Risk management is an important component of any project management plan. However, more often than not, project managers lack this important skill. This video will help you understand what a risk is, how to identify project risks, and how to validate a risk statement before you document it in your risk register. We will go over the CAUSE, RISK, EFFECT method of identifying and qualifying risks.
The budget is going to be considered a risk for you let’s assume for a second or let’s assume that you don’t have any limitation on how long the project can take if you don’t have that kind of limitation on audio and and all you have is a on budget then we can say that there’s a risk to the budget but there is no risk to the time why there is no deadline you can take as long as you want there is no risk to that timeline so basically you cannot have a risk if there are no objectives now in my opinion risk is widely misunderstood why people tend to focus on the effects right for example they talk about a risk of delay they talk about a risk of going over budget they talk about a risk of not being able to complete the project typically when people are thinking about risk they’re actually thinking about what they’re thinking about the effect they’re not thinking about the risk they’re not wondering what will go wrong to have that kind of an effect they’re thinking about the effect itself as a risk so the risk of delay is really a risk that would have the effect of being delayed but what is the risk that would cause the delay effect right a risk of going over budget what is going to cause your project to go over a budget the effect is going over the budget what is the risk what is it that has to happen or that could happen that is uncertain that you don’t know for sure that it’s going to happen that if it happens it’s going to have some sort of a negative outcome on your project or your plans so that is the risk the uncertainty the unknown part right let’s use a very basic example you wake up in the morning at your typical time and you’re going to work and you drive typically about half an hour you go through downtown and you know there’s a lot of cars on the road and typically half an hour is enough for you to get to work the risk is you get stuck in traffic behind slow cars the risk is the risk is there there could be an accident on the road the risk is you could have an accident on the road the risk is you could have a mechanical problem the risk is there’s a detour on the road so the risk is whatever could happen along the way that would block you from getting to your place of business within the time line that you want so let’s assume nothing is on the road that stands in your way let’s assume you leave just on time and traffic is were you know very seamless you know a normal level of traffic no accident along the way people are driving really nice no problems on the road you will get there on time so it’s not that you left during rush hour or peak period that is going to cause you to be late it’s what could happen along the way that would result in your being late if nothing happens along the way then you’re not going to be late but we do know that when you leave at that time let’s say it’s 7:45 or aam it is heavy traffic so that is the cause or the one thing that worries you about driving at that time the risk is something would have to happen along the way which we resolve which will result in the effect of your being late all right now so there is a structure that says you know there’s going to be a cause which is a fact that is non-negotiable that could that could give rise to that risk and that risk is the unknown on the answer or the uncertainty event that could happen along the way and the effect would be the outcome in case you are exposed to that risk right or in case you encounter that risk all right I want to show you this nice butterfly I’m going to consider the left side of it as the cause the middle side is the risk which is the butterfly itself so the left wing is the cause the causes and the right wing is going to be the effects now a risk may be caused by one or more causes and if it happens could have one or more effects let’s take a look at a simple example of this one guy that I have them down here in the pitch you see him this guy he’s slippin he’s not dancing he just slipped on maybe a wet floor or I don’t know why he slipped so what I want to analyze is why did this one guy slip all right so what I’ve put down here on the left are all causes I just put a few so I have wet floor he’s on medication and maybe on drugs the area is dark there are no proper signs object there’s an object on the floor could be a banana it could be a stone could be anything he is not wearing proper gear and there could be a few things maybe he left his glasses at home maybe someone pushed him there could be many different reasons you know the floors wet it could be many different reasons why this person slipped so him slipping is the risk now there’s a chance that all these things will be there or any-any or a wet floor he’s on medication in the area stock and he may still not slip do you agree there’s still a chance he may not slip so him slipping is an unknown it’s an uncertainty it may or may not happen on the right hand side what you see are the effects and I go all the way from nothing to blowing up the world yeah I’m not crazy I do mean it he could blow up the world let me explain how but I’ll tell you that later just hang on for a little bit right it starts with nothing you know babies or kids toddlers they fall and they get up right nothing happens to them so let’s assume this this guy slips falls gets up and continues back you know doesn’t even in fact his suit or jacket he just continues to his meeting or it’s his work right there’s a there’s a possibility I mean how many times have you fallen and gotten up no problem right so that could happen but there’s also a possibility that could be injury to yourself or to others or you could probably you know do damage to the property or you could result in claims either you’re you will have a claim against your organization or the organization against you for property damage there could be loss of productivity loss of morale many different things or it could be death maybe you fall in you know you fall off the edge you land somewhere not so nice and you end up dead but you could also be slipping in a very maybe high-risk area where it is the nuclear button on the wall and you slipped and your foot just accidentally kicked or pressed on that nuclear button and you blow out the whole world now this is really far-fetched but what I’m trying to point out here is that when you fall or when at-risk happens the range of effects could be anywhere from nothing all the way to some massive massive loss how much of an effect you’re going to have now that depends on historical data if you have any kind of data that describes the typical effects that happen from such incidents then you can probably guess a good medium to use so car accidents for example could go