Categories of Risk in Project Management

Project risk is defined by PMI as, “an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.”

The most common project risks are:

  • Cost risk, typically escalation of project costs due to poor cost estimating accuracy and scope creep.
  • Schedule risk, the risk that activities will take longer than expected.
  • Performance risk, the risk that the project will fail to produce results consistent with project specifications.

Risks that can result in cost, schedule, or performance problems and create other types of adverse consequences for the organization include, but not limited to:

  • Governance risk relates to board and management performance with regard to ethics, community stewardship, and company reputation.
  • Strategic risks result from errors in strategy, such as choosing a technology that can’t be made to work.
  • Operational risk includes risks from poor implementation and process problems such as procurement, production, and distribution.
  • Market risks include competition, foreign exchange, commodity markets, and interest rate risk, as well as liquidity and credit risks.
  • Legal risks arise from legal and regulatory obligations, including contract risks and litigation brought against the organization.
  • Risks associated with external hazards, including storms, floods, and earthquakes; vandalism, sabotage, and terrorism; labor strikes; and civil unrest.

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