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11 - PROJECT RISK MANAGEMENT

Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or
more project objectives such as scope, schedule, cost, and quality. A risk may have one or more causes and,
if it occurs, it may have one or more impacts. A cause may be a given or potential requirement, assumption,
constraint, or condition that creates the possibility of negative or positive outcomes. For example, causes could
include the requirement of an environmental permit to do work, or having limited personnel assigned to design the
project. The risk is that the permitting agency may take longer than planned to issue a permit; or, in the case of
an opportunity, additional development personnel may become available who can participate in design, and they
can be assigned to the project. If either of these uncertain events occurs, there may be an impact on the project,
scope, cost, schedule, quality, or performance. Risk conditions may include aspects of the project’s or organization’s
environment that contribute to project risk, such as immature project management practices, lack of integrated
management systems, concurrent multiple projects, or dependency on external participants who are outside the
project’s direct control.
Project risk has its origins in the uncertainty present in all projects. Known risks are those that have been
identified and analyzed, making it possible to plan responses for those risks. Known risks that cannot be managed
proactively, should be assigned a contingency reserve. Unknown risks cannot be managed proactively and therefore
may be assigned a management reserve. A negative project risk that has occurred is considered an issue.

Individual project risks are different from overall project risk. Overall project risk represents the effect of
uncertainty on the project as a whole. It is more than the sum of the individual risks within a project, since it includes
all sources of project uncertainty. It represents the exposure of stakeholders to the implications of variations in
project outcome, both positive and negative.

Organizations perceive risk as the effect of uncertainty on projects and organizational objectives. Organizations
and stakeholders are willing to accept varying degrees of risk depending on their risk attitude. The risk attitudes of
both the organization and the stakeholders may be influenced by a number of factors, which are broadly classified
into three themes:

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