This video presents the key risk concepts in project management. You will learn quickly what the risks types in projects are, such as, risk event, uncertainty, types, and impact on projects.
What is a risk? In my experience, I realized that there are a lot of misconceptions regarding the concept of risk.
Some people think that all bad news are risks, this is not true.
Also, some people believe every uncertainty is a risk, that is also not true.
We can say that a risk has two components
(1) It is an uncertain event, might or not happen, has a probability of happening.
(2) has an impact on project objectives, that can be a positive or a negative impact.
A project risk is an uncertain event that impacts project objectives or impacts the objective of one project activity, work package, deliverable, or the whole project. The word objective should be understood under the triple project constraint, that is scope, time, cost, plus quality. Some risks can affect the project as a whole called overall project risks, and another group of risks that affect individual activities or work packages called individual risks.
Overall project risk represents the effect of uncertainty on the project as a whole, it represents the exposure of stakeholders to the implications of the event on the project outcome.
The individual risks affect one or more project components. They are directly related to specifics objectives of individual tasks or work packages.
The second very useful classification to identify and understand the risk consequences is related to the risk "nature."
The four classifications are:
(1) Event risks
These risks are uncertain future events that may or not happen, and if it happens it will affect a task or work package objectives.
I have heard several of my students saying that inclement weather is a risk. Inclement or severe weather condition is not a risk per se. It is for sure an uncertain event. It is a risk if it impacts a project task objective, can be task duration, task quality, task scope, or task cost.
For instance, if a severe weather condition impacts the execution of an outdoor project task, it is a risk for the task. If the project is performed indoors, and the stormy wheater does not affect project task execution and outcomes, it is not a risk.
This is the most common risk type, but there are others of different nature.
(2) Variability risks
The second risk is very well understood by people that work on quality management in manufacturing but not well considered in the project management field. It is called variability risk. It differs from event risk because it is not a single occurrence.
Any work process has some level of variation, can be in task duration or outcomes. For instance, to paint the walls a room may take 4 hours in average. If the project is to paint 100 rooms in a hotel, we may estimate 400 hours, but the worker is not a machine. Naturally, the duration will vary maybe minus plus 10%. Therefore the duration may range from 360 to 440 hours. We can develop the same reasoning for cost and quality.
Therefore, other things beyond single occurrence risk can affect project objectives.
(3) Ambiguity risks
Ambiguity risk is related to a known, an obvious lack of knowledge in project tasks. It means that the project team knows that they do not have all information or knowledge about a task.
For instance, I have worked on several software development projects. The initial step of these projects is to gather the user's demands and requirements. The project team usually knowns that it is impossible to have a formal specification that reflects integrally what the users need in the software. Therefore, it is widely known the user specification is always incomplete, regardless of the effort and dedication of the project team.
This is an authentic situation in which the ambiguity risk is present. The better way of mitigating this type of risk is to conduct a prototype analysis and validation once the project team advances on the software development.
(4) Emergent risk
The fourth risk type is what can is called unknown-unknown risks.
However, I like the definition adopted by Dr. David Hillson, emergent risk to define unknown-and-unknowable unknowns. These are risks entirely outside the project team radar. The team just know that something can happen and interfere with the project execution and outcome. For instance, imagine a farmaceutical drug development project when a competitor launches new medical with a cutting-edge technology the provides much more benefits than the product in development. It is a risk completely outside of the project team knowledge framework, impossible to be known in advance.
The critical challenge is to identify essential business functions and critical tasks and develop a continuity plan in case of disruption. Business continuity strategies are beneficial to deal with unknown-and-unknowable risk.