Security

Take positive risks to gain project benefits


Risks are future events or conditions that have some probability of occurring and that will some impact on your project. We usually think of risks as being bad and we try to put a plan in place to make sure the risk goes away.

But are all risks really bad? Let's say your project was going to utilize a new tool or new technology. Would it make sense to you if I said that your project was riskier than a similar project that is using current technology?

On the surface this would seem to be correct. Your team probably understands the current technology better, the current technology is probably more stable and you probably have a lot more support infrastructure. The new technology is not understood as well, has more opportunity for problems and you don't have nearly as solid of a support infrastructure in case something goes wrong. Even without understanding the specific technology in question, it makes sense that projects with new technology would be somewhat riskier that a similar project that uses current technology. (I know there are exceptions, but this is generally true.)

So here's the question: If it's true that all projects are generally more risky when we use new technology, why would you ever undertake a project with new technology? The answer, of course, is that we perceive there to be a benefit to our project. In other words, the potential impact to our project is a positive. This still meets our definition of risk.

  • There is an impact to our project. Normally risk events have a negative impact on our project. However, with positive risk there is a potential positive impact.
  • There is a probability of the event occurring. This is still the case with positive risks. In our prior example, if the benefits of moving to new technology were guaranteed, we could make the decision to move forward with 100% confidence. However, usually the benefits are not guaranteed. The technology, or our implementation of the technology, could turn out bad, in which case we might be worse off than when we started.

Positive risk is also called "opportunity risk." In these instances, the project manager or project team may introduce risk to try to gain much more value later.

A key aspect of positive risk is that you put yourself in a position to take on the risks; they are risks that we knowingly take upon ourselves because we perceive there to be advantages to doing so.

Different organizations have different tolerances for risk. Remember that all risks have a probability of occurring. They're not guaranteed. If you take an intelligent risk and you fail, what happens? If your organization rewards people who take risks and are successful, and they punish people that take risks and fail, then they are really risk averse.

Generally when we're doing risk management on projects, we're talking about potential negative events. However, you can also identify the risk events that lead to positive outcomes. Your risk plan should include activities designed to give you the best chance that the risk event will come true.

8 comments
barna.kiss
barna.kiss

I read about "good risk" several times (it's actually part of PMBOK, too) but all these articles are too theoretical to me not giving specific examples. I like your articles - including this one -, Tom, but could you give me a sound example of good risk? Thanks in advance Barna

Womble
Womble

This is an old and well known phenomenom. the more risk thee is of failure, the the higher the return needs to be on success. This is across all risky activities from sport to finance. It is not a knew way of thinking. it is just rewording a well known principle The problem you always have is in the evaluation of the risk, and documenting it in a way that descision makers can understand it, and can make a judgement call that it is a worthwhile risk. no manager accepts a statement that there is a risk of failure. The want to know how likely that failure is Modelling can help with this, and can help by providing an understanding of the range of possible results, from hugely successfull with major increases in underlying profit to putting the company down the gurgler. The ability to portray this information is a skill many do not have, but is tremendously important on the launch of a project

tomasb
tomasb

This article appears to me as a convoluted attempt at establishing new terminology where none is needed. (A habit commonly exhibited by management consultants and their likes.) A risk that doesn't have a negative outcome is known as a chance. "Opportunity risk" is one word too many. In my organisation, we attempt to identify these as early as possible, and present them as additional justification to the business case for any new project. Or am I missing the bleedingly obvious here???

phil.sweeney24701
phil.sweeney24701

This is a new concept to me, and I think it's really exciting. I've always planned and executed projects with an eye towards realistic to pessimistic scenarios, which is generally good for managing expectations. However, this is a great concept for working into execution. In addition to looking over the plan and assessing what could hurt the project, review for possibilities that could improve it! In addition to planning risk avoidance and mitigation, plan to target and exploit opportunity!

gcookman
gcookman

When providing estimates for a project - be they an early ROM or detailed activity and task estimates - estimating sssumptions should always be close by. Assumptions typically convert easily into risks. Therefore if my estimating assumptions are met, I am likely to meet the estimate. While still finishing my project schedule, I try to quantify the impact of a risk's negative outcome(in time or cost), and also a positive one if one exists. I will develop a mitigation plan for the negative outcome, but if I do not have a plan in place to capitalize on the positive outcome, it will net me no benefit which then becomes a lost opportunity. This may be an obvious point, but Project Managers who are not prepared for the realization of a positive outcome from a risk risk squandering what you call "chance" and as I am sure you have heard, "Chance favors the prepared mind." (Ansel Adams)

Fairbs
Fairbs

I guess I don't get the concept either. If you have a set of possible projects, it would be quite probable that some are riskier than others. Assume that all of these projects can't be completed due to resource constraints. You use risk management techniques to assess / mitigate risks. You would also look at the costs / benefits of the project relative to the risk to determine which of the projects to complete. A project with high risk and low benefits would not be selected (hopefully). A project with low risk and high benefits should be selected. Low risk / low benefits probably not. High risk / high benefits??? This is where the most analysis should happen prior to moving forward. Additional training, culture shift, ... Think of everything that will be necessary to be successful and be sure you can pull it off. 'Positive risk' seems unecessary to me.

onewomanbrisbane
onewomanbrisbane

Toni, I've been meaning to write to tell you how much I enjoy your perspective and approach to your articles for some time now, so please accept the compliment. This article just reinforces my opinion. There is opportunity everywhere. As I see it you are applying one of the key tenets of SWOT analysis and providing IT people who have not necessarily been exposed to this more marketing oriented concept an opportunity to engage in the art of making the pie bigger. There's a whole new world out there when this mental shift takes place. Keep up the good work.

donstrayer
donstrayer

There's nothing new about evaluating risks in terms of potential loss vs. potential benefit. Tom's point is simply that we should be willing to take intelligent risks rather than view every risk as a negative.