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A risk is a possible event or circumstance that can have negative influences on a project. Its influence can be on the schedule, the resources, the scope and/or the quality. When a risk escalates, it becomes a liability. A liability is a negative event or circumstance that is hindering the project.
The primary data needed to do risk management are the following:
- ID: unique identifier for identification in other documents
- description: what is the risk?
- effect: what can happen if the risk becomes a liability?
- precaution: what can prevent the risk from becoming a liability?
- contigency: how to handle the liability?
- risk status: status of the risk: new, ongoing, closed
- risk escalation probability (P): what is the probability of the risk becoming a liability (rating from 0 to 1, for example)
- schedule impact (S): what is the impact of the liability on the project schedule.
In addition, every risk can also have a number of action points associated with it. This is to ensure contingency when the risk becomes a liability.
From the information above and the cost accrual ratio (CAR), i.e., the total average cost per person per time unit, a project manager can calculate
- cost impact (C = CAR * S): the cost associated with the risk if it arises.
- schedule variance due to risk (Rs = P * S): sorting on this value puts the highest risks to the schedule first.
- cost variance due to risk (Rc = P * C): sorting on this value puts the highest risks to the budget first.
See also: Project management, Earned value management.