written by: Bruce Tyson
• edited by: Jean Scheid
• updated: 11/10/2010
An understanding of the internal and external risks in project management is necessary as part of the project plan. Generally speaking, internal risks are easier to identify and manage while external risks are more elusive. Learn more about internal and external risks here.
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Assessing risks that threaten the execution of a project is an important part of the project planning process. Without understanding factors that could delay or derail a project, project managers are taken off guard and unprepared for the circumstances that now loom over the project. Not all risks are equal, however.
Risks can come from factors that are outside the team and the company or they can come from within. These risks need to be identified and classified so that your project can continue without being adversely affected.
Project managers must identify and prioritize risks to the project at hand that are internal to the organization. When looking internally, risks to the project may involve the financial solvency of the company, the ability for the company to have required equipment and other resources on hand in time to support the project. Personnel issues such as the sickness or unanticipated termination of a key team member also can be considered as internal risks to the project.
Internal risks can also involve infrastructure problems such as the availability of servers, software, and IT support as well as more elementary ingredients such as the supply of electricity to team members. Obviously, the volatility of essential infrastructures will vary depending on the location of the team, so it may or may not warrant consideration during the risk assessment process.
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External risks are outside the control of the project team and its host organization. Because of this, external risks are generally more difficult to predict and control. Factors such as a key vendor going bankrupt, economic upheaval, wars, crime, and other events may directly impact the project's effectiveness. Some risk may be difficult to foresee such as a mine in a foreign country providing essential elements for the project being taken over by a revolutionary government. This kind of event directly threatens the project, but often takes project managers by surprise because of a deficient analysis of external threats.
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Internal and External Risks in Project Management
Because an effective assessment of internal and external risks is a prerequisite for effective project management, steps should be taken to ensure a circumspect evaluation of each. Essential is the assembly of a team with members of diverse backgrounds. The availability of numerous perspectives on the same problem will serve to analyze both internal and external factors that may impact the project. By creating an environment conducive to brainstorming, team members will be comfortable with the free expression of their thoughts, leading to a thorough examination of both the internal and external risks to the project.
When considering internal vs. external risks in project management it's important to recognize that internal risks are usually easier to identify and manage than external risks, but an accurate assessment of both will go a long way toward the successful completion of the project.
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Where to Go Next
After internal and external risks in project management are identified and categorized, a risk breakdown structure can be created that assigns risks to specific elements of the project. Relationships between the sources of risks and project elements can then be evaluated via the work breakdown structure to adjust the project plan.