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Understanding and managing risks is a cornerstone of project risk management

Blog posted by: John Ayers, 15 January 2020.


Effective project risk management is necessary for a successful project. The world is changing around us, and this presents new challenges such as robotics, artificial intelligenceclimate change and more; in other words, risks. That is why understanding and managing risks is vital to project success and a knowledge cornerstone of project risk management, the focus of this blog.

Categories of risk

There are two categories of risks.

  • The known risks (scope, schedule, cost, and quality). The known risks are managed by applied effective project management methods explained in my previous blog.
  • The unknown risks (uncertainties and variations) that surround each project need a excellent applied project management process This is especially true for future high technology industries.

What is the risk management process?

Risks can have a positive or negative impact on the project; a positive impact is often called an ‘opportunity’. The goal on a project is to identify as many opportunities as possible to offset the cost and schedule consequence from risks. Human nature being what it is, it is easier to identify what can go wrong than identify what will go better than planned. The point is, it takes a lot more work to find the opportunities than the risks.

Unknown risks need to be identified using various techniques, such as brainstorming, work package level assessments or historical information for example. To think of these types of risks, you need to think outside the box. And they need to be analysed using qualitative and quantitative methods. The risk must be handled appropriately and finally, it should be controlled and monitored on a regular basis. Earned Value management (EVM) is an excellent tool to use in tracking mitigation plans performance and you can learn more about EVM in this blog.

Examples of thinking outside the box

One of our key vendors was developing a critical fan handling system for us. The vendor was approximately 90 per cent complete with design documentation and 50 per cent finished with hardware fabrication. We were informed by the vendor their facility caught fire and all of our documentation and hardware were destroyed. This resulted in a six-month schedule delay, significant cost overrun, and a very unhappy customer.

Assume the team is brainstorming and one member suggested a risk is the vendor’s facility will burn down and destroy our documentation and hardware. This is thinking outside of the box. Would you accept this as a legitimate risk? If so, what would you suggest as a mitigation plan? Check the facility for a working fire suppression sprinkler system? Develop another vendor to make a spare unit just in case it did happen? This is why risk management is a knowledge cornerstone. It forces you to think outside the box.

Not convinced? Here's another example. A chilled water system designed to cool a radar included pump selection to handle the estimated pressure drop in the system. The pressure drop for the unit was primarily due to the piping and flow components in the system that connected the chilled water unit to the heat source, and was calculated based on the physical routing of the piping to the drawings as well as the flow component sections. The assumption made for the calculations was the piping system would be installed per the drawings. If this was not the case, the pressure drop may be higher than requirements resulting in low system flow rate and unacceptable performance.

The chilled water unit was installed on a ship without incident. However, the piping run to the heater was not installed per the drawings due to unexpected interference resulting in a much longer piping routes with many more bends than assumed. This resulted in a greater pressure drop than calculated. Once the unit was up and running, a performance test showed the flow rate was considerably below the required performance. After a brief assessment, it became clear the actual pressure drop was significantly higher than calculated.

In this example no one thought outside the box. That is to say, no one thought about a higher than calculated pressure drop risk. Fortunately, the solution to the problem was solved by swapping out the medium sized impeller with the large one. With this modification, the chilled water system performed to specification.

To manage the unknown risks, it is essential to understand risk management. This is especially true for future new technologies due to the uncertainties and variations surrounding any new technology project. Why? The known risks of a project are simpler to understand. But to deal with the unknown risks, it will be required to use risk management techniques available, and thinking outside the box is essential to project success.

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About the Author

Currently John is an author, writer and consultant. He authored a book entitled ‘Project Risk Management. He has written numerous risk papers and articles. He writes a risk column for CERM. 

John earned a BS in Mechanical Engineering and MS in Engineering Management from Northeastern University. He has extensive experience with commercial and DOD companies. He is a member of PMI (Project Management Institute). John has managed numerous large high technical development programs worth in excessive of $100M. He has extensive subcontract management experience domestically and foreign.  John has held a number of positions over his career including: Director of Programs; Director of Operations; Program Manager; Project Engineer; Engineering Manager; and Design Engineer.  He has experience with: design; manufacturing; test; integration; subcontract management; contracts; project management; risk management; and quality control.  John is a certified six sigma specialist, and certified to level 2 EVM (earned value management).


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