Chapter 11. Managing Project Risks

A project risk is an uncertain event or condition that can have a positive or negative impact on the project. That's correct—it's possible for a risk to have a positive impact. Technically, risk isn't a bad thing; it's the impact that can be painful, costly, or delay the project work. Most project managers look at risk the same way they'd look at leftover shrimp cocktail. Yuck. Some risks, though, are good for the project, and the project manager wants to accept them; others aren't so welcome.

Let's look at this from another point of view. Imagine a golfer teeing up. To the right of the tee box, there's a water hazard, but just beyond the water is the green. The golfer can either avoid the water and take longer to get to the green or try to shoot over the water and get on the green in fewer strokes. Driving up the fairway is the safer play, but cutting over the water will improve the golfer's score. The risk with the water hazard is that if he can't make the shot, then he's down a penalty stroke.

Risk, like the golfing scenario, must be in proportion to the reward the risk taker will realize as a result of taking the chance. The willingness to accept the risk is called the utility function. An experienced golfer may have a high utility function, so he's willing to accept the water hazard. A golf hack like me would likely have a low utility function and drive up the fairway away from the water.

It's true in project management, too. With some projects, you and your organization are willing to accept risks to realize rewards such as cost savings, time savings, or on-the-job training. On other projects—typically, those projects with high impact and high profile characteristics—you're not so willing to accept the risks. In this chapter we'll look at the six processes that dictate project risk management, and you'll have plenty of risk management questions on your Project Management Institute (PMI) exam.

The project management processes described here are presented in the most logical order. They are actually iterative processes through the project life cycle. Pay special attention to monitoring and controlling project risks, as new risks can creep into the project or be discovered as the project moves towards closure.