What Is the Benefit of Risk Management?

Projects are started based on uncertain information: Uncertain requirements and markets, assumptions, dependencies, and uncertainties in project execution. Those are base loads, which a project has to carry. That means every project can turn into a potential failure. Is the use of risk management really any good to prevent failures or do its cost and benefit just overrule each other? Is risk management a waste of time? I can’t give you a simple answer to this question because the cost-benefit ratio essentially depends on the company and project culture. Basically, risk management, adjusted to project size and the complexity of the project, is worth it a number of times.

Which company is more successful: one that conducts 100 risky projects or one that has 100 low-risk projects? Risky projects normally have a much greater profit- and loss potential. The motto is: Exploit the profit potential and reduce the loss potential. If senior management has the courage to take risks but can also say NO in an early project stage and cancels projects with a high risk or minor probability of success, then the profit potential is accordingly high.

Gartner Group estimates that with an established project risk management, depending on industry, approximately 20% of the projects are canceled after the planning-/concept phase, before the big money is spent in the execution phase. If 70 of the 100 high-risk projects survive after the planning/concept phase and continue to be subject to consistent risk management, then success isn’t far away.

Risk has a direct relation to profit. Simply put: the more risks a company is willing to take with its projects, the higher the possible benefits can be – but only if you have the risks under control with consistently applied risk management on a project and company level. Whoever doesn’t take any risks, will definitely stagnate!

A Matter of Conviction

Do you know what you will face if you don’t properly deal with your project risks? Often, you’re lucky and it doesn’t happen much. However, the hammer will eventually strike and you will be confronted with problems and disasters, which you were afraid to imagine in your thoughts. Is it a problem for you…

  • … if the project takes much longer?
  • … if the project costs much more?
  • … if the project doesn’t achieve the required performance?
  • … if customer satisfaction massively drops?
  • … if the reputation of your company is ruined?
  • … if you don’t have a job anymore?

If none of these represent a problem for you, then you can refrain from risk management!

No_Problem

This April, the Second Edition of my successful book „Project Risk Management: The Most Important Methods and Tools for Successful Projects“ was published as print and e-book.

Project Risk Management BookFor at least the next 7 days the book is available for a special price on Amazon (paperback $4.99, e-book $2.99). Get a free PDF copy and write a short Amazon.com review about the book. This way you support my effort. Please contact me.

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