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Determining the Level of Risk in a Project

written by: Ronda Bowen • edited by: Jean Scheid • updated: 7/6/2011

This article explains how a project manager can determine the level of risk in any project and why it is important to determine risk in projects.

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    What is Risk?

    Sometimes in projects, things go wrong. The project may go way over budget, the software team may hit a wall with development, or the product might require and then fail safety testing. Risk in project management refers to the chance that things will go wrong during the course of the project.

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    Why Should Project Managers Determine Risk?

    Experts disagree on whether project managers should determine risk. An argument against risk assessment in project planning is that the project team may become so enthralled with this phase that they do not get things under way with the actual project.

    This isn’t a strong enough argument to keep project managers from determining risk. Time spent in risk assessment is never time wasted. This phase of the project can save a project that might otherwise fail. It can also prevent a project from beginning that might harm the environment or human life. It can prevent a project from getting off track. Thus, risk assessment can be an important step in project management and identifying potential risks can save time in the end.

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    How does a Project Manager Determine the Risk Level of a Project?

    The risk level of a project ought to be determined at the outset of a project. According to the Ten Golden Rules of Project Risk Management, this step is important to complete at the beginning of a project because this is when there is plenty of time to resolve potential risks. It also allows you to maintain a risk reserve for your project.

    Determining risk may not seem a straight forward enterprise, but often project documents already contain information about perceived risks for a project. Documents to consult include the project charter and resource documents. In addition, you will want to consult project team members as well as those who are experienced with similar projects. In the case of technological risks or risks to the environment or health risks, you may want to hire an expert in the field.

    Once identified, risks need prioritizing. The priority of risks is determined by calculating the likelihood of the risk and the potential impact of each risk. Risks with the highest likelihood and impact are risks with the highest priority. Risks that are unlikely to manifest or have a large impact receive the lowest priority.

    Once the risks are prioritized, then they can be analyzed. Analysis of risk involves looking at potential effects of an actualized risk and looking at ways to prevent such a risk from occurring. Software exists to in creating a project management plan that incorporates risk analysis. The final step is to type up the risk analysis into a risk register.


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