Risk is a known or an unknown event which must be taken care of, very carefully throughout the life cycle of a project. Risk mitigation can be planned, if it is a known risk. But in case of unknown risk the mitigation cannot be planned, so the traditional approach is to carry a level of contingency. If there is no uncertainty, it’s an issue. As far as failure or success of a project is concerned, how much of it could be attributed to the decision-making power of a project manager.
Risk is a part and parcel of every project. It comes very discretely and is unpredictable sometimes, however any project can face failure if project team fails to address any risk meticulously. Risk occur due to the uncertainty due to the gap between project document or operational management with actual action and execution. Proactive planning and strong will power with efficient management of financial obligations could be very helpful in addressing risk management. Risk and uncertainty are definitely two separate areas. A risk event can be identified and described and a decision made about what action, if any, can be taken to manage it – either the event or the effect. The short-hand definition of risk as the ‘known unknown’.
Uncertainty is the ‘unknown unknown’. The fact that there is uncertainty is why we create projects and implement project management processes. Some sponsors predict the future of the project as soon as the project manager presents the project plan to him. But do you know anyone who can predict the future? So of course you are correct to say that we can’t ‘know’ that our estimates about future events are complete, certain and representative of all possible outcomes. So ‘project management’ exists to create a plan to achieve the desired future state that recognizes the uncertain environment. Then you make, validate and document assumptions as one way of ‘managing’ the uncertainty. The risk itself by definition contains element of uncertainty and they should not be separated. Whether we know more/little about possible event (unknown), as long as it may impact the project (known), it’s a risk.
Suppose a PMO had a resource that was available separate from a project’s budget, could that relieve a project of these uncertainties? The conclusion is not accurate because Risk Management encompasses dealing with risks in uncertainty, unknown and known with certainty not only for negative risks but for positive ones too.
Risk management Plan includes:
- Contingency plans – This amount is allocated for predefined actions of identified risks.
- Management reserves – This amount is kept for unknown and unidentified risks, if the risks occur.
The other category of risk is the “unknown unknown”, for example the chances of terrorist attack in my town is unknown and whether the attack may impact my house construction project ( also unknown), is difficult to manage. Some organizations prepare reserve funds for such non-quantifiable risk.
Do not assume that unknown unknowns are normally managed via scope change. There are very few sponsors who do not have problem with decreasing scope in light of a positive risk but getting a scope change for negative risk is more commercially challenging. Though risk and uncertainty are two separate areas but there is a dotted line between the two and neither can be a subset of either. Uncertainty management is just big part of risk management.
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