PROJECT RISK MANAGEMENT

Definition of Risk

A probability or threat of a damage, injury, liability, loss, or other negative occurrence that is caused by external or internal vulnerabilities, that may be neutralized through preemptive action.

We face a variety of risks from external and internal sources that must be assessed. A precondition to risk assessment is the establishment of objectives, linked at different levels and internally consistent.  Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed.  Because economic, industry, regulatory and operating conditions will continue to change, mechanisms are needed to identify and deal with the special risks associated with change. 

The first consideration requires us to define concrete, tangible objectives – which can be measured objectively - not subjectively.  For example, the standardized testing of materials from various suppliers against the quality of production output quality standards.

The second consideration requires us to identify the kinds of risks that could interfere with our achievement of those objectives.  Fraud, waste and mismanagement come to mind, but there are also “inherent risks” that come with the territory, requiring management controls to minimize or manage such risks in a cost-effective way.  Keeping medicines and toxic materials away from toddlers is one low-cost, common sense approach to minimizing the risk of poisoning.  Guarding personal financial information is certainly in the news these days as criminal element twist the new technology to defraud the unsuspecting.

Risk assessment is a management process involving input from those involved in administering a program.  It may even involve input from those served by a program. 

Risks are ranked by Probability (likelihood of occurrence) and Impact (Severity or effect on people, resources, reputations, etc.).  The following chart (or a variation of it) has been adopted by every management group concerned with program effectiveness and risk management:

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