There are some factors to consider when identifying risk in a project. A risk is known as some future happening that results in a change in the environment. It has associated with it a loss that can be estimated, a probability that the event will occur, which can be estimated, and a choice on the projects manager’s part as to what to do, if anything, to mitigate the risk and reduce the loss that will occur.
During the project planning process, the risk assessment which is normally completed during the development of the Business Case is reviewed and updated by the project team. Risk assessment is formalized subjective assessment of the probability of project success. Risk assessment has an obvious impact on the management style, team structure, use of methodology, strategies for system development, and, most importantly, the business decision to approve the project.
Simply, the greater the risk of the project, the higher the probability that estimates, schedules, and planning will be incorrect and that the project will move “out of control”. The risk of a project can be established by considering the following criteria;
- What are the risks?
- What is the probability of loss that results from them?
- How much are the losses likely to cost?
- What might the losses be if the worst happens?
- What are the alternatives?
- How can the losses be reduced or eliminated?
- Will the alternatives produce other risks?
The business decision is to assess how the expected loss compares to the cost of defraying all or some of the loss and then taking the appropriate action.
It is mandatory that, throughout the system development process and especially during project planning, the project manager consider these project risk criteria using a formal questionnaire and develop a risk mitigation list. If the project manager considers the combination of any of these factors is significant and contributes to the degree of risk of the project, he or she is encouraged to consider the following actions;
- Take steps to limit the scope of the project to reduce its complexity
- Document the areas of complexity in the Project Plan and allow for additional time/resources
- Raise a formal Risk Memorandum that details the high-level factors, identifies their possible impact and actions/options available to reduce that impact or reduce the risk factor.
It is imperative that the management of project risk is seen as a proactive process. For example, prior to the commencement of the full development cycle, the project manager should negotiate with the Steering Committee, key stakeholders and sponsor to minimize the high-risk factors.
To increase the likelihood of project success, the project team must put in place a program that identifies risks and steps to mitigate that risk. The management and minimization of project risk is the responsibility of all involved parties in the project.