How to Recognize Project Risks

How do I know if my project is at risk and, if so, what can I do about it?

Simple Indications

Some simple indications that a project is at risk:

·         The project's sponsor does not recognized that every project is an exercise in risk

·         No risks have been identified, or no appropriate contingency plans have been developed

·         The project relies entirely on the contingency allowances

·         The project's goals, objectives, scope and deliverables are not clearly defined, nor understood

·         Costs, schedules and performance are not expressed in ranges

More simple indicators

·         Future timing of activities and events are vague

·         Standards for performance are absent or unrealistic

·         "We expect the best there is for everything!"

·         The project is very different from the last one

·         A large number of alternatives are perceived as possible

·         Some or all technical data is lacking

·         Design lacks production or engineering input

·         Prototype of a key element is missing

·         There is a higher than usual R&D component

Still more indicators

·         Some or all environmental considerations or permits are not considered or available

·         Bids in response to requests for quotation vary widely

·         Some key subsystems and/or materials are sole sourced

·         There is a feeling of uneasiness

·         Someone starts "hedging their bets"!

·         Other similar projects have been delayed or canceled

What can I do about such a risky project?

·      Here are some simple rules-of-thumb

·      Don't continue the project, or accept one of its risks, if:

·         The organization cannot afford to lose

·         The exposure to the outcome is too great

·         The project, or situation, is just not worth it

·         The odds are not in the project's favor

More simple rules-of-thumb

Discontinue the project, or avoid the risk if:

·         It is seen as no more than a "fair bet"

·         The benefits have not been identified

·         There appear to be a large number of acceptable alternatives

·         The greater the number, the greater the uncertainty

·         One or more of the project's risks does not support the project objectives

Still more rules-of-thumb

Discontinue the project, or avoid the risk if:

·         The Expected Value from the baseline assumptions is negative

·         Or becomes negative with small changes in the assumptions

·         The data is unorganized, without structure or pattern

·         Get more data, or do research!

·         A contingency plan is not in place should the results prove to be less than satisfactory

Bottom Line

A viable project is one in which the probability of gain is higher than the probable consequences of loss

1004 Project Risk

Key Words: Project risk management, project risk, risk, uncertainty, opportunity
Area of PM Application: Universal
(See IAC #1001)
Topic Level: Process
(See IAC #1002)
Related Topics:
Reference:

What is project risk?

Be careful how you say it!

·      In project work

·         Always refer to project risk

·      Why?

·         Because use of the term "risk" (i.e. on its own) typically refers to risk as defined in the insurance industry

·         Which commonly refers to something happening to you that you don't like!

·      Project risk is a special case of risk

·         The risk of the project not being successful

·         We'll deal with the insurance sort in a later Issacon

Dual meaning

·      In the literature, risk is often used to imply simply failing to fall into line with the project plan

·         Either over or under

·      This is really normal project progress evolution

·         And management's responsibility to track and control

·         After all, schedules and budgets are only based on best estimates

·         To be handled by management strategy, tactics and contingencies

Risk in Progress Evolution

·      If your project is viewed as unsuccessful simply because

·         It fell behind schedule

·         Or went over budget

·         Perhaps due to poor estimating

·         Or to lower than planned productivity

·      Such situations are evolutionary - not events

·         That's not usually part of formal project risk management

·         That's the project team's management responsibility

Event Oriented Project Risk

·      While risk is the possibility of an undesirable outcome

·         Formal Project Risk Management usually focuses on "Risk Events"

·      Thus

·         Project Risk is the cumulative effect of the chances of adverse events which could affect the projectís objectives

·         Or, the degree of exposure to untoward or turbulent events and their probable consequences

Appropriate Risk Event Response

·      Note the use of the word "events"

·      For identifying, analyzing and mitigating unplanned events

·         Or better still, avoiding them altogether

·         Adopt some degree of formal project risk management

·         And be ready with an appropriate response

Evolution versus Events

·      As your project evolves

·         It may well fall behind schedule

·         And run over budget

·         Requiring corrective action

·      If, however, the corrective action fails and you miss a mandated deadline as a result

·         That is indeed an "event"

·         For which you would be well advised to have a good risk management plan!