Chapter 12. Analyze Risk

"Risk is part of the game if you want to sit in that chair ."

” James T. Kirk (William Shatner) ^[1]

^[1] Star Trek: Generations , David Carson, Director, Rick Berman, Writer, 1994.

So you're getting there. You have your scope, objectives, stakeholders, benefits analysis, quality agreement, and project development strategy negotiated and agreed to by all your project partners . You're looking good!

However, the next step of the planning process is where you begin analyzing what can go wrong with your project (see Figure 12.1) and ”here's the good news ”what can be done to prevent disaster.

Figure 12.1. Analyze project risk and develop risk management plan

In his book Against the Gods: The Remarkable Story of Risk , Peter Bernstein (1996) described how organizations have been practicing risk assessment and risk management since the 1700s. For example, in the financial sector, there is a highly formalized process of risk assessment and risk control in lending . On receiving an application for a loan, the loans manager would undertake a risk assessment based on the applicant 's current financial position, length and stability of employment, credit rating, amount of money requested , proposed term , proposed security, and so on. Risk control (reduction or containment) would then be applied to the loan, including offloading the loan, loan insurance, monitoring of payments, late payment patterns, and so on.

Managing risk is one of the most poorly understood aspects of project management. In the late 1990s, Accenture (Andersen Consulting) released a study that showed the majority of senior management did not understand the issues of project risk at all.