What is Project Risk?

If you are preparing for the Risk Management Professional Exam or just simply reading this blog because you want to know more about risk, by now you must at least have a basic idea of what a Risk is. Unfortunately, by the term Risk, people immediately start thinking about all those negative possibilities that might impact their project outcome. Did you know that Risks can be positive too? You would be surprised to know that by the finish reading this series on Risk Management, your whole idea of what risks are is definitely bound to change. Most importantly, the way you react to risks (both positive & negative) will change too.

Before we go any further, let us take a look at the official definition of a Risk & Risk Management as per the PMBOK Guide

A Risk is an uncertain event or condition that if it occurs, has a positive or negative effect on a Project's Objectives.

Risk Management literally refers to the management of the Projects Risk. However, the official definition is:

Risk Management is the act of increasing the probability & impact of positive events and decreasing the probability & impact of adverse events within a project.

There are a lot of activities that go into planning & ensuring what is mentioned in the above two lines. All those activities put together encompass Risk Management. Positive Risks are also known as Opportunities. The scope of Risk Management is not only about how to handle the negative risks but also about how we can maximize on these opportunities.

Every Project contains some level of risk that is why Risk Management has become so important. No matter what the project or the business is, there is bound to be a certain level of Uncertainty. It is this uncertainty that represents Risks. Risk Management is central to any good Project Management practice. Unless we have sound Risk Management Practices, the chances of your project’s success is as good as we both clearing the PMI RMP Certification Examination without preparing for even a single day. Would you really want your project’s success chances to be so slim?

The Goal of Risk Management:

The goal of risk management is to identify the risks within the project and develop a response to either reduce the impact or probability that the negative risk will occur. If the risk is a positive risk (a.k.a Opportunity) the goal is to increase the probability and impact of the positive risk.

Much of Risk Management is about Planning. The Risk Management area deals with the following activities:

1. Identify Risks
2. Analyze the impact of the Risks
3. Quantify & Prioritize the Risks
4. Reduce the Impact through Risk Response Planning
5. Monitor Identified Risks
6. Uncover New Risks

Risk Management can be considered a Proactive Approach to Project Management to have a greater control of your Project and also to ensure a greater probability of success. Because a Risk involves a certain amount of Uncertainty you can never completely control the outcome. But, through proper planning you can definitely decrease the probability of negative events as well as increase the probability of positive events which is what the main purpose of this area of Risk Management.

Sweeping the risk under the rug and hoping that the risk will not occur is just plain wishful thinking on our part and can have significant consequences. So, it is important that we understand the fact that “Risk Management is not an optional activity in Project Management but a Mandatory one.”

Prev: Risk Governance

Next: Risk Management & PMBOK Guide

Chapter 49: The Big Picture of Risk Management

The word Risk signifies or means Danger and our perception is that, whenever it happens, the result will be negative or something undesirable. That’s the general description but we are preparing for PMP and what the PMI says matters!!!

According to PMI

Risk is an uncertain event or condition that if occurs, has a positive or negative effect on meeting the project objectives related to components such as schedule (time), cost, scope or Quality.

For example, one of the obvious schedule objectives for a project is to complete the project by the scheduled deadline. If a risk related to the schedule occurs, it can delay the completion of the project, or it can make it possible to finish the project earlier. So, the two characteristics of a risk in project management are the following:

• It stems from elements of uncertainty.
• It might have negative or positive effects on meeting the project objectives.

Risk management includes planning risk management, identifying and analyzing the risks, preparing the response plan, monitoring the risk, and implementing the risk response if the risk occurs.

Look at the picture below that explains the big picture of Risk Management

The picture above shows the corresponding processes used to accomplish these tasks, which are also explained below:
• Plan Risk Management - A process to determine the how of risk management: how to conduct risk management for the project at hand.
• Identify Risks - A process to identify and document the risks that might occur for a given project.
• Perform Qualitative Risk Analysis - A process used to estimate the overall probability for risks to occur and their impact and to prioritize them accordingly for further analysis.
• Perform Quantitative Risk Analysis - A process used to analyze numerically the effect of identified risks on meeting the project objectives.
• Plan Risk Responses - A process used to prepare a risk response plan in order to increase the positive impact and decrease the negative impact of risks on the project.
• Monitor and Control Risks - A process used for tracking identified risks, identifying new risks, executing risk response plans, and evaluating the effectiveness of executing responses throughout the lifecycle of the project.

The risk monitoring and control process is part of the control process group; therefore, we will discuss them later while discussing Monitoring and Controlling Quality and Risk. The other five processes will be discussed in the next few chapters.

Trivia:
The data flow between the different processes as shown in the picture above is true in general. However, a point to note is that, depending upon the project and the experience of the risk management team, shortcuts can be taken. For example, you can go directly from risk identification to quantitative risk analysis, or even to risk response planning depending on how comfortable you are with respect to these tasks.

Prev: Planning Quality

Next: Planning Risk Management