Expanding the Project Risk Concept

Abstract

This chapter gives a comprehensive outline of the factors underlying operational, strategic and contextual risks. Operational risks are in the domain of the project manager. The level of risk is related to how aggressive the project objectives and execution strategies have been defined. The strategic risks are in the domain of corporate management. A major concern is related to how mature the project definition is at the various decision gates. In particular, the project maturity at the go/no-go decision gate (at project sanction) is crucial as the project soon reaches the point of no return. At this point a considerable portion of project costs is committed, implying that a halt in the project execution process will harm the project cost objective as the procurement process cannot be reversed. Committed costs are then likely to be transformed into sunk costs. Contextual risks are a concern of the project manager as a number of project external risk factors have a major influence on how project processes are planned and executed. Examples of such risk factors are: prevailing business practices, factor market conditions, local cultural habits and geopolitical issues.