What Is Risk?
Risk is generally defined within project management as a potential influence producing a positive or negative outcome. We look at the definition of risk within the context of a project as any influence to a work activity that generates an outcome that was not expected.
Bad Risk Versus Good Risk
Events or circumstances that have a potential to influence work activity can result in either a negative or a positive outcome. As we saw in the example, relative to a specific work activity, rain can present a bad risk. Another form of potential risk is the use of external human resources that have been subcontracted to perform work activity. These individuals not being a part of the organization can present issues such as difficulty in team environments, ignorance of organizational processes and culture, or personality conflict with management and staff they work with directly—all typically risks associated with a negative outcome. However, over time the same external resource might exhibit a much higher level of ability and knowledge, therefore completing the assigned task much more quickly and allowing the work activity to be ahead of schedule. So, although there is a potential risk in using subcontractors, their influence can also create a positive outcome.
Project managers should always have a conceptual understanding of risk—that although risks can generate negative outcomes, there are occasions where positive things come out of what was thought to be a potential negative risk. The project manager would then seek to exploit these positive outcomes to yield the maximum benefit for the project.
Risk Versus Uncertainty
As the project manager plans work activities and evaluates all the resources that are required, he begins to see where potential problems might insert themselves. This is where the project manager can begin to identify risks and possibly plan responses. As we have seen, some influences can be identified as “potential” problems and therefore can be planned for and worked around, but there are also issues and influences that cannot be anticipated and were nowhere on the radar. These are called uncertainties. Risks are influences that can be identified as having a potential to create a problem, whereas uncertainties are problems that happen that could not have been identified prior to the work activity.