Chapter 2

Risk Management—Integral to
Project Management
Project Risk Management Fundamentals

Projects are defined by a set of interrelated tasks (or

activities) bound by a set of overarching constraints.
Figure 2.1 depicts a simple way of graphically
portraying a project. Although the number of
overarching constraints has been expanded upon (up to
six) to better embrace the concept of developing
“balanced” project plans, three of them represent the
classical “triple constraint”—project schedule, cost, and
scope.

The six constraints include not just scope, schedule,

and cost, but also quality/technical, resources, and
risks.
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The six constraints, taken as a collective set of
conditions, comprise a balanced project plan. In Figure
2.1, the project plan is depicted as a straight line
between the two opposite corners of the cube created by
the three dimensions of the triple constraint. The project
team must make trade-off decisions between the super-
set of project constraints (not just scope, schedule, and
cost, but also quality/technical, resources, and risks).
The accepted rule of thumb is that a change in one of
these constraints will affect at least one of the others.

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Figure 2.2 depicts the ongoing general process of
managing and controlling a project. The team executes
the planned tasks, monitors progress (via some
measureable data—i.e., metrics), re-evaluates the plan
as a result of issues that arise, and replans to best
achieve project objectives given stakeholder priorities.

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Basically, a project is established to produce an end
result (product, or service, or combination thereof)
within a prescribed time frame for a predetermined
amount of money.

A plan is established, which:

(1) defines the deliverables (i.e., product quality and
technical performance requirements);
(2) establishes the statement of work (SOW), or scope,
to perform for meeting the deliverable objectives;
(3) establishes the corresponding baseline schedule to
adhere to;

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(4) establishes the corresponding baseline budget to stay
within;
(5) assumes a level of resource capability and capacity
at prescribed times throughout the project duration;
and
(6) establishes the level of project risk to contend with.

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General Process Cycles and Related Project Risks

When considering projects, in general, there are

different process cycles one should understand:
(1)the project life cycle,
(2) the product life cycle, and
(3) the product development (or product-oriented) cycle.

Project risk is an inherent element of all three, and thus,

should be understood by project managers and their
organizations
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1. Project Life Cycle Structure

All projects have one thing in common—a project life

cycle structure. Thus, projects, whether stand-alone or a
phase within a multiphase program, have some common
features. Figure 2.3 depicts this process on a generic
timeline, as a function of the relative level of resources
expended over that time. Projects are initiated,
organized, carried out, and then closed.

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The amount of time and effort expended in the various
sequential steps may vary greatly between projects, but
all have these steps.

Typically, a project is established and initiated by a

project sponsor (person or organization). As a response to
identified project objectives (project charter), a plan is
established to organize the work. There is a time (usually
identified as a key project milestone) when project
deliverables are accepted (or not). There is also a time
when project activities cease.

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Within the project life cycle, the potential impacts
associated with risk items will have varying degrees of
significance or severity, depending on when in the
project timeline they are expected to be realized as a
potential issue (i.e., the risk event). Figure 2.4 provides a
graphic to help communicate this important message -
that the degree of risk and uncertainty throughout a
project has a direct relationship to the magnitude of
potential impact for accommodating resultant issues and
changes to the project plan and objectives. In other
words, project risk is typically highest at the start of a
project, but as the project progresses and as more
information becomes available, the level of project risk
should decrease.

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Conversely, the cost of making a change is lowest at the
start of a project, and changes become more and more
expensive to implement as the end of the project
approaches. This suggests that to lessen the impact of
individual risks to overall project objectives, actions to
address those risks should be implemented as early in
the project life cycle as possible. To do so effectively,
project teams should engage in proactive project risk
management.

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 A Guide to the Project Management Body of Knowledge
(PMBOK®) Guide identifies three distinct project life
cycle types—each of which results in inherently different
project risk considerations. There are three types of
project life cycle:
1. Predictive
2. Iterative and Incremental
3. Adaptive
1. Predictive: used when project and product requirements
are well understood, and when a deterministic plan to meet
a particular statement of work is able to be established at
the start of the project. Predictive projects may use “rolling
wave” planning, in which more detail is planned as time
progresses and more information is available, for example,
classical aerospace industry development projects.
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2. Iterative and Incremental: used to manage projects
with changing objectives and scope—in which the
partial deliveries of a product are helpful. This results
in development of products through a series of
repeated cycles, while increments successively add to
the functionality and maturity of the product, for
example, consumer electronics.
3. Adaptive: used when requirements and scope are
difficult to define in advance. This is reflective of
projects expecting high levels of change and ongoing
stakeholder involvement, for example, IT
infrastructure tools.

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2. Product Life Cycle: The sale of products over time
tends to follow a certain pattern—as depicted in Figure
2.5. They are launched into the market, and initially
purchased by early adopters. When accepted into the
market, they typically experience a relatively rapid rate
of early growth. Product maturity is representative of
fairly stable and predictable sales. Eventually, for most
products, there is a time when sales fall off and the
product is eventually discontinued. Some organizations
implement a formal end of life (EOL) process to
facilitate the smooth transition of products in this phase.

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Product improvement projects (e.g., to improve
product yields, quality, reliability, costs, technical
performance, etc.) are typically performed throughout
this cycle. The relative risk associated with these
projects tends to decrease as time progresses—as do the
project management requirements. Thus, the product
life cycle management plan can serve as a good
opportunity to develop project managers—assigning
them to progressively more complex or risky projects
over time.

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3. Product Development Cycle: The product
development cycle (or product-oriented process)
defines the overall project scope of work. It can
represent a project in and of itself, as depicted in
Figure 2.6, or it can represent a program broken up
into two or more sequential projects (i.e., program
phases). Typically, product development processes
are divided into phases when the overall process is
deemed too risky by the project sponsors to do
otherwise.

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 In addition, phases can enable evaluation of competing
offerings or technologies to be considered for the
product under development, with down-selection (i.e.,
reducing the number of competitors to consider)
determined after sufficient relevant information becomes
available.
The Figure 2.6 example is a hybrid project life cycle, in
which a product advances from one stage of maturity to
the next (like a deterministic type of cycle) via a set of
incremental product design/build/test/fix cycle iterations.
One can envision a phased approach to this process as
well—where each “design” phase is treated as a separate
project with entry and/or exit gates.

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 Note that some organizations and industries
refer to the product development cycle
process as the new product introduction
(NPI) process. The name is not as important
as the fact that projects are typically
established to execute these types of
product and/or service development
methodologies, and phased approaches can
typically mitigate the overall risk associated
with those that are inherently complex and
risky.
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 If designed well, this process plan will effectively
account for the degree of project risk accepted by the
various project stakeholders at the time work began,
and is representative of a balanced project plan.
Maintaining a balanced project plan throughout the
project life cycle is a key project risk management
principle. This principle is jeopardized when the
project manager and team decide (overtly or
inadvertently) to “absorb” a detrimental requirement
or scope change. By definition, if one of the six
constraints changes, it will have an impact on at least
one other constraint—thus, absorbing a change
usually means adding risk to the project.
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