Project Risk and Sources of Project Risk

Project Risk is one of the major factors to be considered during the management of a project. Risk can be defined as, “A probability or threat of damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities and may be avoided through pre-emptive action”. In other words, risk refers to an uncertain circumstance that can affect at least one project objective.

A project manager should assess risk throughout the life cycle of a project and manage the project’s exposure to risk (that is, the probability of specific risks occurring and their potential impact if they occur). The objectives of a project that are affected by risk are time, quality, scope.

The Project Management Institute (PMI), one of the world’s largest, nonprofit, membership associations for project management professionals, defines time, cost and scope as “Triple constraints” that form a golden triangle, which decides the quality of a project. This is the classical view of project quality. It implies that any change in time (schedule) or cost (budget) or scope of a project would affect the quality. This means that a change in any one side leads to the distortion of the triangle.


Sources of project risk

The following are the sources of the project risk

It is a type of risk where external factors, independent from the organization’s management, directly or indirectly influence the business and strategies to a significant extent.

The size and the financial and operational capacity of competitors in a sector determine the degree of rivalry in that sector and how the businesses operate.

The risk can originate from changing tastes and needs of the customers, from generating pressures, forcing prices down or from lengthening the payment period.

Present technology can become obsolete in the future. Therefore, the deliverables of a technology project may not be market worthy by the time they are introduced in the market.

They can generate risks because of variations in the price of raw materials and the available supply for a continuous period of time.

The financial risks are the uncertainties associated with effective management and control of finances as well as various external factors such as the availability of credit, changes in the prices of raw materials, exchange rates and movements in interest rates.

The operational risks are associated with the ability to convert the strategy chosen into specific plans by means of an effective allocation of resources.

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