Understanding and Accessing Project Risk
- Project Management

Understanding and Accessing Project Risk

Risk is not the enemy!

In most languages, the term “risk” carries a Clientstation. In fact, clients often tell me, whenever I bring up this topic as it relates to their organization or projects, that the term “risk” makes them anxious and they would rather avoid talking about it. However, “risk” is not the problem. Instead, avoiding discussing risks and addressing them can get you in deep trouble.

First of all, “risk” is just uncertainty. It can be positive uncertainties (opportunities) or negative ones (threats.) Therefore, when you start identifying risks, there will be some nice surprises. A positive risk or opportunity might be, for example, getting more work later on from a new client if you perform well for them in the current project.

The best way to address risk is by making a list. This task not only helps you identify the risks but also has a great psychological effect by simply demystifying them and dealing with them head-on. Once you have identified as many risks as you can, list them any way you want, alphabetically, by category, by type (opportunity or threat), or by priority.

Next, after finishing the list, determine their probability, which can be in a percentage (%) on a scale of 0.1 to 0.9, or as “high,” “medium,” or “low.” Once the probability has been established, determine their impact. This is important because risk may have a high probability of occurring, but if it does occur, its impact on you or your project might be low. The impact can also be determined as “high,” “medium,” or “low,” or on a scale of 1 to 10 or 0.1 to 0.9, etc. For larger projects, I recommend using a numeric system because you might want to determine the probability–impact (P-I) score, which requires multiplying probability and impact, such as:

Probability: 0.9 (90%)

Impact: +0.8 (an eight on a scale of 1 to 10) – the plus sign means this is an opportunity.

PxI score would be 0.72 (0.9 x 0.8)

The last two steps will entail 1) developing responses (strategies) fo,r each risk, for example how to mitigate the potential or enhance the potential opportunities, and 2) identifying the risks that  might be occurring, which are called “triggers.” Remember, the risk is uncertain and may or may not materialize. Therefore, as needed, you need to track your risks and adjust their probability, impact, response, etc.

The best approach to keep track of your risks is by using the “risk register.” An example is provided below: 

RISK REGISTER

Understanding and Accessing Project Risk

Additionally, as required or desired, an evaluation of each risk’s expected monetary value (EMV) can be completed. This is determined by multiplying the “P x I” score by the total value of the risk. For example, Risk R1, shown in the table above, might mean 100,000 € in new work. Therefore the EMV would equal +0.63 x 100,000 € = +63,000 €.

Of course, the actual risk I either worth 100,000 € if more work is awarded to you or 0 € if the new work never materializes. However, at the start of the project, when uncertainty is high, we can only guess at the outcome of all risks and weigh that estimation accordingly. For example, this risk is worth +63,000 € and, therefore, is worth tracking, exploiting, and trying to get to happen.

Good luck with risk management, and remalwaysdress “risk” head-on!

Understanding and Accessing Project Risk

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