This article deals with risk as such and not with scenarios that could turn risk into opportunities. The article aims to deal with the terms “risk” and “risk analysis” in project management and to explain them.
We need to point out that completely avoiding risks also means completely avoiding opportunities. The right balance between avoidance and approval is often based on previous projects’ experience, the respective management position’s character, and the project content.
Risks in the context of project management are modes of action that can cause damage to a company. The risk analysis is intended to reveal these factors and minimize the possible damage to the project. The listing of all risks using the methods described below is the first step in assessing risks and then mitigating them through targeted actions.
The risk analysis also has the aim of making decision-making easier for those involved in the project, such as LNG Schedule Benchmarking. Risk analysis is a method in which risks and the resulting consequences for the company, the project, and its participants are visible.
In addition, the analysis shows which alternative opportunities a project can have and which can achieve success for the project. The risk analysis structures the deliberation process in project management. It should by no means be underestimated since the work is very well invested at the beginning and the “firefighting” gets weakened or wholly minimized in the latter course of the project.
In project management, this means that this analysis should bring more transparency to the decision-making situation. The risk analysis does not relieve the project participants of the decision about the risk, it merely reveals what can happen under certain conditions, how likely this consequence is, and what can be done about it, thereby increasing transparency.
In project management, risks primarily mean uncertainties that can have a negative impact on the course of the project. However, risks and uncertainties are two factors that are the archenemy of any planning.
If the risk is defined purely mathematically, it is a state that may or may not occur. In terms of project management, however, risks are real and virtual events that can cause real damage to the company or a project.
Therefore, the occurrence of risk always has adverse effects. These include the following three factors, all three of which can be affected but do not necessarily have to be:
The aim of risk analysis as part of project management is to identify and analyze risks in the ongoing project and determine the likelihood of the risks occurring and the resulting consequences.
Besides, as part of risk management, the risk analysis should create transparency for management and project departments to create the possibility of room for maneuver and the application of security measures. As a further goal, the risk analysis establishes the possibility of optimizing and objectifying a decision-making process.
The first step in carrying out a risk analysis as part of project management is to identify risks. This systematic step should, if possible, only be started when as many documents (structure and process plans, targets, stakeholder analysis) as possible about the planning of the project are available.
When determining the risks, it is essential to note that a distinction is made between various risks (external risks, internal risks, planning risks, commercial, technical and environmental risks).
The following steps are used to provide a risk overview, a survey of project participants, study the project documents, on-site analysis, and analyze the legal form in exceptional cases. The legal form analysis is particularly important for larger projects. Risks from contracts and other legal components of a project are analyzed and quantified here.
The elimination and emergence of risks accompany the entire project over the entire duration. It makes a supplementary analysis of the risks, their probabilities, and consequences indispensable.
“Risk” as a stand-alone term, which stands for “cliff” and “danger” in Greek and also means “dare something” in ancient Italian, already implies a possible negative outcome of a project or a situation.
The parallel to project management is easy to draw with this prior historical knowledge: Risks in project management are real or virtual events that can result in real damage. That, in turn, means: The occurrence of risk always entails impairments of at least one of the three factors “time”, “quality” or “costs”.
From a purely mathematical perspective, a risk is a state that either occurs or does not.
For those involved in the project, risk primarily means uncertainty – and uncertainties and variables are the arch-enemies of any planning. Therefore, all possible risks are listed within the risk management and included in the planning in advance to avoid possible negative surprises in the middle of the project.
As part of the project management approach, risk management is continuously re-initiated throughout the entire project. The reason:
In the project management standard ISO 31000: 2009: “Risk Management & Risk Analysis”, (Guidelines on Principles and Implementation of Risk Management), risk analysis is seen as a management task in which the risks of a project must be identified and analyzed and assessed at the same time. The Din Norm provides the principles and international guidelines for the implementation of risk management and risk analysis.