Risk Management in Software Development: The 2023 Guide

Introduction

In 2023, the software development industry is already a massive part of the global economy that involves organizations and businesses of any size across the world. To put this in perspective, the global business software and services market size is expected to reach USD 474.61 billion in 2022, according to a grant to Grand View Research. The same website forecasts that by 2030 the size of the market will expand up to USD 1,153.7 billion with a CAGR of 11.7%.

However, according to Investopedia, 20% of startups fail in the first year, 50% within five years, and 65% within 10 years. The cause of this is both business and technology factors. The lack of risk management in software engineering within the organization can be a crucial factor potentially leading to the downfall of a great product.

It’s not only startups; large enterprises can also experience massive financial losses due to weak risk analysis and management in software engineering. Quantivate mentions some interesting statistics related to enterprises and risks:

• 69% of executives do not believe that their current risk management practices and policies will stand the test of time and will be able to cover the future needs
• 62% of organizations have experienced some kind of critical risk event in the last three years
• Less than 40% of organizations have their own formal risk management program

It is impossible to cover all potential risks that the organization may face in one single article, but what we can do is talk about the main classification of risks that impact software products and how to practice proper risk management in software engineering. Hopefully, this will help your company avoid the most widespread pitfalls!

Risk management in software project management

What is risk management?

The risk management process consists of identifying, assessing, mitigating, and controlling any possible threats that might affect your business. Risks could be both internal, coming from your employees, for example, or external, like a situation with politics or natural disasters. The primary purpose of risk management is to allow you to minimize the negative effects of potential threats or, in some cases, prevent them altogether.

Risk management process in software engineering

To narrow it down to software engineering, there are some specific threats that are connected to creating a product and may result in schedule delays or costs exceeding the initial budget. These are the essential steps to ensure the success of your product:

Risk identification
It will be a great idea to have someone on your team that has a deep understanding of the software development process and will be able to help you identify possible threats before it’s too late.

Risk evaluation
When a risk is identified, the next move is to determine how serious it is. Do you need to take action immediately, or can the issue be dealt with over time, so you can focus on other business areas? By answering this question correctly, you can move on to prioritization.

Risk prioritization
It is possible that you will end up with multiple identified threats during the development of your product, and you will have to create an order of how to deal with them to maintain effective processes.

Risk management
Here, you can finally take action and mitigate risks by leveraging your team and resources wisely. Once you minimize the threat and make sure it won’t be a problem in the future, you can focus on other business goals. Keep in mind, that there are three possible outcomes to solving a problem:

• Some threats can be eliminated completely, without any negative effects on the future development process
• Some project risks negatively affect the schedule or resource requirements, and the best mitigation strategy is to negotiate fixed project bids with your IT vendors
• In the third scenario, you will find out that your risk management approach is completely or partially ineffective to eliminate the problem. This is not a tragedy, because you can always reassess the risk and come up with another strategy to eliminate it

Who is responsible for risk analysis in project management?

On the surface, the Project Manager is in charge of risk management. But in reality, the responsibility on this matter is shared among all development team members. Even the stakeholders must be aware of common risks and work in cohesion in order to ensure the success of any project.

Examples of the risk involved in software development from a business perspective

There are two angles we can look at regarding possible threats during the software development process. The first is the business side and the second is the technical side. Both can make or break a great initial idea. Let’s start with looking at the business perspective and discuss common sources of risks in IT projects.

Poor planning and lack of understanding from the executives

This is one of the most common types of risks in risk management for software development projects that can lead to budget and deadline challenges.

The task of creating a roadmap for the project, planning the scope of the project, and proper research and analysis lies on a Project Manager or a Product Owner. However, it is super important for executives to be involved in planning and to be able to understand the essentials of the product that will be created.

Additionally, an executive team could be out of alignment with the development team in the business context, and there could be different success criteria for business owners than the development team. So, make sure that the CEO is in sync with the plans of the Project Manager and that there are no departments of the organization in isolation.

No buy-in from management

Another potential risk exists when the project is somehow given a green light to be developed, but there is no buy-in from management. This may lead to sudden budget cuts or changes in the direction of the development process at any given moment. To prevent that, if there is a situation when senior leadership doesn’t see value in a project, it is important to do prep work and outline all the business goals before embarking on the design or buildout.

Bad communication of business context to the development team

Disconnect between management and the development team can negatively impact the development process in another way. Sometimes, the upper management is aligned with the goals, and the development of the project is justified, however, the goals are being poorly transferred to the tech team.

To share a business vision with software developers, you need much more than just having user stories. Keep in mind that hundreds of small decisions will need to be made that will have an effect on the usability of the product, in order for the development team to get a complete understanding of the business direction.

