Trending Risk

Andy Jordan is President of Roffensian Consulting S.A., a Roatan, Honduras-based management consulting firm with a comprehensive project management practice. Andy always appreciates feedback and discussion on the issues raised in his articles and can be reached at [email protected]. Andy's new book Risk Management for Project Driven Organizations is now available.

  Risk Management  

It doesn’t matter how many different project methodologies I experience, there are always similarities when it comes to risk management. There are variations on the theme, but when risks are quantified there is always an element of impact multiplied by probability--the risk is scored based on the likelihood of it occurring multiplied by the impact that it will have on the project if it does occur.

I have absolutely no issue with that approach, but it’s only part of the story. In this article, I want to look beyond impact multiplied by probability and think about risk trends over time.

Risks aren’t constant
Suppose that you are dealing with a project that has two risks (yeah, I know…wishful thinking):

• Risk A has a 50% chance of occurring and an impact if it occurs of a $50,000 cost overrun
• Risk B has a 30% chance of occurring and an impact if it occurs of a $30,000 cost overrun

Which is the most significant risk? It seems obvious, right? Risk A has a total impact of $25,000 (50% x $50,000) and Risk B has a total impact of $9,000 (30% x $30,000).

But what if I give you a little more information? A month ago:

• Risk A had a 70% chance of occurring, with an impact of $100,000
• Risk B had a 10% chance of occurring and an impact of $10,000

That changes the picture quite a lot--a month ago, Risk A had an …

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