Lesson 1, Topic 1
In Progress

Identifying the Risk

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There are quite several risk sources listed and, some will be more applicable than others in the project environment. Particular sources of risks in projects can be:

  • Technical risk: The possibility that the technical requirements on which the original estimate was based may be not be achieved within the cost and schedule estimates.
  • Financial risk: The possibility that the cost may rise because of factors not allowed for, or not adequately allowed for, in the original estimate.
  • Management risk: The possibility that planning or management arrangements may have adverse effects upon schedule or budget.
  • Contractual risk: The possibility that inadequacies in the contract agreement will result in additional costs being manipulated by the contractor, or accepted as part of the contract.
  • Schedule risk: The possibility that the completion schedule will not conform to the contractual or management plan.
  • Operational Performance risk: The possibility that the equipment or system will not meet all the operational needs of the user.

In the project environment, the most obvious area of risk effect is the project objective – it is not achieved. In fact, what is more likely is that other aspects of the project are adversely affected: the schedule slips, the budget is exceeded, etc. – all those points listed above.

Of the key questions listed, the most important in the project environment are those that address when, where, why and how each risk is likely to occur. Unless this can be established, it is difficult to develop an appropriate treatment. There is little value in identifying vague risks, for example, ‘the schedule may slip’, as this does not allow a sensible analysis and does not point to definite treatment strategy. On the other hand, a risk of schedule slippage at a particular time because of, for example, a delay in the delivery of important material can be analysed and appropriate steps taken to handle it. What this really means is that specific risk causes must be identified, not risk outcomes, because it is more effective to guard against the cause than to make allowance for the outcome (add schedule contingency).

Questions concerning source and consequence are important. It is also useful to identify existing control mechanisms for a particular risk – this will give guidance as to what extra treatment may or may not be required.