Project Risk

Project Risk

Risk is the probability that your project deliverables, schedule, or resources will be impacted by something unexpected. Project risk is defined by the Project Management Institute (PMI) as “an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.” Because it is impossible to predict the future with absolute certainty, all projects have some risk.

Note: Project risk is greater the longer the project and the less experience you and your team have with similar projects.

This definition includes two key elements of risk:

1. Uncertainty – probability or likelihood of happening, lack of knowledge about an event
   
2. Effect – consequences to the project, impacts

Risks can be positive or negative and are considered threats or opportunities.

Risks can be classified as “Business” (gain/loss) or “Pure” (Insurable: fire, earthquake, theft…)

Risk Example: Equipment may become damaged due to being exposed to inclement weather, such as strong wind or extremely hot and freezing temperatures.

Examples Issues: A team member consistently missing or not joining project meetings as scheduled.

Some risks are not associated with events. These risks types can be:

• Variability – such as test results worse than anticipated or unseasonal weather. These risks can be addressed using Monte Carlo analysis.
  
• Ambiguity – these risks, for example, are new laws or not having a thorough understanding of a network firewall solution. These risks can be addressed through incremental development or prototyping.

It is important to distinguish between risks and issues in project management so the project manager and risk owner can develop an appropriate plan and effective risk strategy. For an effective risk plan, the parameters needed for their differences are classified by:

• Timeline: Risk is all about what may probably/possibly occur in the future, which the project manager would need to create a strategy. An issue is something that is presently happening that may require immediate problem-solving action.
  
• Impact: The second parameter via these two can be distinguished by the concept of potential impact. For a risk, it is something that can be considered as an opportunity or challenge. For an issue, it is typically considered a challenge for the project.

Depending on the complexity and size of your project, your risk plan may consist of the following top 5 risk categories/sources to help define the various types of risks that you may encounter (see figure 7.1):