Risk vs Issues [ Based on Various Factors ]

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20th May, 2014
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Risk vs Issues [ Based on Various Factors ]

Can you guess the reason behind project failure? Here’s a hint. Poor risk or issue and conflict management can lead to project failure. According to PMBOK, risk can be defined as an uncertain event or condition that results in a positive or negative effect on a project’s objectives. 

Whereas, an issue can be defined as an event or condition that has already happened and has impacted or currently impacting the project objectives. There are certain grounds on which we can differentiate issues from risks. Let’s take a look at the differences.

Know more about the project description.

Difference between Risk & Issues

Before moving to the core differences, let’s take a look at the comparisons between examples of risk and issues through the following chart:

Risks

Issues
A critical resource might leave the projectA team member resigns
Team members of the project might take vacations during the critical time of the project.No one can be confirmed when team members would take vacations.
There may be unanticipated requirement changes.New functionality has been found that needs to be added to the scope of the project.
Something new might come up after impact analysis that may push the project dates.Two new changes which are the outcome of the Impact analysis resulted in pushing the project deadline by a week.

 

First of all, let’s look at the high-level difference between “Issues” & Risks”:

Difference between Risk & Issues

 

Now let’s see how risks & issues play an integral role in a project:

In general, if a project manager identifies all the possible negative risks and their respective response plans within the project, then the possibility of issues can be drastically reduced.  (i.e. prevention is better than cure).

However, certain unforeseen situations may still arise that turn out to be issued. They could be certain potential risks that were unidentified in the past. They could also be risks that have been already identified, where the risk response plans are inadequate- and those events turn into issues and impact the project. If a project manager pays inadequate attention to risk management, there is a greater possibility of his spending his valuable time & efforts later in managing the issues that arise!

Now, when it comes to issuing management the project manager will document the issues in the “issue register” and will perform an issue analysis to identify the possible “work-arounds” to fix the issue.

For example:

Let us suppose there is a FIRE in the room.

If we consider this in the context of issue & workaround, we say that there has been an occurrence of a fire, and we need to put it off by using a fire extinguisher. Since issues are present-focused, there is a very limited time available to identify the work-arounds required to fix the issue.

Once the work-arounds are identified, it’s also equally important that such issues should not get repeated in the future. There should also not be any possibility of re-occurrences in a different form, in order to bring it to a permanent closure.  In case of a re-occurrence then such events will be treated as “risks” because risks are future-focused. They will be documented in the “risk register” and then sufficient risk response plans should be identified to cover those possible future risks.

Get to know more about the characteristics of project management.

What are the types of risks in Project Management?

Risks in projects are inclusive of both internal risks that are associated with the successful completion of each project as well as the risks that are beyond the project team’s control. The following are a few of the most common project risks:

  1. Cost risk:

This refers to the escalation of project costs as a result of poor cost estimating accuracy and scope creep.

  1. Schedule risk:

This refers to the risk of activities taking longer than expected. Drifting away from the schedule typically increases costs which leads to a delay in receiving project benefits and possible loss of competitive advantage.

  1. Performance risk:

This refers to the risk of failure to produce consistent results with project specifications.

There are some other risks that result in cost, schedule, or performance problems and create other types of adverse consequences for the organization. They are as follows:

  1. Governance risk:

This risk relates to the board and management performance with regard to ethics, community stewardship, and company reputation.

  1. Strategic risks:

These risks are the result of the errors in strategy like choosing a technology that can’t be made to work.

  1. Operational risk:

These risks comprise of risks from poor implementation and process problems like production, procurement, and distribution.

  1. Market risks:

These risks comprise of risks related to foreign exchange, competition, interest rate, and commodity markets. This also includes liquidity and credit risks.

  1. Legal risks:

These risks arise because of legal and regulatory obligations which include contract risks and litigation brought against the organization.

  1. External hazards risks:

These risks are incurred due to storms, floods, and earthquakes. Other than these, vandalism, sabotage, terrorism, labor strikes, and civil unrest are responsible for such types of risks.

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What is the importance of risk identification?

The most important step in risk management is identifying risks. It involves generating a comprehensive list of threats and opportunities which are based on events that might prevent, enhance, accelerate, degrade, or delay the achievement of your objectives. You can’t manage risk without identifying it.

