Types of Risk Found in Projects
Written By: Mark A. Frasher; May 29, 2017
first step in the practical application of risk management is understanding what risk are, and the types of
risk found in projects. First, let's quickly identify what a risk is. Risk as defined by the
PMBOK Guide, 5th ed., is: “an uncertain event or condition that, if
it occurs, has a positive or negative effect on one or more project objectives”
Knowing what risks are, and that identifying the types of risks found in projects is an essential step in the risk management process, we can now break down the risk categories. Risk are often
categorized using one of two identifiers:
- Known unknowns: These are specific risk that are identified
in advance, that may occur. The project
manager has identified that the risk may occur, but doesn’t know when, where,
or to what degree the impact will be to the outcome of the project.
- Unknown unknowns:
These risks are truly the unexpected risks.
Some things cannot be anticipated until they occur. Think natural disaster, or the sudden firing of a stakeholder.
In the opening paragraph, I mentioned that risk can also be positive or negative. Anyone reading this article and new to project management
might be wondering what, could possibly be a “positive risk”. Although this seems illogical on the surface,
risk can also be broken down even further by two subcategories:
- Positive Risk: Often described as too much of a good
thing. Imagine a marketing campaign designed to increase the sale of widgets with an expected customer response of 50%, but the actual response
is an overwhelming 90%. The risk here is
are you, as a project manager, prepared to handle the increased response? Think of the impact of logistics and
inventory. Is your manufacturer prepared to handle the increase demand. Are materials available to produce additional product?
- Negative Risk: This, conversely to a positive risk, is often
too much of a bad thing. Using the same
example from above, consider the response to the marketing campaign as only
being 10%. Now as the project manager,
are you prepared to handle the excess inventory, or storage cost of goods not
sold? These are risks that the business owner may encounter, and if you - the project manager of the marketing campaign, didn't identify this possible risk upfront - endangered the profitability of the business.
is important to remember that identifying risks, the types of risks, and the
impact of the risk isn’t enough. As the
project manager, it is critical that you plan and prepare responses to these
risks ahead of time.
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