In 2011, Project Management Institute reported that 129 CFO’s out of 331 who participated in a survey by the American Institute of Certified Public Accountants and North Carolina State University were surprised by the risk that had significant consequences for their organizations. Out of the 129 survey respondents 84. 5 % indicated they did not employ any formal risk management process to assess the probability and impact of the risk to the company’s strategic objectives. Studies show there is a link between risk and performance in an organization that reveals a company’s commitment to its strategic direction and maintenance of the overall health of the organization’s portfolios. The terms uncertainty and risk are often used interchangeably; however, there is a distinct difference between these terms. Risk can be defined as a measurable or quantifiable uncertainty while real uncertainty is not measurable. Risk can be related to an identifiable event with a negative or positive consequence while uncertainty refers to the source of the risk. Adding further clarity uncertainty is aligned with the source of negative risk rather than positive risk. The Association of Project Management espouses a distinction between risk and opportunity while the Project Management Institute suggests that uncertain events or conditions that may occur could have a positive or negative effect on project outcomes.
Bessner and Hobbs (2012) note “Extending the consequence of the identified event to opportunities has the commendable intention of encouraging the management of opportunities, but adds to the confusion when trying to distinguish risk from uncertainty.” In spite of the numerous studies that promote our understanding of risk associated with projects, there still appears to be the limited adoption of risk management methods in practice. One of the key areas that drive project portfolio performance is the early identification of high-risk projects. Some organizations incorporate into their PMO a risk assessment process that is aimed at improving the success rates of their projects. For example, an organization may use a contingency approach whereby the project manager is provided a set of decision tools for deciding when to apply certain project management methods to achieve optimal project success. Recent studies suggest that when faced with high levels of ambiguity project managers are better served by staying away from the application of traditional risk management methods. Rather, project managers should apply a continuous learning and flexible approach to risk management that adapts to changes in the environment. The application of a contingency approach is better suited for projects with high complexity, ambiguity, and risk. The use of contingency approach require organizations take a more detailed environmental scan when planning the project and applying project oversight. Furthermore, it is important that the project managers involved in these projects understand the application of continuous learning management. Senior project managers with an extensive background in managing high risks project may have already adopted an ongoing learning management style as the result of their experience.
Contingency management is not a new concept, particularly, in the management of unanticipated events outside the control of ordinary planning (Torrieri, Concilio, & Nijkamp, 2002). One PMO used a spider chart (radar chart) that incorporated project risk dimensions, which when used together, could provide the perspective needed to assess projects overall risk and to highlight that these factors exist on a continuum for all projects. The use of the spider chart provided a visual representation of risk making it easier to facilitate group discussions. Some of the other benefits of the utilization of a spider chart are the synthesis of all the risks into one holistic view, areas of concerns are easily distinguishable, and the spider chart provides meaningful information in a simplistic form that supports requests for additional budget and management support. In addition, the PMO experienced improved communication and alignment with the project teams using a spider chart. Project risk management is a critical part of the project management practice so project managers serious about improving their skills is well served in learning as much as possible about the risk management practice area.
Besner, C., & Hobbs, B. (2012). The paradox of risk management; a project management practice perspective. International Journal of Managing Projects in Business, 5(2), 230-247. doi:http://dx.doi.org.library.capella.edu/10.1108/17538371211214923
Torrieri, F., Concilio, G., & Nijkamp, P. (2002). Decision Support Tools for Urban Contingency Policy. A Scenario Approach to Risk Management of the Vesuvio Area in Naples, Italy. Journal Of Contingencies & Crisis Management, 10(2), 95.