Project Management
Chapter 10. Project Risks
,10.0 Learning Objectives and Overview
Learning Objectives
1. Define project risks and differentiate between risk types.
2. Identify risks that may occur during the implementation of a project.
3. Describe the process to create a project risk management plan.
4. Conduct a qualitative risk analysis.
5. Develop and implement risk responses based on identification and analysis of risks.
Overview
Although project managers can prepare a well-thought-out and comprehensive project scope, schedule
and cost management plans, they cannot ensure that all these plans are free of problems that may occur
due to numerous reasons during the project. Even the most carefully planned projects can run into
trouble. No matter how well we plan, our project can always encounter unexpected problems. Team
members get sick or quit, resources that we depend on turn out to be unavailable, even the weather can
throw us for a loop (e.g., a snowstorm). So, does that mean that we are helpless against unknown
problems? No! We can use risk planning to identify potential problems that could cause trouble for the
project, analyze how likely they are to occur, take action to prevent the risks we can avoid, and
minimize the ones that we can’t. In this chapter, we will discuss both negative risks (i.e., threats) and
positive risks (i.e., opportunities). A project manager must always keep in mind that risks mean
uncertainties, not solely problems or threats all the time, since they are sometimes opportunities that
we should consider exploiting. There are no risk-free projects because there is an infinite number of
events that can have a negative or positive effect on projects. Project managers must be prepared to
deal with uncertainties. Planning for events that can delay a project, decrease its quality, or increase its
budget is a necessary part of project planning.
275
, Project Management
10.1 Project Risk
Risks are an aspect of uncertainty . Therefore, an uncertainty is not equal to a risk. Risks can be
measured while uncertainties cannot be. That is, potential outcomes of a risk can be described whereas
it wouldn’t be possible to determine the outcomes for uncertainties. Risks can be controlled if response
strategies can be defined and monitored during the project. Project team can respond to a risk if the
risk triggers are identified and there is an owner of the risk who monitors the risk among other factors.
Thus, when the project teams discuss all possible uncertainties in the initiation and planning stages,
they determine the occurrence probability and the impact scale. For example, in our m-commerce
project, testers may not determine some of the important code errors, which might lead to rework,
schedule slippage and cost overruns. Considering the previous projects and lessons learned, we can
predict the probability and how it may affect the project if the risk occurs. However, we can never be
sure that this tester has malicious intentions to help a strong competitor. This would be an uncertainty,
not a risk.
Project risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or
more project objectives . Risks exist in all projects. It is of high importance to keep in mind that a risk
does not always create negative outcomes, but can lead to positive outcomes. The subsections 10.1.1
and 10.1.2 below elaborate on both types of risk with examples.
10.1.1 Negative Project Risks
It is the reality that project teams mostly encounter negative risks. These risks might jeopardize the
well-being of a project’s progress and lead to failure if they occur. Some examples of a negative project
risk are:
Machines can fail in the middle of a critical activity.
A vendor may not dispatch raw materials on time, or they may be damaged during a long
journey from the vendor’s or supplier’s country to our project’s location.
A key human resource for an activity may become sick or may find a better job and leave the
organization.
Projects that depend on good weather, such as road construction projects, face risk of delays
due to exceptionally wet or windy weather.
Safety risks are also common on construction projects.
Changes in the value of local currency during a project affect purchasing power and budgets
on projects with large international components.
A short example for negative risks:
276
Chapter 10. Project Risks
,10.0 Learning Objectives and Overview
Learning Objectives
1. Define project risks and differentiate between risk types.
2. Identify risks that may occur during the implementation of a project.
3. Describe the process to create a project risk management plan.
4. Conduct a qualitative risk analysis.
5. Develop and implement risk responses based on identification and analysis of risks.
Overview
Although project managers can prepare a well-thought-out and comprehensive project scope, schedule
and cost management plans, they cannot ensure that all these plans are free of problems that may occur
due to numerous reasons during the project. Even the most carefully planned projects can run into
trouble. No matter how well we plan, our project can always encounter unexpected problems. Team
members get sick or quit, resources that we depend on turn out to be unavailable, even the weather can
throw us for a loop (e.g., a snowstorm). So, does that mean that we are helpless against unknown
problems? No! We can use risk planning to identify potential problems that could cause trouble for the
project, analyze how likely they are to occur, take action to prevent the risks we can avoid, and
minimize the ones that we can’t. In this chapter, we will discuss both negative risks (i.e., threats) and
positive risks (i.e., opportunities). A project manager must always keep in mind that risks mean
uncertainties, not solely problems or threats all the time, since they are sometimes opportunities that
we should consider exploiting. There are no risk-free projects because there is an infinite number of
events that can have a negative or positive effect on projects. Project managers must be prepared to
deal with uncertainties. Planning for events that can delay a project, decrease its quality, or increase its
budget is a necessary part of project planning.
275
, Project Management
10.1 Project Risk
Risks are an aspect of uncertainty . Therefore, an uncertainty is not equal to a risk. Risks can be
measured while uncertainties cannot be. That is, potential outcomes of a risk can be described whereas
it wouldn’t be possible to determine the outcomes for uncertainties. Risks can be controlled if response
strategies can be defined and monitored during the project. Project team can respond to a risk if the
risk triggers are identified and there is an owner of the risk who monitors the risk among other factors.
Thus, when the project teams discuss all possible uncertainties in the initiation and planning stages,
they determine the occurrence probability and the impact scale. For example, in our m-commerce
project, testers may not determine some of the important code errors, which might lead to rework,
schedule slippage and cost overruns. Considering the previous projects and lessons learned, we can
predict the probability and how it may affect the project if the risk occurs. However, we can never be
sure that this tester has malicious intentions to help a strong competitor. This would be an uncertainty,
not a risk.
Project risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or
more project objectives . Risks exist in all projects. It is of high importance to keep in mind that a risk
does not always create negative outcomes, but can lead to positive outcomes. The subsections 10.1.1
and 10.1.2 below elaborate on both types of risk with examples.
10.1.1 Negative Project Risks
It is the reality that project teams mostly encounter negative risks. These risks might jeopardize the
well-being of a project’s progress and lead to failure if they occur. Some examples of a negative project
risk are:
Machines can fail in the middle of a critical activity.
A vendor may not dispatch raw materials on time, or they may be damaged during a long
journey from the vendor’s or supplier’s country to our project’s location.
A key human resource for an activity may become sick or may find a better job and leave the
organization.
Projects that depend on good weather, such as road construction projects, face risk of delays
due to exceptionally wet or windy weather.
Safety risks are also common on construction projects.
Changes in the value of local currency during a project affect purchasing power and budgets
on projects with large international components.
A short example for negative risks:
276
