Large Impact

FIGURE 17-1. Overall risk is a function of its components.

Risk constitutes a lack of knowledge of future events. Typically, future events (or outcomes) that are favorable are called opportunities, whereas unfavorable events are called risks.

Another element of risk is its cause. We denote this source of danger as the hazard. Certain hazards can be overcome to a great extent by knowing them and taking action to overcome them. For example, a large hole in a road is a much greater danger to a driver who is unaware of it than to one who travels the road frequently and knows enough to slow down and go around the hole. This leads to the second representation of risk:

Risk increases with hazard but decreases with safeguard. The implication of this equation is that good project management should be structured to identify hazards and to allow safeguards to be developed to overcome them. If suitable safeguards are available, then the risk can be reduced to an acceptable level.

There is no single textbook answer on how to manage risk. The project manager must rely upon sound judgment and the use of the appropriate tools in dealing with risk. The ultimate decision on how to deal with risk is based in part upon the project manager's tolerance for risk.

The three commonly used classifications of tolerance for risk appear in Figure 17-2. They include the risk averter or avoider, the neutral risk taker, and the risk seeker or lover.

Risk = f (Hazard, safeguard)

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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