Concepts
As a project manager or a PMI Risk Management Professional (PMI-RMP) candidate, it becomes paramount to comprehend the influence of various actions on the cost, schedule, and environment. Subsequently, understanding how these factors influence the overall risk impact or probabilistic nature of any project is equally important.
The cost, scheduled timeline, and environment within which a project operates are inherent elements that can significantly influence both the probability and impact of a risk event.
1. COST:
The cost is always a significant factor determining risk in any project. Impacts on cost can stem from unforeseen external influences, internal process failures, or even simply from a pessimistic estimate of the cost. Cost management is a critical aspect to minimize the risk impact.
For example, a project may have estimated costs for certain materials, but a spike in market prices could render these estimates inaccurate. Such cost escalation elevates the risk factor in terms of project profitability, making cost management paramount.
To manage cost-related risks, integrating risk cost into the overall project cost can be an advisable approach. This integration can be done by adding a risk reserve fund as part of budgeting.
To understand how cost impacts risk, a sensitivity analysis can be performed. In this, risk is assessed based on the sensitivity of project cost to changes in key project parameters (like material cost, labor cost, etc.). Higher the sensitivity, higher is the risk impact.
Cost Risk Assessment Matrix
| Cost Impact | Probability of occurrence | Risk Level |
|---|---|---|
| High | High | High |
| High | Low | Medium |
| Low | High | Medium |
| Low | Low | Low |
In this table, it is evident that when the cost impact and its probability of occurrence is high, it points towards a high risk level.
2. SCHEDULE:
The scheduled timeline of a project can also cascade into considerable risk. Project delays can catapult into cost overruns and can even jeopardize the entire project’s success.
An illustration can be if a vital piece of project equipment is delivered late, this can setback the project timeline. This delay can potentially raise the project’s overall cost, particularly if it contributes to the project not meeting the market time window, thus triggering significant financial risk.
To manage this, critical path analysis can be performed. It helps in identifying project tasks that directly impact the project timeline. Any risk associated with these critical tasks gets higher priority in risk management.
3. ENVIRONMENT:
Lastly, the project’s environment can pose a significant risk, especially in projects related to construction, manufacturing, or oil and gas, where environmental considerations are high.
For example, an oil spill in an offshore drilling project can have dire environmental repercussions, leading to high clean-up costs, legal costs, and potential cessation of operations.
In conclusion, a holistic understanding of how cost, schedule, and the environment affect the probability and risk impact can significantly aid project managers in forecasting risks. An effective risk management strategy includes modifying processes, reducing threats, and capitalizing on opportunities. As a PMI-RMP, your duty is not only to identify these risks but to consider these influences and shape your risk response accordingly.
Answer the Questions in Comment Section
Cost, schedule and environment are typically known as the triple constraints in project management.
- True
- False
Answer: True
Explanation: This is true because all the three factors tighten up, and each of them must be managed precisely, so that the project will not suffer, failing to meet its goals.
A rise in cost can lower the potential risk impact on a project.
- True
- False
Answer: False
Explanation: Increasing cost does not necessarily lower the risk impact. If not managed properly, it may lead to budget overruns which increase the project risk.
The use of advanced technology can always eliminate the environmental impact risk on a project.
- True
- False
Answer: False
Explanation: Although advanced technology can potentially reduce environmental risks, it may introduce other risks such as increase in the project cost or technical problems.
In project management, environmental factors can affect the schedule of a project.
- True
- False
Answer: True
Explanation: External environmental factors such as weather conditions, social or political issues can have impact on the schedule of the project.
Which of the following is not a way in which cost can affect the probability or the risk impact of an action?
- a) Higher cost usually involves higher risk
- b) Lower cost usually means lower quality
- c) Too high cost always guarantees successful completion of the action
- d) Overruns in the cost might push the schedule
Answer: c) Too high cost always guarantees successful completion of the action
Explanation: High cost does not always guarantee success. Factors like poor management, lack of skilled labor and unfavorable environmental factors can still cause the action to fail.
Changes in schedule can increase the risk impact on a project.
- True
- False
Answer: True
Explanation: Any alteration in a project’s schedule can lead to an increase in costs, thus potentially increasing the risk impact.
The primary aim of risk management is to identify and manage all risks that might affect a project schedule.
- True
- False
Answer: True
Explanation: Risk management helps to foresee and mitigate all probable risks that could impact the project, including effects on its schedule.
Strict adherence to the schedule can eliminate any financial risk.
- True
- False
Answer: False
Explanation: Sticking strictly to the schedule is not a guarantee to eliminate financial risk. There can still be unforeseen challenges leading to financial risks.
Any change in project’s scope can affect its cost, schedule and environment.
- True
- False
Answer: True
Explanation: Changes in scope affect work structure, which ultimately can lead to alterations in cost, schedule, and environment of the project.
Mitigating schedule risks can involve adjusting the project scope.
- True
- False
Answer: True
Explanation: Schedule risks can be mitigated by reconsidering the project’s scope, possibly through reducing or adjusting it.
The environment can always be controlled to avoid any risk impact on the project.
- True
- False
Answer: False
Explanation: There are certain environmental factors that cannot be controlled, such as weather, political situations, and natural calamities.
Potential impact on the project due to identified risks can be quantified through qualitative risk analysis.
- True
- False
Answer: False
Explanation: While qualitative risk analysis help to identify and prioritize risks, Quantitative risk analysis is used to quantify risk exposure and their potential impact on project objectives.
I think focusing on cost as a risk factor can significantly impact the probability of project success. What are your thoughts?
Absolutely, cost overruns can escalate risks if not managed properly. How do you monitor cost performance?
I agree, cost is a critical factor. Regular budget reviews and variance analysis work well for me.
In my experience, environmental risks are often underestimated. Anyone else think this should be a higher priority?
Definitely, regulatory changes and natural events can derail a project. We need more awareness around this.
Environmental risks can also create a ripple effect on cost and schedule. It should be integrated into the risk management plan.
Loved the post, very informative!
When it comes to scheduling, how do you mitigate risks related to resource allocation?
Effective resource leveling and employing buffer time can help mitigate those risks.
Thank you for this interesting article!
The triple constraint is always a challenge. Managing time, cost, and scope risks together seems daunting.
Risk management software can help track and balance these factors more effectively.
In the context of PMI-RMP, integrating environmental considerations into your risk management strategy is crucial. Thoughts?
I couldn’t agree more. Environmental risk integration has helped my projects achieve better sustainability.
Just want to say, great job with the blog!