Typical Project Risks 1 . How Does the Project Manager Know When There is a Project Risk?

1 Some of the most common general project risk situations encountered: The project sponsor (and the project manager) do not recognize that every project is an exercise in risk. This project is very different from the last one. There is a feeling of uneasiness. When the project is in its earliest phase, project risk and opportunity are highest (but the amount-at-stake is lowest). The project scope, objectives and deliverables are not dearly defined or understood. A large number of alternatives are perceived as possible. Some or all technical data is lacking. The technical process (and design) are not mature. Standards for performance are unrealistic (the best there is for everything) or are absent. Costs, schedules and performance are not expressed in ranges. The future timing of activities and events are vague. Design lacks production engineering input. Prototype of a key element is missing. There is a higher than usual R&D component. Some or all environmental permits are outstanding. Other similar projects have been delayed or cancelled. A wide variation in bids is received. Some key subsystems and/or materials are sole source. No appropriate contingency plans have been developed. The project team relies entirely on the contingency allowance. Someone starts hedging their bets!

2. Specific Project Risks The following detailed listings provide convenient groupings of project risks generally classified according to source. The degree of predictability and ability to manage appropriate response varies but, in any case, is independent of the risk event status (probability and amount at stake).

Typical Project Risks External Unpredictable (and uncontrollable) a. Regulatory, i.e., unanticipated government intervention in: o supply of raw materials o environmental issues o design standards o production standards o site location o product or service sales or export o pricing

o special requirements Natural Hazards, i.e., as a result of natural elements: o location o storm o flood o earthquake c. Postulated Events, i.e., as a result of deliberate intent: o vandalism o sabotage d. Indirect Effects, i.e., occurring as a result of the project: o environmental o social e. Completion, i.e., failure to complete the project on account of one of the following: o failure of the supporting infrastructure as a result of others o failure of design, execution or supply contracts due to bankruptcy or receivership, etc. o failure to provide financial support to the end of the project o inappropriate project concept or configuration o political unrest o lack of final acceptance External Predictable (but uncontrollable) Changes in the following are predictable, but the extent and direction is uncertain. b. a. Market Risks o availability of raw materials o cost of raw materials o demand, including customer/user rejection o economics o competition o end value in the market o willingness of buyers to honour purchase agreements b. Operational (i.e., after project completion) o maintenance needs o fitness for purpose o safety c. Environmental Impacts d. Social Impacts e. Currency Changes f. Inflation g. Taxation Internal, Non-Technical (but generally controllable) a. Management, i.e., difficulties due to: o insincerity/lack of integrity o incapacity o inadequacies o loss of control o incompatibility of goals o senior staff changes

b.

c.

d.

e.

o inappropriate or lack of organizational structure o lack of appropriate policies and procedures o inadequate planning o unrealistic scheduling o lack of coordination o inadequate project management Schedule, i.e., delays and time overrun due to: o delays due to management difficulties above o regulatory approvals o labour shortages o labor productivity o labor stoppages o material shortages o late deliveries o unforeseen site conditions o sponsor/user scope changes o accident or sabotage o start-up, turn-over or launch difficulties o lack of access Cost, i.e., overruns due to: o any of the schedule delays listed above o inappropriate procurement strategy o pay negotiations o management and/or workforce inexperience o lack of understanding how parts fit together o contractor claims o under-estimating o any of the external factors listed previously Cash How o squeezing o interruption o insolvency Loss of Potential, i.e., removal of: o benefit o profit

Technical (and generally controllable) f. Changes in Technology o rendering parts of the project obsolete o parts discontinued o introduced by competitors, rendering the project obsolete, uncompetitive, or unacceptable o complexity introduced as a result of new technology g. Performance o quality o rate of production o reliability h. Risks Specific to Projects Technology

o in creating the entity or product o in operating or marketing it i. Design o inadequate data o designer/detailer inexperience o design inadequacies o detail, precision and suitability of the specification o likelihood of changes during the course of the project o design vs. execution methods j. Sheer size or complexity of project Legal (generally controllable) Difficulties arising from any of the following a. Licences b. Patent Rights c. Contractual i.e., difficulties due to: o misinterpretation o misunderstanding o inappropriate contracting strategy/contract type o failure d. Outsider Suit e. Insider Suit f. Force Majeure