Someone once described risk as “an event which may or may not occur at some point in the future, but if it does occur it will have a negative impact on your project”. So straight away here, we can see that if the risk is certain to happen then it’s not a risk at all it and it’s an issue that needs to be dealt with right now!
When referring to the project management bodies of knowledge (PMBOK), there is a more precise definition of risk and it is correctly centred on the concept of uncertainty. The possible future event described above potentially leading to a negative effect, is called a threat.
A threat is defined as a condition or situation unfavourable to the project, a negative set of events and circumstances which will have a negative impact on the project.
An opportunity is different as a condition or situation that will be favourable to the project, bringing about the positive set of circumstances and or events that will result in a positive impact.
But to prepare you for the PMP Exam, you need to be reminded that uncertainty can lead to a positive outcome; this is called an opportunity, and along with negative threats are both considered types of risks by virtue of their common uncertainty.
Risk management is an ongoing process throughout the project, and therefore only known risks can be managed. As the project progresses new risks will arise that neither did not exist previously or could not have been identified. Be clear that the definition of an issue is something that has already happened and that needs to be dealt with – do not confuse these with risks.
Turning to the commonly accepted attributes of a project, one of the main descriptions is that a project brings about change, and will therefore have an element of uncertainty – hence the importance of understanding risk when preparing for your PMP Exam.
Projects are fraught with risks, and to give just a few examples; how long will they take and cost, what resources with the right skills and availability can be assigned, have we understood the problem to be solved, and does the plan address a clear solution, and has the project been scoped correctly?
Risk tolerance is another key term that you need to be aware of, and it describes the degree, amount, or volume of risk that an organization is prepared to accept. It is also known as ‘risk appetite’. The project manager should ensure that risk tolerance for the organization is known at the beginning of the project, as this will heavily influence the risk responses that are chosen.
There are five distinct processes associated with risk within the PMBOK planning process group:
Plan risk management.
This process is concerned with one thing; creating the risk management plan, and the contents of this document describes how the remaining five risk management processes are to be conducted.
It defines how you will approach the risk management process, and includes the techniques, methods and the degree of rigor that you will apply to the management of risk within your project.
The single output from this particular process is the risk register, and it is populated with all the events that could cause your project to not meet one or more of its objectives.
The risk register contains a list of all identified risks, their causes, and any possible responses to such a resource that can be identified. The contents of the risk register will drive the remaining four risks processes.
Perform qualitative risk analysis.
This process analyses the probability and impact to the project for each risk. It uses the probability and impact matrix (PIM), and goes on to prioritise and rank each risk within the risk register.
By prioritising each risk, it will how the project to prioritise its time on the dressing those risks that those the greatest threat to the project.
Perform quantitative risk analysis.
This process attempts to assign a projected value, normally specified in terms of cost or time, to those resource which were ranked by performing qualitative risk analysis.
This process also helps you to determine how likely he will are to meet specific schedule and budget objectives by using various tools such as probability distributions risk analysis and modelling techniques.
Plan risk responses.
This process creates a plan for how each risk is to be managed in terms of assigning specific tasks and responsibilities to appropriate members of the team. These are called risk responses, and PMBOK suggests a response set that can be applied to either a risk or an opportunity.
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