Event-based Risk and Non-Event Risks
The risk is future uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives. [PMBOK6]
The risk is the effect of uncertainty on objectives, and an effect is a positive or negative deviation from what is expected. [ISO31000]
Event-Based Risks or are future possible events known as stochastic uncertainty or event risk. An event risk refers to something that has not happened yet and it might not happen at all. In case the situation does happen, it will influence one or more objectives. Many risks are identified in the representative project risk register as event risks. Below are some examples of event-based risks including both threats and opportunities.
- An important supplier may go out of business while the project is on-going
- The client may change the requirements after completion of design
- New regulatory limitations might be enforced
- You may lose a prominent resource during the critical phase of the project
- The client may permit incremental deliveries
Event-Based Risk Management (EBRM) is an approach to help the project manager in overcoming this issue. Typically, traditional risk management processes use the bottom-up methodology to identify individual project risks. Investing a lot of time in evaluating and managing the wrong risks can divert means that could be used more efficiently. Event-Based Risk Management facilitates a top-down approach for analyzing project risks and complements the typically bottom-up technique. The outcomes help in understanding the relevant details along with the key risks. This is an imperative element of any project. It is correspondingly applicable during the project planning and the implementation phases. EBRM comes with the following discriminators:
- It follows a top-down approach to offer a bigger view in contrast to the bottom-up approach.
- Event-centric interpretation focuses on key events or deliverables.
- Intrinsic schedule evaluation to improve the probability of project success.
- Key artifacts that significantly facilitate comprehending important risks to the project. These artifacts are quite effective for communicating essential project information to both the project team and to other stakeholders.
- Review inputs from others who have somewhat similar experiences.
Some risks arise from uncertainty when some aspects of a planned task or situation are not known. They are more subtle in nature. For instance, suppose a situation from the project arena where you might be planning to run a 15-day trial, while the actual duration is somewhere between 10-25 days. The likelihood of running the trial is 100% through the duration is uncertain. Other unknown parameters include budget, resource requirement, output, deficiency rate, performance, etc. Below, I have listed some examples of non-event risks:
- Efficiency may be above or below the target
- The number of miscalculations found during testing may be high or low than expected
- Unseasonal weather circumstances may arise during the building phase
- Exchange rates can vary beyond the range used to finalize quote
*A simplified hypothetical example of driving from Paris to Frankfurt and tries to figure out how long it should take. He collects data points: 5 hours is the ideal time, 6 hours is more likely, and it could be upward of 25 hours if the car breaks down. That provides an estimated range of 5 to 25 hours wide.
The range 8 hours to 25 hours comprises ‘event’ risk as understood traditionally by the PMBOK. In order to refine this estimate, we must take a conventional risk approach: identify risks, analyse, prioritise, and develop responses to the high priority risks.