3 minutes
CoverAbout This Book1. Introduction to Project Management1.1. Project Management Defined1.2. Project Definition and Context1.3. Key Skills of the Project Manager1.4. Introduction to the Project Management Knowledge Areas2. Project Profiling2.1. Using a Project Profile2.2. Project Profiling Models2.3. Complex Systems and the Darnall-Preston Complexity Index2.4. Darnall-Preston Complexity Index Structure2.5. Using the Darnall-Preston Complexity Index to Measure Organizational Complexity3. Project Phases and Organization3.1. Project Phases and Organization3.2. Project Phases and Organization4. Understanding and Meeting Client Expectations4.1. Including the Client4.2. Understanding Values and Expectations4.3. Dealing with Problems5. Working with People on Projects5.1. Working with Individuals5.2. Working with Groups and Teams5.3. Creating a Project Culture6. Communication Technologies6.1. Types of Communication6.2. Selecting Software7. Starting a Project7.1. Project Selection7.2. Project Scope7.3. Project Start-Up7.4. Alignment Process7.5. Communications Planning8. Project Time Management8.1. Types of Schedules8.2. Elements of Time Management8.3. Critical Path and Float8.4. Managing the Schedule8.5. Project Scheduling Software9. Costs and Procurement9.1. Estimating Costs9.2. Managing the Budget9.3. Identifying the Need for Procuring Services9.4. Procurement of Goods9.5. Selecting the Type of Contract9.6. Procurement Process10. Managing Project Quality10.1. Standards of Quality and Statistics10.2. Development of Quality as a Competitive Advantage10.3. Relevance of Quality Programs to Project Quality10.4. Planning and Controlling Project Quality10.5. Assuring Quality11. Managing Project Risk11.1. Defining Risk11.2. Risk Management Process11.3. Project Risk by Phases11.4. Project Risk and the Project Complexity Profile12. Project Closure12.1. Project Closure
11.1

Defining Risk

Keywords: Project Risk, Risk Management

Learning Objectives

  1. Define project risk.
  2. Define the difference between known and unknown risks.
  3. Describe the difference between the business risk of the organization and project risk.

 Risk is the possibility of loss or injury.1 Project risk is an uncertain event or condition that, if it occurs, has an effect on at least one project objective.2 Risk management focuses on identifying and assessing the risks to the project and managing those risks to minimize the impact on the project. There are no risk-free projects because there are an infinite number of events that can have a negative effect on the project. Risk management is not about eliminating risk but about identifying, assessing, and managing risk.

Tzvi Raz, Aaron Shenhar, and Dov Dvir3 studied risk management practices on one hundred projects in a variety of industries. The results of this study suggested the following about risk management practices:

Risk deals with the uncertainty of events that could affect the project. Some potential negative project events have a high likelihood of occurring on specific projects. Examples are as follows:

These are examples of known risks. Known risks are events that have been identified and analyzed for which advanced planning is possible. Other risks are unknown or unforeseen.

Weather

Project team members were flying to a project review meeting in South Carolina when a severe storm caused all flights to be cancelled. Members of the leadership team could not make the meeting and weren’t even able to return to their home base for a couple of days.

Sudden Family Death

Just before a project meeting in Texas, the instructional design lead received word that his father had died in the middle of the night. The team delayed making decisions on some critical events without the knowledge and judgment of the instructional designer.

These events were unforeseen by the project team, and in both cases the projects experienced schedule delays and additional costs.

Project risks are separate from the organizational risks that are associated with the business purpose of the project.

A project was chartered to design training for a new customer management system at a cost not to exceed $250,000. If a project is completed on time, within budget, and meets all quality specifications, the project is successful. If the customer management system does not meet the needs of the organization, the organizational goals of the project may not be achieved. The customer management system is an organizational or business risk. The company authorized the project based on assumptions about the system meeting their needs. The system’s capability is not a project risk on this project.

Key Takeaways

  • Project risk is the possibility that project events will not occur as planned or that unplanned events will occur that will have a negative impact on the project.
  • Known risks can be identified before they occur, while unknown risks are unforeseen.
  • Organizational risks are associated with the business purpose of the project and assumed by the client when deciding to do the project.

References

Merriam-Webster Online, s.v. “risk,” http://www.merriam-webster.com/dictionary/Risk(accessed August 21, 2009).

Project Management Institute, Inc., A Guide to the Project Management Body of Knowledge (PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc., 2008), 273.

Tzvi Raz, Aaron J. Shenhar, and Dov Dvir, “Risk Management, Project Success, and Technological Uncertainty,” R&D Management 32 (2002): 101–12.

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