Project Risk Terms and Definitions
Terms and Definitions used regularly in construction projects and defined in PMI PMBOK
A project risk is a potential source of deviation from the project plan. Project risks can have a negative or positive impact on the project. Project risks that are negative are called threats. Project risks that are positive are called opportunities.Non-critical risks should be documented. They should be revisited and reviewed regularly.Risks are identified in all phases.Work-around refers to how to handle risks that have occurred but are not part of risk response plan. This happens in risk monitoring and control phase.
- Amount at Stake: The extent of adverse consequences which could occur to the project. (Also referred to as risk impact).
- Business Risk: The inherent chances for both profit and loss associated with a particular endeavor.
- Contingency Planning: The development of a management plan that identifies alternative strategies to be used to ensure project success if specified risk events occur.
- Contingency Reserve: A separately planned quantity used to allow for future situations which may be planned for only in part (“known unknowns”). Contingency reserves are intended to reduce the impact of missing cost or schedule objectives. Contingency reserves are normally included in the project’s cost and schedule baselines.
- Deflection: The act of transferring all or part of a risk to another party, usually by some form of contract.
- Expected Monetary Value: The product of an event’s probability of occurrence and the gain or loss that will result. For example, if there is a 50% probability it will rain, and rain will result in a $100 loss, the expected monetary value of the rain event is $50 (.5 * $100).
- Impact Analysis: The mathematical examination of the nature of individual risks on the project, as well as potential arrangements of interdependent risks. It includes the quantification of their respective impact severity, probability, and sensitivity to changes in related project variables, including the project life cycle.
- Insurable Risk: A particular type of risk which can be covered by an insurance policy. Also referred to as a pure risk.
- Management Reserve: A separately planned quantity used to allow for future situations which are impossible to predict. (“unknown unknowns”) Management reserves are intended to reduce the risk of missing cost or schedule objectives. Use of management reserves requires a change to the project’s cost baseline.
- Mitigation: Taking steps to lessen risk by lowering the probability of a risk event’s occurrence or reducing its effect should it occur.
- Monte Carlo Analysis: A schedule risk assessment technique that performs a project simulation many times in order to calculate a distribution of likely results.
- Opportunities: As related to risk, positive outcomes of risk.
- Project Risk Management: Includes the processes concerned with identifying, analyzing, and responding to project risk.
- Risk Event: A discrete occurrence that may affect the project for better or worse.
- Risk Identification: Determining which risk events are likely to affect the project.
- Risk Management Plan: A subsidiary element of the overall project plan which documents the procedures that will be used to manage risk throughout the project. Also covers who is responsible for managing various risk areas; how contingency plans will be implemented, and how reserves will be allocated.
- Risk Quantification: Evaluating the probability of risk event occurrence and effect.
- Risk Response Control: Responding to changes in risk over the course of the project.
- Risk Response Development: Defining enhancement steps for opportunities and mitigation steps for threats.
- Threats: As related to risk, negative outcomes of risk.
- Total Certainty: All information is known.
- Total Uncertainty: No information is available and nothing is known. By definition, total uncertainty cannot be envisaged.
- Uncertainty: The possibility that events may occur which will impact the project either favorably or unfavorably. Uncertainty gives rise to both opportunity and risk.
- Workaround: A response to a negative risk event. Distinguished from contingency plan in that a workaround is not planned in advance of the occurrence of the risk event.
- Avoidance: Changing the project plan to eliminate the risk and protect the project objectives.
- Transference: Shift the consequence of the risk and ownership to a third party. (E.g. insurance)
- Mitigation: To reduce the probability/impact of a risk to an acceptable threshold. (E.g. prototype).
- Exploit: This strategy may be selected for risks with positive impacts where the organization wishes to ensure that the opportunity is realized. This strategy seeks to eliminate the uncertainty associated with a particular upside risk by making the opportunity definitely happen. Directly exploiting responses include assigning more talented resources to the project to reduce the time to completion
- Share: Sharing a positive risk involves allocating ownership to a third party who is best able to capture the opportunity for the benefit of the project. Examples of sharing actions include forming risk-sharing partnerships, teams, special-purpose companies, or joint ventures.
- Enhance: This strategy modifies the .size. of an opportunity by increasing probability and/or positive impacts, and by identifying and maximizing key drivers of these positive-impact risks
Project Risk Terms and Definitions