anywhere from barely a noticeable scratch all the way to a total loss of the car or a total loss of life right so it could happen anywhere along that spectrum but for sure if the guy slips here one of these effects is a possibility for sure if you have an accident with your car one of the typical outcomes is a possible effect right but there’s always the chance that none of that you don’t have the accident and there’s always the chance that this guy who was walking on a wet floor on medication on drugs don’t know what he did the night before in a very dark area with no signs even not focusing he’s looking at his phone right and still may not fall the effects are only felt if he actually falls if he doesn’t fall the effects will not be felt all right so let’s just try to put some structure to this a risk must have some causes one or more causes for it to happen there is no risk if there’s nothing that causes us to be concerned what is going to cause you to be concerned something that is a fact are realistic that a realistic if you know condition a general condition it could be the economy that worries you about some risk to your business it could be constant money flow you know currency value fluctuation that worries you about some aspect of your portfolio but there’s gotta be some general conditions that we consider facts non-negotiable facts that would have to be there to give rise to the possibility of risk let’s say historically suppliers get stuck at customs you know maybe they’re delivering internationally right they get stuck at customs and you know three out of ten times there’s a problem or five out of half at a time there’s a problem at customs then we say that that’s a general condition of our business or our environment and that gives rise to the risk that the supplier may get stuck at customs so you gotta have that general condition the state of things the state of the organization the country the employees something that you know of as a fact that is non-negotiable that is agreed upon that gives rise to the feeling or the mindset that something could go wrong which is the risk right and if the risk happens any one of these effects could be felt right so let’s just summarize again before you can put down or risk you need to understand the project or the task at hand understand the environment in which it’s going to be run understand the people involved understand the rules understand the processes their terms the conditions understand the market basically analyze the environment of this one project and ask yourself what do I know that’s a fact that is worrisome that I need to consider you know jotting down a risk for right I realize for example that the price of the dollar keeps going up and down and there have a you know a war with the euro right and my investment heavily depends on buying products from Europe well that’s a concerning thing then I need to document it right now I would list a risk associated with currency because of the constant see valuation variation between dollar and euro that we have seen over the last year or two there’s a chance that my purchase could happen at a time that the euro is too pricey which will result in me paying more for my products see here you’ll see that I have a very well-defined background to my concerns it doesn’t come out of thin air I have seen incidents I’ve seen it over the last year or two and that’s what makes me worry about this one risk event and I can shut down this risk event the effect can be a calculated effect on you know what if what would be the typical variation that I would expect in the Euro value against the dollar and multiplied by the products that I need to buy so basically you need to figure out the causes and these have to be agreed upon facts if you just simply write basic things on your risk statements and you just say you know there’s a risk of delay and there’s a risk of supply being late and you show to your boss don’t be surprised if your boss looks at you and says this is garbage you know you’re just doing it because you just want to show off that you don’t risk management but these are not risk you know we can’t take them seriously the only way your boss or anyone else is going to take your risk statement seriously is when the cause is believable or the conditions or the basis for your concern are real then you say okay now I have this one concern which you know if it happens could have these kinds of outcomes all right many people are used to using the if-then statements if the Euro goes up in price then our purchase is going to cost us higher right if is the risk in other words right so if is the risk then is the effect if the Euro goes up higher then our cost is going to be more if the Euro goes higher is the risk but the question is what’s making you think that the Euro could go up what is the general condition or the cause for this concern if it’s baseless there is no basis for why you think the Euro is going to go up let’s say for the last five years they’ve been stead the euro versus the dollar had been very steady no variation nor fluctuation minimal fluctuation and you go tell your boss if the Euro goes up in price they’ll just laugh at you right but if it has been you know varying for the last year or two or even the last six months then your boss listens right because you have a base or you have something you can claim against and say this is the reason I have this risk listed if I if that background wasn’t there then the risk would not be believable that background is the basis is the cause for why you think this risk exists the risk is not guaranteed to happen it may not happen yes you may have had fluctuations with the euro dollar valuations but there’s a chance that you know you you get a steady price at the time that you purchased and you do not encounter that one risk and if not then the effect will not be felt if you do encounter it then some sort of any effect can be felt I’m hoping this video sheds enough light for you to feel confident enough in you know taking on maybe some risk identification tasks on your next project or activity if you have any questions please feel free to ask me you know put your comments down there I’m not just saying it to say it but I would actually respond back to you I’ll be curious to know your experiences with risk management and how your organization does risk assessment and whether you think that what I’m saying makes sense or whether you have a different point of view be very curious to know how you manage your own risk thank you for listening please feel free to share this video if you think others will benefit from it if you’re not a subscriber please subscribe you will see frequent videos about twice a week at this time or as many as possible but we try to put some fresh content out there and if you’re in the field of projects programs portfolios risk business analysis or in a leadership role then you’re going to find our videos very meaningful and directly related to what you do hope to have you ask the subscriber and hope to see you on the next video