Every project is subject to a number of variables – either Favorable Factors or Adverse Factors that can affect its progress and outcome. Identifying all the possible Risks is the First Step to Analyse Risks for Prioritization, then calculate Quantitative Impact, Developing Risk Responses or Strategies, Implementing pre-determined action plans or Address Risks Appropriately if any risk occurs and their Monitoring.
We shall Discuss here Factors that Lead to Projects @ Risk
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What is Risk
As per PMI PMBoK Six Edition:
Risk is a Future Uncertain Event or condition that, if it occurs, has a Positive or Negative Effect on one or more project objectives (like Scope, Time, Cost and Quality).
As per ISO 31000:
Risk is the effect of uncertainty on objectives, and an effect is a positive or negative deviation from what is expected.
According to International Maritime Organization (IMO), risk is the “combination of the frequency and the severity of the consequence”, thereby articulates two components of the likelihood of occurrence and the probability of severity of the (un)predictable consequences.
Risk may have Positive Impact (referred to as Opportunity) or Negative impact (referred as Threat)
What is Project Risk
There are hardly any projects that are Free of Risks.
A Project Risk is any Unforeseen Event that may — or may not — occur during a project. A risk isn’t necessarily negative; it’s just an event where the outcome is uncertain. As such, a project risk can have either a negative or positive effect on the project’s objectives.
We shall discuss here some Potential Risks mainly Adverse Events that are certain times beyond the control of the Project Management that may stall the project or discontinue when such events occur.
Strategic Risks :
Risks associate with the Fundamental Decisions that Top Management taken concerning an Projects objectives, like Risks that arise from Errors or Deviations in Strategy, Failed Business Decisions such as choosing a Technology that does not work as expected or Wrong Selection of a Project; Mergers, Acquisitions and other Competition. Capability & Capacity mis-calculations or unrealistic Expectations / Goals are also influencing the Risk Profile. Poor sponsorship and buy-in at senior levels also increase the risk of a project.
Business Risks :
Business risks are uncertain factors, Internal or External, that threaten the Financial Health (like Financial issues with Cashflow, Capital or Cost Pressures); IT Disasters and Equipment Failure; Changes in Market Conditions – like Demand & Supply or Competition; Human Resource Issues, such as Staffing or other effects of an organization. External Factors including Natural Calamities (like storms, floods, Earthquakes) and Terrorism, Vandalism, and civil unrest or disturbances are also may adversely impact the Project.
Risk of Scope Creep:
This risk involves the uncertain events or conditions that are related to the project scope & scope of the project becoming larger over time due to Poorly Defined Project Scope; Addition of Unrequested or Unplanned Features; Poor Communication etc.
Cost Risks:
This is the risk that the project costs more than budgeted due to Incorrectly Forecasting the Budget to complete the project; Delivery of work taking Longer than Expected; Cost Escalation of Out Sourced Contracts; Losses that occur when a Customer Fails to Pay for Delivered Services; Cost Impact Due to Unexpected Factors etc.
Scheduled Risks :
Schedule Risk are associated with Project Activities or Tasks taking Longer than Planned. The Schedule Risks may be due to Wrong Estimates, Failure to Baseline the Schedules; Mistake in Sequencing or Identifying Dependencies; Assigning the Wrong Resources; due to Fast Tracking (Rework) or Crashing etc.
Performance Risks
Performance risk is the risk that the project won’t produce the results and benefits outlined in the Project or fail to produce results consistent with Specifications. A performance risk is the potential risk that a project doesn’t perform as initially expected or not deliver as much value as required in terms of product, service, program or project.
Operational Risks
An operational risk includes risks from poor implementation and process problems such as Engineering Works, Services, Procurement, Low Morale of the Resources, Resistance to Change and Poor Processes in place across the project organization etc. These Process Factors also may lead to Performance Risk because of poor implementation that prevents the ideal outcome to happen.
Governance Risks :
Governance is the framework of authority and accountability that defines and controls the outputs, outcomes and benefits from projects, programs and portfolios. Project governance provides direction and defines Ground Rules and Generally Agreed upon Practices, Roles & Responsibility, Decision-making and Communication Procedures and Good Practices & Metrics for better Performance of the project. Poor Governance of the Projects may Lead to Failure.
Legal Risks :
A legal risk arises from legal and regulatory obligations, non-compliance of statutory requirements may lead to legal liability in the future. Contractual Disputes also may rise Risk of project failures.
Hazard or Health and Safety Risk
A hazard is any source of potential damage, harm or adverse health effects on something or someone. Workplace hazards can come from a wide range of sources. General examples include any substance, material, process, practice, etc. that has the ability to cause harm or adverse health effect to a person or property. Some Categories of Hazards include chemical, biological ergonomic, physical, psychosocial, safety etc.
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Author : SN Panigrahi, PMP, ATP (PMI) | GST & Foreign Trade & Projects Consultant | Corporate Trainer, Mentor & Author | National Council Member & Course Director, IIMM- Hyderabad | [email protected]
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