PMbasics: Project Risks

Risk and uncertainty are a potential danger for the failure of the project and the risk can affect productivity, time, quality and cost of the project. For this reason in addition to time, cost and quality management of the project we often must talk about systematic risk management as a necessary element of project management. The risk is exposure to possibility of monetary loss, physical damage or delay as a result of taking a particular course of action. Risk needs to be managed due to the fact that it acts at all stages of the project and can change the expected results of the project (may be worse than planned).

Often correspond with two elements that have to be folded at the same time that the risk was achieved; The probability (that will happen) and consequences (what are the negative consequences of the event).

The project manager and his team should divide the risk management into at least three basic phases: identification of sources of risk, risk analysis and risk response. Though there is risk at all stages of the project, the most useful are the earlier analysis, because there is the possibility to act timely.

Here is an example. 🙂

An example of project of the nuclear waste disposal in Yucca Mountain in the United States, which was launched in 1987 by the government headed by Bush senior is perhaps the best example of poor risk management because sources of risk was identified early enough. The biggest risk was the opposition and protests of residents of the State of Nevada because the project started with the approval of Congress but without the consent of residents in the vicinity of the project site. Though they know that there is a probability of resistance of local population, they were convinced that the consequences of this resistance will be minimal (bad risk analysis) and that theirs political power is strong enough to bring the project to the end. What they did not take into account when they were giving false informations about the safety of such project is probability of information leak (what happened) as well as the possible consequences. The result of such risk management was that project was completed in 2009 after nearly 20 years with great resistance from the public and almost no real well-being of the project. It was spent over 13 billion dollars, the budget was several times exceeded, and the project was declared a disaster. The realization of risks can have devastating consequences on the project and therefore risk management is one of the most important elements of project management.