The Nature of Risk

To begin looking at risk, you need a workable definition. From a broad-based perspective, risk is the exposure to uncertain, and potentially bad, consequences. In the scope of project management, risks are uncertainties that may negatively affect the project by challenging the project's constraints or parameters. Unforeseen consequences may result in loss of time, money, labor, or the project as a whole. This differs from the financial-planning definition, in which greater risk is seen as potentially promising, with higher potential rewards. The financial planner looks at the risk/reward scenario, whereas the project management considers the completed project without negative risks to be its own reward. Positive outcomes of risk are generally not addressed in project management's definition. One of the reasons for the continuous addition of the positive aspect of risk taking is that it is from taking a calculated risk that new discoveries and new methods of dealing with issues are founded. After all, if Christopher Columbus hadn't defied those who said the earth was flat and that the idea of sailing to discover the Indies was not feasible, he never would have discovered America.

People seeking excitement will often take greater risks. Hang gliding and other extreme sports are very much based on the excitement that accompanies great risk. Projects also take risks that result in positive outcomes, as there are risks inherent in any decision that you make. If you knew you could never be wrong, you would no longer be taking a risk. Even the simplest decision to order software package A over package B has some degree of risk involved. Package A might not work for your particular project. Of course, the other side of the equation is that if you take a chance on a package that you are not sure of, it could prove to be more beneficial than you had hoped and solve other problems for which you had not initially purchased it. Again, I remind you this is a different definition of risk than that usually associated with project management.

Any project is inherently a risk, because you are trying to accomplish a goal without the certainty that you will reach it. One might conclude (fairly) that project management is essentially a form of risk management, in that from the initial plan you are uncertain of the end result. Furthermore, the initial plan contains variables such as time and cost that cannot be set in stone. Despite all the calculations, analysis, and research that you have done to create your initial project plan, the project will proceed without you, or anyone else, knowing exactly what course it will ultimately take.

If projects didn't allow for some degree of risk, great discoveries and inventions would never have been made. The Wright Brothers and Charles Lindbergh took great risks to achieve their projected goals. Risk should be managed with precautions, but it should not stop you from proceeding with your project, unless you determine that the risk is too great or without reward.

Despite the common definition of project risk management — to seek out and avert potentially negative factors that will prevent the project from being completed on time and under budget — risk is actually inherent in many forms throughout the project, and is both positive and negative. For our purposes of understanding project risk management, consider risk a negative factor throughout the chapter. However, this chapter will point out some positive aspects of risk taking from time to time.

  1. Home
  2. Project Management
  3. Risk Management
  4. The Nature of Risk
Visit other About.com sites: