3.1 Project Risk

Risks are the uncertainties that exist in all projects. A risk can be positive or negative. Some uncertainties, such as the potential of finding an easier way to do a task and/or lower prices for certain materials, can make it easier to achieve a project’s objectives. When this type of uncertain happens, the risk is positive and is therefore referred to as an opportunity. Negative risks are threats to the project – examples of negative risks are the potential for technology to fail and/or a vendor missing an important delivery.

Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, procurement and quality. It may impact each phase of the life cycle.

A risk may have:

• one or more causes (probability – likelihood of occurrence)
• one or more impacts (effects on project objectives)

When risk event occur, it ceases to become uncertain and the threats and benefits requires project management actions.

It is important to consider individual risks and overall project risk.

An individual risk are specific events or conditions that might affect project objectives, elements or task. The effect may be negative or positive and understanding individual risk assist in determining how to apply effort and resources to enhance the chances of project success.

Overall project risk represents the effect of uncertainty on the project as a whole. Overall project risk is more than the sum of individual risks on a project, since it applies to the whole project rather than to individual elements or tasks. It is an important component of strategic decision-making, program and portfolio management and project governance where investment decisions are made and priorities are set.

In this video David explains how the right understanding of risk appetite can help us take the right risks safely.

More Risk-Related Terms

Threat: Is a potential hazard, a threat is not in itself a risk. A risk is the probability that the threat will be realized times the consequences.

Issues: Known potential problems that the project team will definitely have to keep an eye on.

Known risk: Known risks can be identified, analyzed & planned in advance

Unknown risk: Unknown risks are unable to anticipate and describe.

Residual risk: Is the risk that remains after considering the mitigating effects of all options to reduce risk.

Tolerable risk: Is the level of risk people are willing to accept to secure and enjoy certain benefits.

Risk capacity: The maximum amount of risk an organization can bear.

Risk appetite: The maximum amount of risk an organization is willing to assume.