Qualitative Risk Management - Part 1

Now that you have read the risk management basics, we can start with more definitions. These definitions are important for the holistc understanding of risk management.

The risk concept should be very well understood and memorized by project professionals. So let's recap the risk definition as: "an uncertain event or condition with positive or negative consequences". It means that risk is an uncertain event or condition that could materialize and in case it materializes, the event or condition could have a positive or negative outcome to the project and/or company.

How to define these uncertainties, how to quantify them? how to prioritize them? How to recognize when one risk has materialized? Is this risk a good or a bad risk? How to protect the company and/or the project against the risk, if it has negative outcome, or how to maximize the impact of the risk, in case of positive outcome? What to do in case the risk materializes? These are all pertinent questions that we will cover in the following paragraphs and in the future articles of this series.

Lets start defining and providing examples of threat and opportunities. A threat is a type of risk which outcome is detrimental to the project and/or company. An anecdotal example is a project that is being executed in the country A. In this example, the project team decided to purchase the 50% of the materials from country B because typically they offer good price and optimal lead time. Unfortunately country B is notorious for having extreme exchange rate fluctuation against the currency from country A. Then, during the project execution, the exchange rate fluctuate 30% against the project. Well it's easy to see how the exchange rate fluctuation is a project risk. In the same example, if the exchange rate could have fluctuated to the other side making the material cheaper than planned, would be classified as an opportunity. Where the material ended up costing less to the project than initially forecasted.

Another example of opportunity happened during the design and construction of the building Taipei 101, in Taiwan. Earthquakes are common in that area and most of the time they have small magnitude, however an earthquake shaking a building that is nearly 450m tall is not something that the designers would want to avoid and the occupants would not want to experience. The solution was to design and install earthquake dampener on the upper floors. This dampener is a 660 metric tons steel ball hanging from the ceiling. The project stakeholders decided that the surrounding areas of the dampener would be a touristic area open for the public instead of dead and boring maintenance space. This opportunity was identified early in the project and successfully implemented.

Now let's move on to the risk identification methods. How can we identify the project risks so we can manage them? There are quite a few methods. The most common risk identification method is a workshop where project team members voice their visions and correlate experiences that could be seen as potential risks. Such risks should be captured in a register without questioning the validity or relevance of them. The workshop facilitator should take extreme care to not interrupt or cut the flow of risk identification and eventually make the project team member to shutdown and stop collaborating with the workshop.

Other methods we consider very effective to identify risks are: in depth interview, Delphi technique, brainstorming to name a few.

By now, you should have understood the new concepts of threat and opportunity. Lets stop this article here and continue on the next one with more definitions and details for qualitative risk management.