Risk is any unexpected event that can affect your project, for better or for worse. Risk can affect anything. For instance, people, processes, technology, and resources. This is an important distinction: risks are not the same as issues. Issues are things you know you will have to deal with, and may even have an idea of when they will occur.
In the context of Project Management, Risk Identification and Risk Management are critical areas for the success or failure of any software project. Most companies these days utilize complicated risk management tools in order to identify, reduce, and altogether prevent risk.
Schedule risk is the risk that activities will take longer than expected. Slippages in schedule typically increase costs and, also, delay the receipt of project benefits, with a possible loss of competitive advantage. T
Some of the reasons for such risks are
- Incorrect Time Estimation, and consequently an incorrect project schedule
- Improper Resource Allocation
- Under-utilization of Resources
- Superficial Understanding of Project Complexities
- Unexpected Expansion of Project Scope
- Incorrect time estimation may occur because activities may have external dependencies such as client approvals, subcontractors etc. and a delay in a critical path activity has a cascading effect on the entire project.
- A silo approach of members in various teams in a project may lead to an isolated superficial understanding of project complexities which may result in delays in subsequent stages e.g. when different development teams work on various aspects of a software project and run into issues during system/integration testing.
Budget or Cost Risk
Cost risk typically refer to the escalation of project costs due to poor cost estimating accuracy and scope creep. These are the monetary risks which are associated with budget overruns.
Some of the reasons for such risks are
- Improper Budget Estimation
- Cost Overruns due to underutilization of resources
- Expansion of Project Scope
- Improper Tracking of Finances
- Underutilization of resources especially happens when resources are shared between projects because it becomes difficult to effectively manage such resources and a certain amount of productivity may go waste.
- Further, unexpected expansion of project scope (due to addition of features by clients, etc) may lead to budget overruns as such expansions may not have been factored in to the original estimates.
- Delay of projects may also have certain penalty costs associated with it e.g. construction projects
Operational / Procedural Risks
These are risks which are associated with the day-to-day operational activities of the project. These are risks from poor implementation and process problems such as procurement, production, and distribution.
These could be due to any of the below reasons:
- Improper Process Implementation
- Silo approach followed by software development teams leading to conflicts
- Conflicting Priorities
- Lack of conflict resolution / team spirit
- Lack of clarity in responsibilities
- Breakdown in communications
- Lack of sufficient training
Effective team communication is an essential part of project management and in people-intensive projects such as software projects, there is a strong need for an established communication structure, a setup for escalation, a conflict resolution process, established project priorities and above all, the employees need to be trained in making use of these processes within the organization.
Technical / Functional / Performance Risks
These are technical risks associated with the functionality of the software or with respect to the software performance.
- In order to compensate for excessive budget overruns and schedule overruns, companies sometimes reduce the functionality of the software.
- Software testing is a downstream stage in the software development lifecycle and as the project falls behind schedule, downstream activity times are shrunk in order to meet delivery dates which results in insufficient software testing.
- Further, developers face a constant trade-off between achieving maximum functionality of the software (in terms of software features) and peak performance (maximum speed and quick response time by minimizing and eliminating unnecessary frills from the software).
Other Unavoidable Risks
There are certain risks which are unavoidable in nature. The reasons for such unavoidable risks are:
- Changes in government policy
- Obsolescence of software due to new technology from a rival company
- Loss of contracts due to changes at customers end
Although these risks are broadly unavoidable, an organization may anticipate and thereby reduce the impact of such risks by:
- keeping abreast with changes in government policy
- monitoring the competition
- catering to the needs of the customer and ensuring customer satisfaction
Oftentimes, external risks contribute more to portfolio risk because they impact multiple projects simultaneously. Therefore, we must know how to deal with both internal and external risks which can affect software project management.