Risk and Opportunities Management

In project management, uncertainty is a common parameter, given that projects are unpredictable and only an estimate of a future situation. In order to prevent uncertainties, project risks are identified, managed and addressed throughout the project life cycle. Risk management is a central concept and plays an important role in maintaining projects stability and success throughout the project. Risk management identifies potential obstacles that may arise and hinder the project team from achieving expected goals. Identifying risks is a repeatable process since new risks become known and others become unknown. Noteworthy risks are not only downsides, referred to as threats, but also upsides, referred to as opportunities. Opportunities may arise as a result of unexpected turns and have a positive impact on the project. Risk management is highly relevant and therefore present in all projects.

By using qualitative and quantitative risk management approaches, uncertainties are identified, assessed and mitigated in a structured way that helps projects stay on track. This article focuses on Rumsfeld’s unknown unknowns and the risk management process, including the probability impact matrix.

The risk management process may be divided into seven process steps: communication and consultation, establishing the context, risk identification, risk analysis, risk evaluation, risk treatment and monitoring and review. This process aims to ensure that risk is managed effectively, efficiently and coherently across an organization . At last, this article will outline and discuss the risk management process' limitations and advantages in a project management aspect.

Introduction

In all projects there is indistinctness, which leads to assumptions being made. These assumptions are uncertain and can affect the project’s cost, scope, time or resources . Risks can be defined as “an uncertain event or condition that, if it occurs, has a positive or negative impact on one or more project objectives such as scope, schedule, cost or quality” (PMI 5th edition of PMBOK) Due to the negative consequences of uncertainties, risks are highly relevant and should be managed carefully.

Risk management is a beneficial concept applicable in every project. The concept aims to improve decision-making processes by identifying, assessing and mitigating relevant uncertainties in a structured way .

Defining Risks - Rumfeld's Unknown Unknowns

The American politician and businessman, Donald Rumfeld, distinguishes between four categories of risk. The first category is identified as known knowns describing the things we know we know. Examples could be a project’s location, the type of project etc. The second category is defined, as known unknowns describing the things we know are uncertain. Examples could be how many workers are needed to complete a particular task or unpredictable weather conditions. The third category is defined as the unknown unknowns. This category describes uncertainties that we could not have known in advance and let alone foresee their consequences, e.g. natural and manmade cataclysms. The last category is defined as unknown knowns describing risks that cannot be identified precisely due to multiplicity, but whose total negative impact on the project appears certain. An example of this risk category could be the Russian Winter Olympic Games in Sochi in 2014. The games in Sochi experienced significant cost overruns at 289% . Another example in connection to Russia is the widespread corruption of local officials. The risk is known to everyone in Russia but not officially recognised and can therefore be perceived as an unknown known.

Limitations

Give examples!