Concepts
The role of a PMI Risk Management Professional (PMI-RMP) includes understanding the complexity of these risks. Among the various categories of risks, we will discuss five main categories, namely Government, Market rules/laws, Organizational, Environmental, and Technical Risks.
1. Government Risks
Government risks arise from changes in government policy or regulations that can have significant impacts on project outcomes. They may range from fiscal policy changes, regulatory changes, political instability, to international relations.
For instance, consider a construction project that received green signals in its initial stages. Still, due to a change in political leadership, stringent regulations were introduced for environmental concerns, which could significantly delay the project or enhance its costs.
2. Market Rules/Laws Risks
Market rules/laws risks are those linked with changes in market laws or rules that can impact the market conditions and hence the project. They could result from changes in trade tariffs, import/export regulations, or changes in tax laws.
An example could be a multinational project dependent on specific raw materials sourced globally. If the source country enforces export restrictions due to a shift in trade policy, the project stands to grapple with supply chain challenges impacting timelines and budget allocation.
3. Organizational Risks
Organizational risks are typically associated with a company’s internal structure that potentially impacts the project. These include changes in organizational structure, strategy, or personnel, which may influence the available resources, strategic direction, or support for the project.
An instance would be a strategic shift of an organization towards a new technology, rendering all projects related to the old technology at risk of being deprioritized, impacting their success probability.
4. Environmental Risks
These risks emerge from environmental issues that can impact the project’s execution. They could include natural disasters, climate change impact, and social environment concerns.
Suppose a software development project requires a unique resource only obtainable from a region prone to seismic activity. In that case, there’s a significant environmental risk to the project if an earthquake disrupts the resource supply chain.
5. Technical Risks
Technical risks are related to technology use within a project. They can arise from software incompatibilities, outdated hardware, or failed technological integration, potentially impacting project timelines or outcomes.
For example, if a project relies on specific collaboration software, and that software becomes obsolete or unsupported during the project execution, there’s a risk of losing all stored data and project timelines.
Below is a comparison of these risk categories for clarity:
| Government Risks | Market/Laws Rules Risks | Organizational Risks | Environmental Risks | Technical Risks | |
|---|---|---|---|---|---|
| Source | Policy/Regulatory Change | Market Rules/Laws Change | Internal Organizational Change | Environmental factors | Technology uses |
| Impact | Project’s regulatory compliance | Market conditions | Project’s strategic alignment | Project’s execution | Project’s delivery |
| Mitigation | Regulatory tracking/analysis | Economic analysis and scenario planning | Strategic planning & resources alignment | Environment analysis & planning | Technological updates and adaptability |
The role of a PMI-RMP embraces the complexities associated with identifying, analyzing, and creating response strategies for these sorts of risks. Proper risk management in these domains can ensure project execution smoothly and transform potential challenges into opportunities for learning and growth.
Answer the Questions in Comment Section
True/False: The PMI Risk Management Professional (PMI-RMP) certification specifically targets the management of project risks in all areas including market, government, organizational, environmental, and technical risks.
Answer: True
Explanation: The PMI-RMP certification provides a comprehensive understanding and management of project risks, not just technical ones, but also those associated with market, government, environmental, and organizational issues.
Which of the following is NOT an example of environmental risk?
- a) Natural disasters
- b) Changes in government regulation
- c) Pollution incidents
- d) Climate change
Answer: b) Changes in government regulation
Explanation: Environmental risks relate to natural events and conditions. Changes in government regulation would be classified as government or regulatory risk.
Corporate law, taxation law, and labor law are categorized under which type of risk?
- a) Market risk
- b) Technical risk
- c) Government risk
- d) Organizational risk
Answer: c) Government risk
Explanation: These laws are categories of risks imposed by the government, thus falling under government risk.
True/False: Technical risks involve the potential for a project’s technology to fail or perform inadequately.
Answer: True
Explanation: Technical risks relate to the potential problems with technology or IT infrastructure, including hardware, software, and systems failures.
An increasingly volatile stock market represents which type of risk?
- a) Market risk
- b) Government risk
- c) Environmental risk
- d) Organizational risk
Answer: a) Market risk
Explanation: The volatility of the stock market is a category of market risk that can influence asset prices and investment returns.
Which of the following risks is related to poor planning or control, inadequate corporate governance, or interpersonal conflict?
- a) Environmental risk
- b) Technical risk
- c) Government risk
- d) Organizational risk
Answer: d) Organizational risk
Explanation: Organizational risks relate to the internal processes and structures of a company, including planning, governance, and interpersonal relations.
True/False: Environmental risks are events or conditions caused by human activities that result in significant harm to the environment.
Answer: True
Explanation: Environmental risks can indeed be caused by human activities, such as pollution, that can cause significant harm to the environment.
Which of these is NOT a type of market risk?
- a) Interest rate risk
- b) Labor strike risk
- c) Commodity risk
- d) Equity risk
Answer: b) Labor strike risk
Explanation: Market risk involves uncertainties such as changes in market prices. The risk of a labor strike is an example of an organizational risk.
True/False: Understanding Government risks is not necessary for a PMI-RMP since it handles more technical and project-based risks.
Answer: False
Explanation: The PMI-RMP involves understanding risks in all areas, including government, market, organizational, environmental, and technical risks.
The potential for adverse changes in exchange rates, impacting a project’s financial performance, refers to which type of risk?
- a) Foreign exchange risk
- b) Equity risk
- c) Government risk
- d) Environmental risk
Answer: a) Foreign exchange risk
Explanation: Foreign exchange risk relates to potential losses due to adverse changes in currency exchange rates.
I found this post super useful! Understanding the impacts of government regulations on risk management is crucial for the PMI-RMP exam.
What are some of the key market laws/rules that we should focus on for the PMI-RMP exam?
How do organizational risks differ from technical risks in the context of project management?
The environmental risks section is pretty challenging. Any tips on mastering it for the PMI-RMP exam?
Can someone explain how technical risks are quantified in risk management?
Thanks for sharing this insightful blog post!
Risk management professionals must be aware of the interplay between different types of risks. Great post!
I am struggling with the concept of risk appetite and risk tolerance in the context of government regulations.