Stakeholders Are One of Your Biggest Project Risks

The best processes and methods alone won’t make your project a success. Projects are delivered by people, and it’s people who do the work. Likewise, it’s people who can hinder or even halt your project. Often, the biggest risks to your project aren’t changes, budget overruns, or incorrect assumptions but rather the dynamics and influences of your stakeholders. Your stakeholders could indeed be your greatest risks! This article will explain what this means for your project. Curious? Then keep reading!

Stakeholders Influence Your Project—Positively or Negatively

The stakeholders in your project are people, groups, and organizations actively involved in the project, those who influence the project or its outcomes, or those whose interests may be positively or negatively affected by the project’s completion. These stakeholders can include clients, senior management, project teams, customers, internal departments, and, depending on the project, even residents near a construction site, authorities, or government agencies.

Stakeholders Are Often an Underestimated Source of Risk in Projects

Projects frequently slow down or risk failure because the interests, expectations, or resistance of certain stakeholders were not adequately considered. Stakeholder risks can arise in many forms and impact the project differently depending on its phase. Here are a few common examples:

  • Resistance to Change: Employees or departments directly affected by the project’s outcomes may feel bypassed or be skeptical about changes. This resistance can lead to delays, mistrust, and low acceptance of the project’s results.
  • Lack of Resource Allocation: Managers and decision-makers who should ideally support the project may hold back essential resources like budget or personnel. This lack of support can disrupt timelines, making it difficult to meet milestones.
  • Interdepartmental Conflicts: Different departments often have conflicting goals. If stakeholders from production, sales, or IT compete over resources or priorities, it can obstruct the entire project.
  • Changes in External Conditions: Customers, suppliers, or regulatory requirements may change during the project. These external stakeholders may impact project requirements or market viability, putting additional pressure on the project to adapt.

Projects can, therefore, fail not only due to technical or financial issues but also due to unsuccessful stakeholder collaboration. Early and targeted engagement with stakeholder risks is essential to manage these risks proactively and secure project success.

Never Underestimate the Stakeholders’ Ability to Disrupt Even Your Best Plans!

At the beginning of a project, your knowledge about stakeholders is still limited. Uncertainties exist about how they might behave in the coming weeks and months, and their actions can have a range of impacts: they might be destructive, supportive, dismissive, obstructive, delaying, irritating, or even damaging to your reputation. This is why it’s crucial to engage deeply with stakeholders right from the start. Two methods can help reduce stakeholder risks and bring stakeholders on board: stakeholder management and risk management.

Types of Stakeholder Risks

Stakeholder risks can threaten project success in various ways. One key distinction is whether stakeholders are internal or external to the company, which allows you to categorize risks as internal or external:

  • Internal Stakeholder Risks: These arise within the company. Examples include employee resistance to changes the project may bring, or interdepartmental conflicts where different teams pursue conflicting goals. These risks often lead to delays, lack of support, or low acceptance of project outcomes.
  • External Stakeholder Risks: External stakeholders such as clients, suppliers, or regulatory bodies can also pose risks. For instance, regulatory changes or new client requirements may necessitate project adjustments. Similarly, delays or shortages in supplier deliveries can impact the project.

By identifying these types of risks early on, you as a project manager can develop effective strategies to proactively minimize any negative impacts on the project.

Managing Stakeholder Risks

Stakeholder analysis is a valuable part of your risk management activities. In stakeholder management, three key questions are essential:

  1. Who is impacted by or interested in the project?
  2. What are the stakeholders’ main concerns?
  3. What actions should we take?

Using these three straightforward questions helps you understand your stakeholders and take any necessary steps to ensure their support, so they are as favorable as possible toward the project and contribute in various ways.

Stakeholder management is a crucial input for your risk management strategy. Typically, projects have standard risk categories, and stakeholder risks fall under the broader category of project environmental risks. However, this isn’t entirely accurate, since stakeholders aren’t limited to external factors—they include the project team, the client, and other internal actors. Stakeholders deserve significant attention, even though they often appear tucked away in the lower right corner of the following figure.

Typical Risk Categories for Projects

Managing Stakeholders in Three Steps

Step 1: Who is Affected or Interested?

As in risk management, you can only manage stakeholders you’re aware of, so be creative when identifying them. Stakeholders may include steering committee members, the CFO, regulators, end consumers, your client’s customers, internal support staff, as well as finance and procurement departments. In risk management, we identify threats and opportunities—stakeholders, too, can be opponents or supporters of the project.

