Balancing Project Risk: Better Safe than Sorry?

 

When considering the tightrope walk between risk and return is it better to be safe than sorry?

Maybe not.

Some risks might be positive opportunities to be pursued, while others aren't worth worrying about.  And some risks are associated with any project.  The first step to evaluating the viability of any project is to determine the project's value based upon pre-determined criteria:

1. The project goals
2. The project costs
3. The project's alignment to the mission and vision of the organization
4. The associated risks and mitigation plans

Regardless of how you manage your project-based work, project management software that includes risk management tools can make it easier to validate that every project aligns with your companies risk tolerance by walking each project through a series of risk questions.  Financial planners have been doing this for years.  To determine your companies risk tolerance, it might make sense to do what they do and identify a few risk factors to get the discussion started:

1. Name of the risk
2. Scope of the risk: including a qualitative description of the potential risk
3. Nature of the risk: strategic, financial, knowledge, or compliance
4. Stakeholders: what are their expectations?
5. Qualify the risk: the significance and probability
6. Identify risk tolerance: including the financial impact of the risk, the value of the resources at risk, probability and size of the potential losses or gains, and any mitigation plans
7. Risk treatment and control: how is the risk currently being managed along with the level of confidence in existing controls
8. Potential action for improvement: recommendations to reduce risk

The best way to make well-informed decisions is to make sure that business leaders have access to the most reliable and up-to-date information available.  This includes information concerning risk.  It's easy to become so wrapped up in the potential benefits a project might provide that we forget to evaluate the risks.  By establishing a pre-determined risk tolerance and metrics for evaluating the potential risk and reward, business leaders can make smart decisions about which projects to work on and which to abandon.

Does your organization have a formalized process for evaluating risk? What are some of the questions you ask of every project, before it's begun.