Unrealistic expectations

Unrealistic expectations can happen on both the business and tech sides. However, on the business side, this roadblock comes into play more often because in most projects planning may not be thorough enough and there can be added outside factors that provide “unknown unknowns”. Unrealistic expectations may lead to running out of budget or even cancellation of the entire product, so make sure to put maximum effort into planning and research.

What are potential threats to every software project from a development perspective?

From the tech side, there are some major threats you should be aware of in order to ensure the release of the product and its market success.

Inadequate time spent in Research/Prototyping

It is crucial to strike a balance here. You could be in danger of spending too much time on research and wasting precious time on building a product. On the other hand, not enough research may lead to budget expansion and not making deadlines in the future. How can you make the right decisions with this? Consult with experienced software development providers and set reasonable timelines for research.

Scope creep

Your development team may hit this roadblock if you only take into account the immediate needs of your project while planning. Always leave room for addition in the scope of your project for unanticipated considerations, even if you don’t see the immediate need. The chances are, sometime during the development process either management or the tech team will want to add new features that could potentially derail the entire thing.

Incorrect estimations

This one is closely connected to planning and research because you will end up with incorrect estimations only when you are not informed enough. The management and tech team must be in sync in order to set a reasonable budget and delivery date. Guesswork is out of place here; always rely on facts and make informed decisions with your team.

Integration with legacy systems

This is an important issue that must be taken into account. Your company may already have an existing legacy solution that will be impossible to replace easily, and your development team will need to figure out how to integrate your new product into an existing ecosystem seamlessly.

Tight deadlines

Speaking of deadlines, there are two opposite sides to this topic. With an overly aggressive deadline, you will be in danger of failing to deliver your product on time and bringing down the morale of your development team, since they will have to work under constant pressure.

With too long a deadline, your tech team may lack motivation and fall into a trap of a take-it-easy attitude.

To strike a balance here, just try to not overreach your realistic milestones. IT vendors will help you to create a realistic project plan, which will include rollout, estimate proper deadlines for each stage of the development process according to the project’s scope and budget.

Budget changes

Even with the most rigorous planning, this is a quite common example of the risk involved in software development. More often than not, you may need more money for your project as a result of scope creep. To prevent this situation, check back with the stakeholders regularly and make sure that any additional changes to the product go through a proper protocol before the implementation.

Technical issues

You can’t completely prevent all possible scenarios here because technical issues often include working with new technologies or innovative approaches, large-scale implementations, and data security issues. You can effectively deal with the latter, by having proper legal documentation and implementing reliable compliance solutions.

Future scalability

Planning the lifecycle of your project/product out at least the first several years will help you eliminate possible problems in the future and help you measure success appropriately. It may seem like a good idea to build an initial smaller architecture so save on cost, but will hamper your growth when the product takes off.

Poor code quality

To prevent this threat, you need to partner up with an IT provider with a proven track record in the first place. If you already have a development team, make sure that their code is up to industry standards and conduct regular checks. Additionally, consider implementing User Acceptance Criteria (UAC) to deal with code quality challenges.

Low productivity

To make sure that the productivity of your team is at its best, your Project Manager needs to conduct regular face-to-face meetings with your team members in order to keep up to date with their work attitude and possible personal problems that might influence their performance.

Poor involvement

Sometimes, the tech side of the development is suffering due to poor involvement by stakeholders. Once again, it is the responsibility of your Project Manager to make sure that stakeholders are notified and are only involved in the development process when they need to be.

Inadequate user testing before launch

The lack of Quality Assurance, both manual and automated, can be a reason for the downfall of a great product. Make sure that you have enough budget and time for Quality Assurance Engineers to test your product before launch.

Ignoring taking user feedback for improvements

Inability to take user feedback after launch and make quick changes is the final risk factor we will mention here. This is crucial both for MVPs and full-fledged products. Being flexible to change your product after its release, is one of the advantages that will ensure success. It is wise to set aside a little budget and time to incorporate feedback from actual users, post-launch.

The final word

No matter how well you are prepared, chances are you will face some troubles during the journey of creating your product. Having a fine-tuned process of risk management in software engineering is crucial for any project. You may not have enough experience to prevent all possible threats, but with the help of an experienced IT vendor, you can minimize possible roadblocks and deliver your product just as planned.

FAQ

What is a risk in software development?
Any factor that can feasibly negatively affect the software development process.

What are examples of software development risks?
There are two categories of threats, which include business and technical perspectives. Business risks are often connected to a lack of communication and planning by management, while technical risks are closely related to the development process.

What are technical risks?
Threats that may cause the disruption of the software development process. They may include poor code quality, not meeting deadlines, lack of motivation, low productivity, etc