Step 2: Analyze and Quantify the Risk (What Are Their Concerns?)

In risk analysis, threats are evaluated based on likelihood and impact. Similarly, stakeholders can be assessed based on their influence on the project (authority) and their level of interest. A matrix can help visualize appropriate actions for each stakeholder group. You might also use a 5×5 matrix, placing stakeholder names in specific fields, which quickly highlights stakeholder importance and guides you toward suitable actions.

When analyzing and evaluating key stakeholders, consider these questions:

  • What are their interests?
  • How might they influence the project (positively/negatively)?
  • How does the project align with their priorities?
  • What do you need from them to ensure smooth project execution?
Stakeholder Interest/Influence Matrix

1. Decision-Makers (High Influence / High Interest) – Actively Engage

These stakeholders are crucial to project success, with both the power to influence and a high interest in the project’s progress.

  • Regular Communication: Keep them updated through regular meetings and reports.
  • Involve in Decision-Making: Include them in important decisions and consider their input.
  • Encourage Engagement: Seek feedback and show how their involvement positively impacts the project.
  • Build Trust: Foster close collaboration and transparency to strengthen trust.

2. Influencers (High Influence / Low Interest) – Satisfy

These stakeholders can influence the project but have limited interest in daily activities.

  • Targeted Updates: Provide them with key milestone updates without overwhelming them with details.
  • Responsive Communication: Be prepared to address their inquiries or concerns proactively.
  • Manage Expectations: Identify and meet their expectations to prevent negative impacts.
  • Maintain Positive Relations: Invest in building a supportive relationship.

3. Supporters (Low Influence / High Interest) – Inform

These stakeholders have strong interest but little influence over the project outcome.

  • Informative Communication: Provide regular updates through newsletters, emails, or online platforms.
  • Solicit Feedback: Encourage their input to build acceptance and understanding of the project.
  • Interactive Formats: Use workshops or Q&A sessions to keep them informed and engaged.
  • Show Openness: Make it clear that their feedback is valued, offering them a platform for information and interaction.

4. Observers – Marginal Stakeholders (Low Influence / Low Interest) – Minimal Effort

These stakeholders have low interest and influence on the project.

  • Basic Information: Share essential project information via a website or periodic status reports.
  • Minimize Contact: Inform them only as needed due to limited engagement.
  • Reactive Communication: Be available for inquiries but limit resource allocation for this group.
  • Monitor Changes: Watch for shifts in their interest or influence and adjust engagement if necessary.

Step 3: Developing Actions

The key to effective stakeholder management is communication. To maximize support and minimize opposition, tailor communication strategies by addressing these questions:

  • Who needs information?
  • What information is required?
  • How often and when should it be shared?

By understanding stakeholders’ needs and concerns, you can build stronger alliances, leverage supporters effectively, and reduce potential challenges from opponents.

How to Combine Stakeholder Management and Risk Management

Integrating stakeholder management with risk management strengthens your project’s overall risk management strategy. Start by conducting stakeholder management according to your established processes and methods, and then feed key risks identified from stakeholder analysis into the project’s risk analysis activities. This way, all project risks are analyzed and addressed collectively, and any new responses can be fed back into the stakeholder management process.

The Secret of Successful Stakeholder Management is Simple

Effective stakeholder management is essential for identifying and addressing project risks and opportunities early on. By analyzing the interests and influence of various stakeholders and developing appropriate strategies, you lay a solid foundation for project success. This approach helps to defuse conflicts, prevent delays, and increase acceptance for the project. The goal is to make stakeholders your partners through transparent communication and regular alignment.

The keys to success in both stakeholder and risk management are remarkably similar, especially given that both involve “intangible” aspects of project management. Here are four critical principles to make these activities even more effective:

  1. Commit to Doing It: Make stakeholder management a priority.
  2. Do It with Conviction: Approach it with genuine intent and purpose.
  3. Start Early: Engage stakeholders from the outset.
  4. Stay Consistent: Make stakeholder engagement a continuous effort.

Start today by analyzing your stakeholders and defining actions! Targeted stakeholder analysis and thoughtful management are some of your most powerful tools for a successful project!

Here You Can Find More Knowledge

Would you like to learn more about how to make your projects more successful with Project Risk Management? My book Project Risk Management – Practical Guide takes you an important step further!

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Posted in Project Leadership, Risk Management.