Learning for PMP Professionals : Risk & how is it Calculated ?

Learning for PMP Professionals : Risk & how is it Calculated

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Risk can be best defined as an uncertainty that can positively or negatively impact a project.

Now, the uncertainty can some time have a good impact on the project, but most of the times, uncertainties have bad impact on the project.

Let's take an example of a good uncertainty. You were using a software for managing time sheet of your team members, but because of some reason, you were forced to use a new software. Even though you were initially reluctant to use the new software, you found out the new software to be better than the previous one. It's more efficient and has better reporting facility than the previous one.

Where as a bad uncertainty can be spread of swine flu. Government declares a mandatory holiday to check Flu spread and that may actually impact your project work.

Good Risks are also called Opportunities and bad risks are also called Threats.

There are some other risk related terms that you should be aware of. They are:

One who does not take risk is called "Risk Averse".

Risk Tolerance means whether the risk can be tolerated or not. For example, a company might have a policy that any risk that impacts their customer relationship will not be tolerated.

Risk Threshold means the amount of risk that is acceptable. For example, a company may have a policy that a risk that increases the project cost by 10% or less is OK, but not more than that.

Risk is measured by assigning a monetary value to it and that value is arrived at by multiplying the probability and impact of the risk.

For example, suppose there is an work package X and there is risk that has 25% probability of impacting the proper execution of package Xand if that risk actually occurs the impact of not having executed the package X is say $10,000.

So what is the value of the risk? It is 25% * $10,000 and that equals $2,500.

$2,500 is the value of the risk.

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