Definition of Risk in a Project

The PMBOK® Guide describes risk as an uncertain event or condition, that if it occurs, has a positive or negative effect on a project’s objective. The key element of this definition is that the effect of the uncertainty if it occurs, may be positive or negative on the objectives of the planned endeavor.

Risk Management in a Project

Risk management is the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters. 

Risk Management is an important activity for protecting projects from disasters. Risk Management is not a single task, it is ongoing. The most important activity in risk management is risk identification.

Risk Identification Methods

Many methods are used for identifying risks, some are mentioned below.

  • Brainstorming with project team
  • Document Analysis and historical diagrams
  • Evaluation of risk lists and lessons learned from similar projects
  • Risk Checklists with risk categories and risks

Why is it important to identify risks in a project?

By implementing a risk management plan and considering the various potential risks or events before they occur, an organization can save money and protect its future. This is because a robust risk management plan will help a company establish procedures to avoid potential threats, minimize their impact should they occur, and cope with the results. This ability to understand and control risk enables organizations to be more confident in their business decisions.

Furthermore, strong corporate governance principles that focus specifically on risk identification and management can help a company reach its goals.

Risk identification allows you to create a comprehensive understanding that can be leveraged to influence stakeholders and create better project decisions. Good risk identification creates good project communication which results in good decisions.

Other important benefits of risk identification include:

  • Creates a safe and secure work environment for all staff and customers.
  • Increases the stability of business operations while also decreasing legal liability.
  • Provides protection from events that are detrimental to both the company & the environment.
  • Protects all involved people and assets from potential harm.
  • Helps establish the organization’s insurance needs to save on unnecessary premiums.

Examples of Risk Identification

One example of risk identification could be a business identifying the various risks associated with opening a new location. They can mitigate risks by choosing locations with a lot of foot traffic and low competition from similar businesses in the area.

Another example could be an outdoor amusement park that acknowledges their business is completely weather-dependent. To alleviate the risk of a large financial hit whenever there is a bad season, the park might choose to consistently spend low and build up cash reserves.

Conclusion

The process of risk identification is ongoing throughout the life of the project. At the beginning of a project, an initial risk log is created. During the project, you can continually identify new risks with short five to ten-minute brainstorming meetings. The aim is to protect your project from any unforeseen disaster.

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