Project risk

Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective, such as scope, schedule, cost or quality. Project risk arises from uncertainty in any phase of the project and from the project's environment.

Sources of project risk

• Unclear or changing requirements and scope.
• Estimation errors for time and cost.
• Immature or new technology.
• Resource problems: lack of skilled people, turnover.
• Poor planning and weak management or communication.
• Dependence on suppliers and third parties.
• Organisational support, funding and politics.
• External factors: law, economy, weather, security.

Characteristics

1. Uncertainty: not certain to occur.
2. Has a cause and an effect.
3. Level of risk is highest early in the project and decreases as it progresses.
4. Can be positive (opportunity) or negative (threat).
5. Measured by probability and impact.

Classification

Project risk management steps

1. Plan risk management.
2. Identify risks.
3. Qualitative analysis (probability-impact matrix).
4. Quantitative analysis (EMV, simulation).
5. Plan responses.
6. Monitor and control.

Probability
 High | M | H | H
 Med  | L | M | H
 Low  | L | L | M
      Low  Med  High  Impact

Importance

Managing project risk improves the chance of delivering on time and within budget and increases opportunities.

Example: In a software project, the risk of "requirements change after design approval" has medium probability and high impact, so a change control process and prototype reviews are planned.