Standish CHAOS report on project success (2006) indicated that a high number of projects either fail completely or are challenged (meaning that they were delivered either late or over budget or with reduced scope).
The report documented that one of the major reasons for project failure is the occurrence of unforeseen events which disrupt the smooth running of the project and cause irrecoverable deviation from the plan.
Some of these unforeseen events were probably unforeseeable. But others are likely to have been knowable, if only someone on the project team been aware of what lay ahead.
These knowable uncertainties fall under the heading of risks, as future events that, if they occurred, would affect achievement of project objectives.
Risk and Projects
Risk is an uncertain event or set of circumstances that, should it occur, will have an effect on achievement of one or more objectives.
And it is this link with objectives that makes risk particularly relevant to projects, since projects are intimately associated with objectives.
So, it is important to understand why projects are particularly risky, in order to set the context for risk management in projects and to help us to understand why managing risk effectively is essential if we really want our projects to succeed.
Why are projects risky?
There are two distinct and separate reasons for project being risky, which are;
- Common characteristics of a project
- External environment of a project
Common characteristics of a project
All projects share a range of features which inevitably introduce uncertainty. The following are factors found in all projects which make them inherently risky:
1. Uniqueness.
Every project involves at least some elements that have not been done before, and naturally there is uncertainty associated with these elements.
2. Complexity.
Projects are complex in a variety of ways, and are more than a simple list of tasks to be performed. There are various kinds of complexity in projects, including technical, commercial, interdependencies, each of which brings risk into the project.
Common characteristics of a project.
3. Assumptions and constraints.
Project scoping involves making a range of guesses about the future, which usually include both assumptions (things we think will or will not happen) and constraints (things we are told to do or not do).
Assumptions and constraints may turn out to be wrong, and it is also likely that some will remain hidden or undisclosed, so they are a source of uncertainty in most projects.
Common characteristics of a project.
4. People
All projects are performed by people, including project team members and management, clients and customers, suppliers and subcontractors.
All of these individuals and groups are unpredictable to some extent, and introduce uncertainty into the projects on which they work.
5. Change.
Every project is a change agent, moving from the known present into an unknown future, with all the uncertainty associated with such movement.
Common characteristics of a project.
6. Stakeholders.
These are a particular group of people who impose requirements, expectations and objectives on the project.
Stakeholder requirements can be varying, overlapping and sometimes conflicting, leading to risks in project execution and acceptance.
Generally, these risky characteristics are built into the nature of all projects and cannot be removed without changing the project.
For example, a ‘project’ which is not unique, has no assumptions, does not involves people and does not introduce change will in fact not be a project at all.
External environment of a project
Projects are not conducted in a vacuum, but exist in an environment external to the project itself which poses a range of challenges and constraints.
This includes both the wider organisation beyond the project and the environment outside the organisation, and changes which are outside the project’s control can occur in both of these.
Environmental factors which introduce risk into projects include:
• Market volatility
• Competitor actions
• Client organisational changes
• Internal organisational changes
• PESTLED (political, economic, social, technological,legal, environmental, demographic) factors.
External environment of a project
Each of these factors is subject to change at an increasing rate in the modern world.
Projects essentially have a fixed scope, schedule and budget which they are required to deliver within this ever-changing environment, which naturally poses risk to the project.