Michael HoardFounder & CEO| Michael Hoard ConsultingHope Valley, Ri, United States
Is risk directly correlated to a project's budget, e.g. a project with a $50M budget brings greater risk than that with a $5M budget? Or is it more of the inverse? Or proportionate? Saving Changes...
Eric SimmsSenior Program ManagerBaltimore, Maryland, United States
Risk isn't tied to a project's cost, but to its complexity, which is usually influenced by such factors as the number of stakeholders, to name just one. Saving Changes...
Risk relates to the level of uncertainty, constraints and (as Eric indicated) complexity inherent in a project and its supporting organization.
I could have a fairly low cost project based on labor only which is tackling something very complex with fixed time and cost constraints which will present much greater risk than a very costly (based on capital expenditure) installation of a piece of hardware or a physical asset of some kind.
Kiron Saving Changes...
Krishna PakkiProject Services Manager| Rio TintoGilbert, Az, United States
Agree with Kiron, good example there. we can not talk about Risks (i mean both opportunities and threats) only correlating to costs... as the impact could be on schedule, safety, environment, community, reputation etc. Also, quantifying risk as greater to lower depend on organizations risk apatite too. Saving Changes...
Sergio Luis ConteHelping to create solutions for everyone| Worldwide based OrganizationsBuenos Aires, Argentina
I think I understood where you are trying to go. The first answer is no. But if a project has more budged then it could be because more components and relations are involved then more amount of risk could be discovered. Perhaps is what you try to pointed out. Saving Changes...
Let us say, you have $5 million project developing software with resources offshore and requirements that are changing and not well defined with many personality issues. You are also managing a $50 million project which involves installing a piece of semi conductor equipment. The manufacturer is very reliable and makes good equipment and they are responsible for shipping the equipment and installing it. This is about 90% of the cost. The remaining cost is doing the prep work, testing etc. Which one is more risky? I would say the $5 million one.
Now if you have $5 million software project using 20 peak resources for a total duration of 1 year and $50 million software project having developers in 4 countries and spread over 3 years and having a peak of 300 resources. In this case, I would say the second one. As pointed out before risk is a function of complexity. Saving Changes...
Not necessarily, it is far more associated with how complex the project is. If you had a project moving 1 billion boxes from A to B, other than logistical issues, it isn't very difficult therefore not so risky. If you deliver 1 box (scratch make that 1 x 10inch steel enforced drum) of highly enriched uranium laced with a nuclear warhead while the superpowers hover at Defcon 2, it might be considered extremely risky even if the price tag was reasonably low. Saving Changes...
Michael HoardFounder & CEO| Michael Hoard ConsultingHope Valley, Ri, United States
Great answers everyone! Thanks for the replies! Risk is such a unique beast ... Saving Changes...
I don't think risk should be directly related to project budget. Now a days you should have a clear evaluation of risks associated with a project.
So if the project budget increase, it is because some change where accepted on the project. The increase value of the project should include a new provision for risk if any change in the risk is associated with the change.
Like a change to the project might involve a change in the schedule end date.
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1 reply by Anish Abraham
Dec 06, 2017 9:57 PM
Anish Abraham
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I concur with Vincent on this. Risk is not directly related to project budget. There are several factors like scope, schedule, resource, technology etc.
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Mansoor MustafaSenior PM| Government DepartmentRawalpindi Punjab, Pakistan
I second Kiron,as he rightly brought out that risk is no directly related to cost of project, there can be case where a large project (more than 50 M) have lesser uncertanity or may have more opportunity and enviroment is more favouralbe for execution and in smaller project may have worst conditions Saving Changes...
Well, normally, the greater the project, greater is its complexity and, potentially, the risks. But, we cannot say that it is a general rule. I think that it will depend on the uncertainties and also on the contract model. Let's just take an example; which project seems to have greater risks: a $10M man-hour contract, or a $5M lump sum contract? Well, for the contractor, I would say that the lump sum is riskier, even having half of the budget.
But in the example above, I was comparing two totally different projects. However, when we are talking about similar projects, with similar characteristics, and similar procedures for construct the budget, I would say that bigger the project, bigger will be the risks.
Indeed, the risks are not totally dissociated from the project's budget. And the reason is very simple: the project budget is nothing more than the best estimative of the project's total cost. And, as an estimative, it can vary accordingly to how detail and precise was the budget preparation. Which implies that the budget itself brings already a risk associated with it.
So, in conclusion, I would say that the size of the project can bring more risks, but there are also other aspects to consider as, for example, the contract model and the uncertainties of the project. Saving Changes...
