Clearing the Haze – What is Project Risk?

iStock_000008363188XSmall

Photo courtesy of iStockphoto.com.

If you say the word “risk” to ten people, each person may think of something different – insurance, threats, investments, bets, or potential loss.

It is no wonder that there is so much confusion. Many credible sources provide conflicting definitions.

The Merriam Webster dictionary defines risk as “the possibility of loss or injury: peril.”

Risk management standards, guides, and methodologies define risk in many different ways. Some include the possibility of positive risks or opportunities; others do not.

“Precision of communication is important, more important than ever, in our era of hair trigger balances, when a false or misunderstood word may create as much disaster as a sudden thoughtless act.”   — James Thurber

As projects start, project managers should work with the project sponsor and key stakeholders to clarify the project objectives or goals. Once the objectives are clear, share how risk management can help achieve the objectives. Provide concrete examples that are relevant to the project at hand.

Next, agree on a definition for project risk. I suggest the risk definition from the Project Management Institute’s Project Management Body of Knowledge (PMBOK).

PMBOK Definition of Risk

Risk – an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, and quality.

Let’s break down this definition of risk:

  • Uncertain event or condition. Risks involve uncertainty. When identifying risks, I ask teams to focus primarily on the uncertain events or conditions that may have the greatest impact on the project, not the trivial things.
  • If it occurs. The uncertain event or condition may or may not occur. If a threat occurs, it becomes an issue or problem. If an opportunity occurs, it becomes a benefit.
  • Positive effect. When I share the PMBOK’s definition of risk, I ask if anything seems strange about the definition. Many people say it seems odd that risk can have a positive effect. I provide examples of how “opportunities” or up-side risks can help achieve the project objectives.
  • Negative effect. I do not normally have to spend much time on the negative effect aspect. This is how most people think of risk. I introduce the term “threat” for the downside risks.
  • Project objectives. To bring value to the risk management processes, keep your teams focused on project objectives such as scope, schedule, cost, and quality. The heart of risk management is helping others achieve their objectives.
  • Minimizing the use of the term risk. Because the term “risk” is often misunderstood, I use the terms threats and opportunities more often. If I am leading an exercise to identify risks, I will ask the participants to identify threats or potential problems first. Then I ask the participants to identify opportunities or potential benefits to the project.

Some people prefer to define risk as “an uncertain event that, if it occurs, has a negative effect on one or more project objectives.” People argue that including positive effects in the definition creates confusion. If you decide to leave out the positive effects in the definition, still consider how you and your team can identify and bring to fruition the most significant opportunities.

The important thing is to discuss and get agreement with your team about how to define risk. Remember – “a misunderstood word may create as much disaster as a sudden thoughtless act.” Include the definition in your Risk Management Plan. Clear communication will position your team for greater achievement.

Question: Do you include positive effects in your definition of risk? If not, why not? 

Related Posts:

Please note: I reserve the right to delete comments that are offensive or off-topic.

Leave a Reply

Your email address will not be published. Required fields are marked *

One thought on “Clearing the Haze – What is Project Risk?