The Project Notebook

When Risks Become Reality

 By: Susan Peterson, M.B.A., PMP
Copyright 2012, Susan Peterson, All Rights Reserved
No part of this article may be used or reproduced in any manner whatsoever without written permission.

There continue to be an number of disasters around the world, both natural and person-made. Often after a disaster occurs, there is much analysis, second guessing, and finger pointing in an effort to determine what should have been done in advance. A part of the activities needs to focus on the entire project management process of risk identification and assessment to more effectively address other situations in the future.

What We Don’t Know Can Hurt Us

There are many organizations that do not conduct risk activities at any time during projects. There is a tendency to believe that even thinking about potential risks is a time-wasting process that ties up resources and costs more money that it is worth. Project managers who emphasize risk assessment may be viewed as negative and may be told to “lighten up”. Some organizations believe that merely listing a number of risks is sufficient. Others may set aside the list of risks for the future “just in case something happens”. Many risks can be mitigated or entirely avoided with proactive actions. However, organizations often put contingency plans in place without even considering that “an ounce of prevention is worth a pound of cure”.

An All-Encompassing Approach

Traditionally, those organizations that practiced limited risk assessment focused their efforts on the identification and prioritization of risks. This approach was founded on the attitude that only the most important risks, those with the highest probability, were worth consideration. Virtually every project has more risks than can ever be addressed. However, there needs to be more effort in the overall assessment activity to specify the true magnitude of risks that have been identified. There are many risks that have such a low probability of occurrence that they would “fall off the radar screen” in a traditional risk assessment process. In order to obtain a more comprehensive perspective on risks, both the probability and the impact need to be identified. Addressing a low probability risk may seem to require a great deal of resources, both human and financial. But — the cost of disaster recovery is phenomenal compared to the upfront prevention costs.

The Domino Effect

Another aspect of risk that is often ignored is that risks seldom happen individually. If one risk occurs, it often triggers the occurrence of other risks. For example, a vendor’s default also impacts the project budget as well as quality of the substitute materials and even the total project outcome. This interrelationship means that even if one risk has both a low probability and low impact, the risk in combination with others may have disastrous impact.

Proactive risk management is a challenging responsibility for project managers. While it often requires strong leadership techniques, risk management is a critical component of successful projects.

 Susan Peterson, M.B.A., PMP, is a consultant who manages diverse programs and projects in both the private and public sectors for individual organizations and consortia. She also conducts enterprise assessments of project portfolio management practices. Prior to establishing her consulting practice Susan led major efforts for Fortune 100 organizations throughout the United States. She teaches the Project Management Simulation capstone course in the University of California, San Diego, Project Management certificate program and is a member of the curriculum committee. She can be contacted at susanada@aol.com.

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© 2010-2012 Ray W. Frohnhoefer, MBA, PMP, CCP