But how to identify risks?

One of the key steps in a proactive risk management process is to identify risks. You must look at the following sources in order to identify your project risk:

Sources

Description
Risk registers and risk reportsProvide a foundation for the evaluation of existing risks and their potential risk to an objective.
Issues logIt comprises of the issues and the actions considered to resolve them. Analyze the issues that were formally identified as risks.
Audit reportsThese are the independent view of adherence to regulatory guidelines which include a review of compliance preparations, access controls, security policies, and risk management.
Business Impact Analysis (BIA)It is a detailed risk analysis that is done in order to examine the nature and extent of disruptions and the likelihood of resulting consequences.
Internal & external reviewsThese reviews are undertaken in order to evaluate the adequacy, suitability, and effectiveness of the department’s systems, and to plan for the scope of improvement.

 

Perspectives for Risk Management

 

It is important to realize the perspectives for risk management and evaluate them during a program’s life continuously in order to anticipate risks at an early stage and tackle issues appropriately. A few of the risk management perspectives are as follows:

Strategic level:

The interdependencies of the program with other initiatives, its outcomes, and benefits realization are affected by the strategic level changes.

These changes are driven by:

  • External factors like political, economic, social, legislative, environmental, and technical
  • Internal political pressure
  • Inter-program dependencies
  • Working with third-party suppliers along with other cross-organizational initiatives can be grouped under this level.

Program level:

The focus of a program is to deliver benefits to an organization that positively or negatively affects both internal and external stakeholders. Risk Management for a program must be designed to work across organizational boundaries to ensure effective engagement of stakeholders and accommodation of different interests. The principal areas of risk and issues within a program are driven by:

  • Aggregating project threats
  • Lack of direction from the group of leaders
  • Lack of clarity about expected benefits and buy-in from stakeholders
  • Complexity of outcomes
  • You should also consider the compilations associated with working across the organisational boundaries as another factor
  • Availability of resource
  • Lack of certainty about funding
  • This also includes unrealistic timelines that increase program delivery risks.

Project level:

Project outputs help in delivering the outcomes and benefits within a program.

  • Focusing on the risk and issue management on project perspective is important
  • Areas leading to the rise of project risks and issues, resource constraints, scheduling issues, and scope creep
  • It may lead to issues and risks if the project is unsure of what it is delivering.

Operational level:

The transition of a project to new ways of working and new systems can lead to further sources of risk as projects deliver the outputs.

The following areas can be included in the operational level perspectives:

  • The quality of the benefit-enabling outputs from projects within program
  • Cultural and organisational issues
  • Output transfer to operations and the ability to cope with new ways of working
  • The risks can further be identified in stakeholder support
  • Industrial relations
  • Availability of resources to support changes.

Operational level:

 

Early warning indicators for risks in project management

The early warning indicators for project management can be defined as follows:

  • In order to anticipate potential problems, there needs to be proactive risk management. These indicators offer advance warning about trends or events that can affect the outcomes of the program adversely.
  • The sensitive risks can be tracked with the help of these indicators.
  • Few of the early warning indicators are delays in delivery of expected or planned benefits, requests to change key program information, increase in aggregated risks, changes to organisational services, structure, and processes.
  • Further, these indicators should be able to measure valid indicators, reviewed on a regular basis, and they should use accurate information. This ensures the effective functioning of the early warning indicators.

The other methods which can be deployed to evaluate risks are as follows:

  • Record the weighted average of the anticipated impact through the calculation of estimated monetary value.
  • Calculate the accepted discount rate through the net present value calculation.
  • Aggregate the risks together using a simulation technique through risk model.

To conclude

An experienced and certified project manager knows that every project involves identifying and managing project risks and project issues. Further, they are aware of the fact these risks and issues can be responsible for knocking a project off its track and divert the focus of the team away from fulfilling their responsibilities and goal achievements.

This blog will help you to differentiate between project risk and project issues along with the key steps for identifying the risks. You will also understand the importance of risk identification and the perspectives of risk management. The blog also throws light on the early warning indicators to realise the risks in project management. This information will surely help you to realise the upcoming risk and avoid it for a smooth continuation of your project.

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