Negative Risk (threat) and Positive Risk (opportunity) – PMP/CAPM

Negative Risk (threat) and Positive Risk (opportunity)

The risk is a future uncertain event which may have positive or negative impact on the Project. PMBOK 6

Risk like changes is unavoidable and integral part of project life. We don’t want to be caught off guard in the event of the risk happening. Thinking methodically about what could go wrong or as a matter of fact what opportunities can be exploited keep us ahead of the future unknown event.

Positive Risk (Opportunity)

Positive Risk and Negative Risk

Source: https://www.godigitalmarketing.com/learn/blog/

Positive risks are typically referred to as opportunities. These positive risks or opportunities are ambiguous but fortunate events with a significant impact on the ultimate project goals. The prospects save budget and resources of the project.

PMBOK® Guide Sixth Edition defines Positive Risk as:

“An individual project risks are uncertain events or circumstances that positively influence one or more project objectives. The opportunities arise from all possible sources of uncertainty including individual threats and demonstrating the experience of stakeholders to the implications of project outcomes”

Below we have listed the five positive risk response strategies that encourage positive risks:

Escalate

The risk response strategy is applicable when the project team or project benefactor accepts that the opportunity is beyond the scope of the project. For this, the project team invests resources to recognize the opportunity and records it in the risk register.

Exploit

This strategy aims to eradicate the uncertainty associated with a certain positive risk by ensuring the opportunity must occur. The project management team devotes the resources to understand the opportunity. The exploited opportunities are later removed from Risk Register since there is no more uncertainty. They have a significant impact over project objectives.

Enhance

The enhance strategy improves the probability of the positive impacts of an opportunity. The approach employs practices to recognize positive risks to a greater extent. This strategy is applicable when critical positive risks are not exploited.

Share

Positive risk involves apportioning either some or all of the tenure of the opportunity to a third party to acquire the prospects that eventually benefit the project. This approach is used when you are required to work with a partner and realize the complete opportunities. When it becomes challenging to exploit or enhance the positive risks, the project team consider the shared strategy. For instance, risk-sharing partnerships and joint ventures.

Accept

Accepting an opportunity allows its presence, though no proactive action is taken. This strategy is applied typically for low-priority prospects. Also, it is used where it’s difficult or costly to address an opportunity.  Accept strategy is kept in the Risk Register though you don’t need to use it ahead.

As defined by Oxford dictionary, risk is “A situation involving exposure to danger,” or “The possibility that something unpleasant or unwelcome will happen.

POSITIVE RISKNEGATIVE RISK
An opportunity to the projectA threat to the project
You shouldn’t avoid it but enhance and get the most out of itAvoid it and eliminate
Brings a positive outcome and results in the project’s successBrings a negative outcome and may result in the project’s failure

Negative Risk (Threat)

PMBOK® Guide Sixth Edition defines Negative Risk as:

“Negative Risks are referred to as threats that negatively influences one or more project objectives such as cost, quality, time, etc. if it occurs”.

To evaluate and manage negative risks, the below-listed strategies are used:

Escalate

Avoiding risk is an important response strategy where the project team tries to remove the threat or protect the project from its influence. These threats are recorded in Risk Register that is further used by the project team after escalation. It primarily involves modifying the project management plan such as making changes in the design of the project even in the execution phase. For this strategy, risks are mostly identified in the early strategy so it could be avoided as soon as possible. This first response strategy is for critical risks that substantially influence the viability of a complete project.

Mitigate

This risk response strategy is used when the project team intends to minimize the probability of occurrence or influence of risk within the defined threshold limitations. It involves adjusting the project management plan such as conducting further activities in the project schedule or scope of the project. It brings down the critical level of the given risk.

Transfer

Risk transfer requires paying a risk premium in the managing risk. It involves various tools such as indemnification, performance bonds, assurances, etc. The response strategy is used when the project team shifts the influence of a risk to a third party in association with the proprietorship of the response. The strategy is used for low critical risks where the responsibility of the risks is transferred to another party without eliminating it. Though you may identify the secondary risks when doing the transfer.

Accept

The accept risk response strategy is used for non-critical risks and remains in risk register since there is no change in risk exposure. The project team acknowledges the risk and doesn’t take any action unless the risk occurs. Here the team recognizes the warning signs for the given risk and execute the plans in time. Though it’s crucial to understand whether the risk acceptance is either active or passive. Active risks require the team to establish the eventuality reserve such as time, money or resources. While passive acceptance requires the project team to decide to take care of risks.

Examples of Positive and Negative Risks

Opportunity (Positive Risk)

  • Change of government could mean additional funding in technology
  • Change in legislation could mean less barriers to selling our products to a global market

Threats (Negative Risk)

  • Increases in government compliance and reporting
  • Increase in tariffs and limits on importing and exporting

Further Readings

  1. Project Risk Management
  2. Positive and Negative Risk on the Project Management
  3. What is Positive Risk

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