrees of uncertainty and, as a result, risk. In Agile project delivery, it is necessary to examine this risk assessment to determine which risks are worth pursuing and what value can be anticipated in return.

How Is Risk Managed in Agile Projects?

The agile methodology does not provide a universal definition of risk or a standardized approach to risk management. As pointed out by project management expert Roland Wanner, “the Scrum Guide does not explicitly address risk management, except for these brief references.”

• The incremental approach with sprints reduces risk.
• Sprints increase predictability and limit cost risk to a maximum of one month.
• Constant “Artifact Transparency” helps optimize (business) value and reduce risk.”

Despite the lack of explicit guidance on risk management, Agile methodology is described as risk-driven, and its implicit practices lend themselves to an adaptive style of risk management. For example, the flexibility of sprint planning is a response to uncertainty, allowing teams to tackle small portions at a time to ultimately deliver the completed solution.

Risk Management Limitations with Agile Project Delivery

While Agile methodology is naturally equipped to handle certain risks that arise during the sprint cycle, it is not the only type of risk that may occur throughout a project’s duration. In larger organizations, there may be additional risks related to the external, organizational, and project environments, such as corporate reputation, project financing, user acceptance of business changes, and regulatory compliance. Most Agile literature focuses on risks at the sprint level and does not address the management of this type of project risk.

A recent solution to address this challenge is to implement an Agile risk management process that customizes Agile methodologies to integrate project and enterprise risk management practices according to the specific risk context of the project, such as its size, complexity, and strategic significance.

What is Agile Risk Management?

The Agile risk management process, as illustrated in Figure 2, is a flexible and recurring cycle that is implemented per sprint, allowing for customization during the “setting context” stage to determine suitable project and enterprise risk management strategies to handle risk factors at the project level (e.g., project financing) and sprint level (e.g., meeting deadlines).

Figure 2 – Agile Risk Management Process

Although the two levels, project, and sprint, may appear distinct, they function cooperatively during project execution. The scrum framework implements its practices, such as roles, events, and artifacts, to identify and alleviate risk throughout the project and sprint cycles. The Agile risk management process endorses these practices by tailoring them to the risk context, thus supporting the scrum framework.

1. Setting Context Step

To establish the risk context, the project team discusses risk during the project kickoff and at the start of each sprint. At the outset of the project, stakeholders, including the project team, customers, and subject matter experts, come together in a workshop setting to identify risks associated with the overall project and known requirements. These risks are evaluated by the stakeholders, who then decide on a course of action. To illustrate, the sprint cycle typically begins by addressing requirements with the highest level of risk, following the adage “Fail early; fail fast; fail cheaply.” A risk register is established for both project and sprint risks and is continuously updated throughout the project at various points in the sprint cycles.

2. Risk Assessment Steps – Identify, Analyze, and Determine

During the sprint planning meeting at the start of the cycle, the project team evaluates the risk associated with each requirement in the product backlog, as well as any new risk that may have arisen, and devises appropriate response plans. This process allows the team to identify potential risks and take planned actions, such as pinpointing features from the sprint planning session that present technical challenges without any clear solutions. The team may also opt to perform an architectural spike, or proof-of-concept, during the sprint to explore viable solutions.

3. Implementing Risk Response

When selecting items for the sprint backlog, the team takes into account the risks associated with each item, ensuring that the sprint can be delivered successfully while incorporating risk response tasks. One important outcome of this process is the updating of the product backlog to include risk activities related to product feature requirements. This ensures that future sprint cycles will include these risk tasks in their effort estimation and sprint backlog items.

4.  Monitoring Risk

There exist various scrum events and artifacts that aid in monitoring risks, such as:

• Risk management is integrated into the daily stand-up scrum meeting, where the team discusses the progress of deliverables and identifies any potential risks that may arise.
• The sprint review serves as a platform to confirm whether the solution aligns with stakeholder expectations. During this event, stakeholders can discuss any required solution modifications to address new business needs, which helps minimize the risk of delivering an unsatisfactory solution at the end of the project.
• During sprint retrospectives, the project team examines any challenges encountered in the previous sprint and evaluates whether those challenges could pose a risk to the project and sprint levels.

To ensure successful Agile risk management, it is important to have a shared understanding of its significance and a collective dedication to the approach within the project team. Agile adopts a collaborative decision-making structure that necessitates active participation and the exchange of information among all team members regarding the association between solution requirements, risks, and opportunities. Risk ownership serves as the fundamental principle for Agile risk management.

Rethinking Control Functions

As organizations embrace Agile methodologies to realize their strategic goals through digital acceleration, they must re-evaluate their control functions, including risk management, to keep up with the frequent release cycles and build capabilities to advise risk owners in near real-time. To address this business need, an Agile risk management process can be employed, which incorporates best practices from project management and enterprise risk management with Agile methodologies to meet the demands for organizational agility.

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