What is Project Risk Management?

risk management technical May 09, 2021
What is Project Risk Management?

Risk management is the art and science we use to assess and respond to the risks which exist throughout the life of our projects.  In fact, risk exists in virtually any initiative - programs, portfolios, business, operations, manufacturing, and more.  We perform risk management so our initiatives are successfully managed within the triple constraints of cost, quality, and time, plus any other constraints appropriate outside of project management.   Using risk management, we identify those factors which can positively or negatively impact our initiatives, quantify the results, and identify responses to minimize the occurrence of negative impact and maximize the potential positive impacts. 

What?  Risks can have benefits?  Absolutely!  This is not new - the idea of positive risks has been around for several iterations of the PMBOK® Guide, but the word risk itself carries a negative connotation. 

Risks are uncertainties, threats, liabilities, or vulnerabilities that may cause projects to deviate from their defined plans. Risk has two major components – uncertainty, probability, or chance and impact, consequences, or costs.

Uncertainty does not imply something bad will happen. A project may want to deviate from a defined plan if the project can be done faster, less expensively, or with higher quality, especially if any of these areas are falling behind as the project progresses.
While risks with negative or unfavorable outcomes are referred to as threats, risks with favorable or positive outcomes are known as opportunities.  Carefully managed opportunity can benefit initiatives as well.  For example, reusable code might be identified for a software project.  It might not be well understood, presenting an element of risk; however, devoting some time to analysis may result in a project plan savings by having some of the work completed early.

Examples of threats include:

  • Bad weather that may shut down a construction project
  • A key team member departing unexpectedly and there is no succession plan in place
  • A battery intended for use in your product was suddenly declared unsafe and can no longer be procured
  • A lack of preventive maintenance causes a key piece of manufacturing equipment to fail

Some examples of opportunities include:

  • Your resource manager assigns some idle resources to help out with your project, allowing you to complete some work earlier
  • The manufacturer of a camera wants to donate one to your event to allow you to record it without the expense of buying a new camera
  • You find an opportunity to renegotiate with a vendor for a lower price
  • A key project resource becomes available earlier than expected and in time to help you save your project from going over schedule

Issues are also often confused with risks. The difference between the two is in timing.  Issues are risks with negative impacts that have occurred. Risks have not yet happened.  They become issues when a risk trigger causes the risk to happen.  So, we may identify bad weather as a risk for our construction project, and the day of the tornado, bad weather becomes an issue. A risk may yield a benefit, a positive outcome when it occurs, so celebration may be in order.  Or perhaps we can nudge things to happen in our favor, so we get the benefits of the opportunity.

Unfortunately too many initiatives believe they are too big or important to fail.  And at the same time, many managers dislike discussing negative things.  Knowing more about risk management may help you educate others in your organization to understand the importance.

Want to learn more about risk management?  Click here to see all our articles!

We also have an international best selling book, Risk Assessment Framework: Successfully Navigating Uncertainty available on all Amazon marketplaces (Paperback ASIN:0989377075, Kindle ASIN: B07ZML9GW50).

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