Is it Important to understand Correct Definition of Project Risk?
Yes! It is extremely important to understand correct definition of Project Risk. It is not only important to understand correct definition of Project Risk but also to use it in the correct manner.
In fact, let me go a step forward – it is important to understand the correct definition of all the Project Management terms. I am sure PMP® aspirants would agree with this statement since PMP® Exam is all about correct understanding of PMBOK® Guide terminology.
Let us move away from PMP® Exam and concentrate on Project Risk. I have observed that the term “Project Risk” is often used very loosely. In my experience the incorrect usage of Project Risk (or any other Project Management term) leads to immense confusion.
Projects are done by the Project team. If the Project team members have different understanding of different Project Management term(s) then precious hours are wasted is resolving confusion arising due to miscommunication & misunderstanding. A good Project Manager should always avoid the confusion and improve productive hours.
What is Risk?
exposure to the chance of injury or loss; a hazard or dangerous chance
the possibility that something bad or unpleasant (such as an injury or a loss) will happen
A situation involving exposure to danger
It is quiet apparent from the English Definitions that Risk involves Chance or Possibility. If an event has already happened or will definitely happen then it cannot be categorized as a Risk – it is a Problem.
Let me share a little anecdote with you.
What is Project Risk?
An uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives.
PMBOK® Guide 5th Edition
Looking closely at the definition, it is quite apparent that there are 2 main components of Project Risk – Uncertainty (Probability) and Effect (Impact). An Event can be termed as Risk if it is likely to occur and it effects at least one of the Project Objectives. If an Event has already occurred then it is no longer a Risk.
A Project Risk with a negative impact is called a Threat while a Project Risk with a positive impact is called an Opportunity.
A negative Project Risk that has occurred is considered as an Issue or a Problem whereas a positive Project Risk that has occurred can be considered as a Windfall.