A project risk is an uncertain factor — positive or negative — that can significantly affect achievable performance.* Risk management is the practice of identifying, evaluating and controlling those factors to avoid or mitigate potential negative effects.†
A power-plant contractor that executes projects in the Middle East might identify risks including natural events (a sand storm), technical events (a test failure), partner events (a supplier not delivering), financial events (a guarantee falling through) or political events (a local power broker’s resistance). Each identified risk would be assigned a probability, and then methods such as scenario evaluations, simulations or decision trees would be used to estimate potential impact and prioritize risks. Handling the risks could mean avoiding them, taking preventive action or simply accepting them as a nuisance. For significant risks, the team might draw up contingency plans at the project’s start, then monitor events and implement the contingent response when necessary.
Risk management is geared to identifying and controlling variation and foreseeable uncertainty. It acknowledges that unanticipated events may necessitate crisis management, but it also holds that “while crisis management may be necessary, few crises should come totally out of the blue.”‡ But what about breakthrough projects or projects undertaken in rapidly changing environments where unforeseen uncertainty or chaos may be unavoidable and important? To deal with such extreme uncertainty,... To read the complete article, login or sign-up using the form below.
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