What is a risk? Risk is an uncertainty. For a project, any happening of an event that is not planned or is not a part of the project is a risk. A risk is a chance happening. The effect of the risk may be positive or negative, but the event was not planned and therefore it is a risk. Positive effects are not always positive; about that later.
Risk is an integral part of any activity. Any activity can go wrong. For an example: a project consignment is packed oversize by the supplier. This size will not clear road overhead flyovers, cables etc. The delivery gets delayed. Project delay occurs. That is an unplanned event. That is a risk. Some more risks:
- Delivery of the compressor taken as six months. It really is 12 months.
- Relocate the gate in view of the traffic.
- Three foundations are made for pumps. Two pumps are ordered.
- Pipelines during erection hit beams, columns, other equipment etc.
- The loan sanction was due in March. It actually will be in June.
- Short supply, long supply, wrong supply, wrong-time supply, wrong-place supply, delayed supply or, simply, no supply.
A project has two conflicting requirements. The scope is defined on ‘Day One’, but a project will need revisions as it proceeds and whether the stakeholders like it or not, changes in scope will happen. That is a risk.
Other reasons for risks: A project operates in four uncertain environments: technical, economic, managerial and social. If there is a change in any one environment, the requirements of the project get revised. This can happen at any time of the project execution. That is a risk.
Risks cannot be avoided. Then what to do? Risks have to be managed. How to manage risks?
Identify the risks. The project team can make a list of possible risks.
Then, quantify. Find the ‘quantity’ of the risk. Quantity means to assess the probability and the impact of a risk: from ‘high probability-high impact’ to ‘low probability-low impact’. A good example: the project has planned that the boiler will be delivered on a certain date. The delivery is delayed: then the erection workers team will be idle. The quantification will tell how many workers etc. and what to do with the workers.
Decide the response to the risk.
Four responses are possible:
- Avoid the risk. Do something to remove the risk. E.g.: have another supplier.
- Transfer the risk. Make someone else responsible. Here the supplier is responsible for the delay and a penalty can be levied.
- Mitigate the risk. Do something to lessen the impact or chance of the risk occurring.
- Accept the risk. The risk might be so small the effort to do anything is not worthwhile.
Positive effects of a risk, although they look good, are not always positive. What seems to be good can be detrimental. Example: Boiler was to be delivered in June, but the supplier ‘improved’ and sent it in March, three months ahead. That seems to be good and positive. But, the reality will be that the project is not ready to accept the equipment. The site of the installation is not ready. The foundations are still in progress. Now what do you do with the consignment? That is why always insist on the right dates.
Earthquake, riots, fires etc. are risks for a project, but these are not foreseen. Manage them as they happen. It is wise to be insured against such ‘Acts of God’.
The bottom line is that a project will always have risks. For a project, the importance of a risk is that it will occur and it has to be managed. Then the project will be successful.
(The author worked for Tata Consulting Engineers, Mumbai, for 21 years on projects in various capacities. At present, he is a freelance lecturer, trainer and writer.)