When someone mentions risk, we often associate it with a dangerous chance or hazard. But risks aren't necessarily negative! In fact, risk represents a thin line between an opportunity and a threat or the difference between loss and a prize.
Many would say that risk can either make or break your company, but only if you're wise enough to recognize an opportunity. Successful entrepreneurs know there are two sides to the coin, and each side needs to be evaluated thoroughly.
When it comes to project management, there are many misconceptions about positive and negative risks. Let's break down these terms and explain their role in project management.
Positive and negative risks in project management
To explain positive risk, we have to define the term risk. A risk is any unexpected event that can affect your project, impacting resources, technology, processes, and people.
So, what is a positive risk? It's any situation, occurrence, event, or condition that offers a positive impact on an enterprise or a project. Taking risks can be extremely rewarding and can positively affect your business and its objectives. Keep in mind that positive risks are good for business because they create good results and encourages success.
On the other hand, negative risks should be regarded as a threat that negatively influences project objectives, like time, quality, cost, and many others. Therefore, negative risk should either be eliminated or avoided altogether because it brings negative outcomes and results in a project's failure.
Should risks be avoided?
In most cases, we avoid risk when we want to prevent potential loss from a specific activity. However, here's an example of a situation when you can't do that: if we want to avoid paying medical costs for a stranger due to a car crash, we should stop driving a car.
The problem with this statement is that whenever we are avoiding risk, we are also missing out on potential benefits we could have received for participating in some activity. Additionally, we should address the fact that not all risks can be avoided. Based on the circumstances, you may need to accept different tech solutions, hire additional resources, modify project plans, change the project scope, and implement other solutions.
Positive outcomes of risk-taking
One of the best ways to sum up positive risks is to name their outcomes. Here are a couple of positive risk examples.
Project management risk
Every project manager defines a budget, but they often need to make certain adjustments during the project's lifecycle. If they manage to complete a project under the budget, there's a mistake in calculation. Miscalculating the project's costs is a risk, but here we have a positive outcome.
Supply chain risk
The logistic around the supply chain is packed with risks, but it can work in your favor in some cases. For example, every time you deliver a service or goods ahead of schedule, you demonstrate a positive risk.
Investment and asset risks
Building designers and engineers consider design plans and materials as structural integrity. Therefore, if they construct a building to last 20 years but end up using it for 30, the company or organization benefits from this risk.
Whenever launching a new product, the company takes a risk. It can either be a miss or hit. But when a new product attracts too much attention, it's a positive risk.
Nowadays, businesses are looking for new ways to incorporate technology and improve the efficiency of their company. Many organizations find that tech investments may eliminate the need for a new job position, which is a negative development for people who risk losing their jobs. But, for enterprises, this means saving on wages, which is a positive result.
What is a positive risk assessment?
Positive risk assessment is designed to make people engage in risky situations. For instance, they ensure that every feature is carefully analyzed and put in place to reduce the risk to a minimum.
These tips can help you perform a positive risk assessment:
- Work with your team members to find potential positive events that will benefit your project.
- Assess each risk, regardless of how likely it's to happen.
- Track all positive risks and establish a register.
- Determine how much risk you are willing to take.
- Record which risks will be accepted, enhanced, shared, and exploited.
- Assign people to monitor risks.
- Risk can be prioritized from low to high.
The importance of positive risk-taking
Positive risk-taking is essential because:
- It contributes to project success through proactive strategizing and planning.
- It helps team members recognize uncertainty and forecast possible outcomes.
- Your employees will make more informed decisions and create better business results.
- Your team members will be innovative and creative.
- Positive risk-taking enables better control, saves time and money, reduces waste while providing greater benefits realization.
- Eventually, it encourages better communication with senior management about project progress and challenges the project has to overcome.
Strategies for negative risks
In the majority of cases, we are talking about five negative risk response strategies. Ideally, we all want to avoid risk, but that's not always possible. That's why we have response strategies to help us deal with a threat in different ways.
We apply this response strategy when we can't manage the risk on our own due to a lack of knowledge, resources, authority, or something else. For example, the government has imposed a new regulation that affects your project negatively. You have no resources to deal with the risk, so you ask for help.
In this case, you are lessening the probability or impact of the risk, minimizing the severity of the risk. You may be faced with a lack of workforce during the peak of your project. In that case, you hire an additional employee with similar or identical qualifications to fill in the gap.
Use this strategy when you don't have the necessary resources or skills to manage resources or are simply too busy to do it. In this case, we are transferring the responsibility to a third party. However, be aware that transferring doesn't eliminate the risk. For example, you have to install new equipment, and you have no experience with this task due to its complexity. Therefore, you find a contractor who will do it instead of you for a fixed price.
When you try to eliminate the risk altogether or its impact, you will use avoid response strategy. You can do this by changing the schedule, project scope, or project management plan.
You can use this risk response strategy with positive and negative risks. In this case, you take no action to manage the risk; you only have to accept it.
When do you need a risk response plan?
Every time you want to eliminate or minimize any threats linked to your project while increasing the opportunities to boost their impact, you will need risk response planning. Project managers should work to remove threats before they happen. They are also responsible for decreasing the impact and probability of threats while increasing the likelihood of opportunities. On the other hand, when you can't mitigate the threats, you should have a robust contingency or response plan.