Risk management, is a core discipline of project management and the goal of this chapter is to provide a concise guide to risk management in the development sector. A risk event is something that may happen and could affect the project. These notes gives an overview of risks and key considerations ...
Risk Management
What is risk? The term is often used loosely, without consistency and sometimes incorrectly. In the
context of the PMD Pro, risk is the potential effect of uncertainty on project objectives.
When considering the definition of risk, there are two key ideas that need to be explored further:
Probability – Risk can be seen as relating to the probability of uncertain future events (as
compared to issues which deal with current ones that must be immediately addressed).
Remember, as discussed in the discussion of Section Two’s Project Implementation Phase, that
project issues are risks that have become a reality.
Impact – Risk has the potential to impact the project. Most project teams focus on negative risk
that has the potential to harm the project (time/calendar, cost/resources, quality, scope, etc.)
In general, negative risks are to be avoided. Positive risk, on the other hand, is less widely
acknowledged and understood. Project teams can assume positive risks if they see a potential
opportunity, along with a potential for failure. This is referred to as intelligent risk taking.
Risk management, however, is a core discipline of project management and the goal of this chapter is to
provide a concise guide to risk management in the development sector. A risk event is something that
may happen and could affect the project. Note that the wording “may happen” indicates a probability of
less than 100%. If an event has a probability of 100% - in other words it will happen – the event has now
become an issue (see the discussion of issues management in Section Two).
During the earliest stages of project identification and design, the team will start to gain an initial
understanding of the potential risks that could confront the project. For example, in an agriculture
project the initial interviews with farm families might identify problems in the marketing and
distribution channels for their produce.
As the project evolves, some risks will be resolved or diminished, while others may surface and thus be
added. It is important, however, to continually revisit the question of risk from the earliest stages of the
project through the entire implementation phase.
Risks are managed through a four-step process:
i. Risk identification - identifying and documenting all the risks that can affect the project.
ii. Risk assessment - determining the probability that risks will occur and estimating
their potential impact, and prioritizing risks.
iii. Risk response planning - deciding what actions are needed to reduce or
remove threats, particularly those with high-probability and high-impact.
iv. Risk monitoring and control - responding to risks as they occur and ensuring
proper risk management procedures are being followed.
, 1.Risk Identification
There are two steps within risk identification
process: Negative and Positive Risks
Project Management is Comprehensive!
1. Define project risk categories.
2. Identify specific risks that fit into Comprehensive risk management will focus both on
each of the risk categories. negative risks and positive ones.
Negative risk is represented by potential events that
1.1 Define Risk Categories could harm the project. In general, these risks are to be
Risk categorization can be compared to an avoided. Positive risk, on the other hand, refers to risk
effective medical evaluation. If the doctor that we initiate ourselves because we see a potential
asks: "How do you feel?" the patient might opportunity, along with a potential for failure.
say, "Fine." But the examination is much Take, for example, an agriculture project that is
more revealing if the doctor asks: "How do estimated will take six months to complete. The project
your knees feel? How about your lungs? Any team realizes if you add a number of new implementing
back pain?" With these questions, the partners, the project might be completed in half the
patient will begin to think specifically about time. Of course, new partners mean new risks. What if
specific areas of the body. their capacity is low? What if there are delays adopting
new systems? Etc. There is your dilemma: do you take a
Categories, however, shouldn’t be too broad
chance and introduce risk for positive gain? Or do you go
or too specific. If, in the example above, the
with traditional partners and settle for a six-month
doctor asked only about the patient's upper
delivery date?
and lower body, it wouldn't help much.
Conversely, if the doctor asked about every
bone, joint, and organ, the patient would
quickly get frustrated with the time-wasting
exercise. Instead, the doctor should identify
an appropriate number of meaningful categories that help the patient identify problems.
When developing categories for development project risks, it is important to acknowledge that each
project is unique, and it isn't possible to develop a single set of risk categories that would fit all
organizations and project. Project teams must survey the context of their specific project develop a set
of risk categories that is appropriate to their unique needs. Some potential categories of project risk
include:
Strategic/commercial
Failure of suppliers to meet contractual commitments
Fraud/theft
Implementing Partners failing to deliver the desired outcome
Economic/financial/market
Exchange rate fluctuation
Interest rate instability
Inflation
Market developments adversely affect plans.
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