Most of us know that risk comes inherent with a project because projects involve unknowns. What I find in my project management travels is that many project managers don’t understand the difference between a risk and a problem. Why is this important?
A risk is an uncertain future event that could have a negative effect (threat) or a positive effect (opportunity) on the project objectives. But a problem statement describes a 100% certain condition that exists now and threatens achieving the project objectives. Understanding the difference between a project risk (threat) and a problem is important because they are treated differently in project planning and execution.
A problem statement would be: “We have insufficient resources to conduct the beta tests which will delay the project by one week.”
A risk statement could be: “We may have insufficient resources to conduct the beta tests which would delay the project by one week.”
These two statements are very similar but have significantly different meanings for a project manager and his stakeholders in planning and executing the project.
The first statement is a problem statement and implies almost 100% certainty (very few events have 100% certainty). The project plan must deal with this real problem on its face value. The project plan must specify how this issue will be resolved before the project plan can be approved. The solution may be hiring more resources, outsourcing, dropping the beta test or adding more weeks to the schedule. Whatever the solution, it must be addressed now.
The second statement is a risk statement with an implied probability (may have) and estimated impact to the project if the risk event occurs. The Guide to Project Management Body of Knowledge Once (PMBOK®) tells us how to manage a risk.
Once we have identified the risk, a qualitative analysis is performed to assess the risk consequence or risk score which is used to prioritize the risk relative to other identified project risks. If the risk event turns out to have a relatively high consequence, a quantitative expected value analysis may be performed to estimate the probability of the risk and the expected value impact on the project objectives in terms of scope, cost and schedule.
A risk response plan should be developed to mitigate or eliminate the risk consequence. Typically, money, time and other resources will be allocated up front in the project plan to mitigate the high level risk before it occurs. After mitigation, any residual risk consequence remaining must be estimated. Typically, risk reserves of budget and schedule are allocated to cover the expected value of the residual risks.
You now can see how a project risk must be treated differently than a project problem when planning your project. So be very clear and concise when you are describing problems and risks in the project planning process. Be sure that your management, sponsor and stakeholders understand the difference between a problem and a risk.