Risks – events or conditions that can have a positive or negative effect on a project’s objectives – can indeed be both positive and negative. When managing projects, especially in the demanding field of construction, it’s crucial to not only mitigate negative risks but also to identify, enhance, and exploit potential positive risks. These can provide opportunities that can enhance your project’s efficiency, effectiveness, and overall success. Specifically in the PMI Construction Professional (PMI-CP) exam, understanding the concept of positive risk is crucial.
I. Identify Positive Risks
Positive risks, often referred to as opportunities, are events or conditions that can positively impact your project’s goals. For instance, identifying a shortcut in your construction process that reduces costs and timeline without compromising quality is a positive risk.
Simply put, it’s an event or condition that provides the potential for project benefits. The first step in leveraging such risks is to identify them effectively. A fundamental tool you can use is SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.
Example:
Imagine working on a high-rise construction project. You have factored in the local climate and realized that forecasted weather conditions for the next quarter are substantially favorable to advance the project at a faster pace. This chance to expedite the project is a positive risk because it can enhance the project’s objectives of on-time completion and cost-effectiveness.
II. Enhance Positive Risks
Once the positive risk has been identified, the next step to maximize its potential is to enhance it. This may involve allocating more resources or strategically timing the risk to occur at a most beneficial juncture. It’s important to remember that enhancing risks should still be done within the risk tolerance and appetite of the organization.
Example:
Based on the previous example, the positive risk could be enhanced by employing additional workers and procuring more materials to fully take advantage of the favorable weather conditions.
III. Exploit Positive Risks
Lastly, the most direct way to make use of positive risks is to exploit them. This means doing whatever it takes to ensure the opportunity becomes a reality. Indeed, the concept of exploiting positive risks is one of the specific strategies for managing them, according to the PMBOK Guide.
Example:
Continuing on from our example, exploiting the positive risk could involve working with meteorologists to gain a more accurate grasp of weather patterns, investing in more weather-resistant materials, or re-evaluating your project timeline to align with these fortuitous conditions.
It’s crucial to note that managing positive risks is not about blindly jumping at every opportunity. Rather, it involves methodical identification and analysis – weighing the potential gains against costs, resources, and any potential negative consequences.
To successfully leverage and manage positive risks, it’s vital to incorporate them into your regular project risk management processes.
In conclusion, understanding and utilizing positive risks can significantly contribute to improved project outcomes.
It can result in cost and time savings, improved quality, and enhanced stakeholder satisfaction, among other benefits. Therefore, when preparing for the PMI-CP exam, investing time to understand this concept will not only potentially improve your performance in the test but can also significantly enhance your real-world project management skills.
Practice Test
True/False: Positive risk in a project is always undesirable.
- Answer: False.
Explanation: Positive risk in a project is desirable because it has potential benefits, and the project manager should try to exploit or enhance the chances of it happening.
Which of the following is an example of a positive risk in a construction project?
- a) Increase in cost of raw materials
- b) Failure of key equipment
- c) Potential early completion of project
- d) Natural disaster
Answer: c) Potential early completion of project
Explanation: Early completion of a project is an example of a positive risk as it would lead to a reduction in time and cost expended on the project.
Positive risks can be managed by applying which of the following strategies?
- a) Avoid
- b) Transfer
- c) Enhance
- d) Acceptance
Answer: c) Enhance
Explanation: Enhancement is the risk response strategy used to manage positive risks; it increases the probability and/or benefits of an opportunity.
The main objective of managing positive risk is to:
- a) Increase their likelihood
- b) Decrease their impact
- c) Increase their impact
- d) Decrease their likelihood
Answer: a) Increase their likelihood and c) Increase their impact
Explanation: The objective of managing positive risk is to increase their likelihood and impact in order to derive potential benefits they offer.
True/False: The impact of positive risks are always beneficial to project outcomes.
- Answer: True
Explanation: Positive risk has potential benefits that can lead to the achievement of enhanced performance or project outcomes.
The process of turning negatives risks into positive ones is called:
- a) Risk identification
- b) Risk transfer
- c) Risk mitigation
- d) Risk transmutation
Answer: d) Risk transmutation
Explanation: Risk transmutation is where potential threats or negative risks are converted into opportunities or positive risks.
Positive risks are identified and managed in which phase of risk management?
- a) Risk Identification
- b) Risk Analysis
- c) Risk Response Planning
- d) Risk Monitoring and Control
Answer: c) Risk Response Planning
Explanation: Positive risks are identified during risk identification phase and their response is planned during risk response planning phase.
True/False: A SWOT analysis can be used to identify positive risks.
- Answer: True
Explanation: A SWOT analysis can be used to identify positive risks (opportunities) alongside negative risks (threats).
Positive risks can increase which of the following?
- a) Costs
- b) Schedule delays
- c) Benefits
- d) Threats
Answer: c) Benefits
Explanation: Positive risks are opportunities that can potentially increase benefits and improve project outcomes.
The term “Risk Appetite” refers to:
- a) The level of threat a company is willing to accept
- b) The level of opportunity a company is willing to pursue
- c) The desire to avoid all risks
- d) The desire to exploit all risks
Answer: b) The level of opportunity a company is willing to pursue
Explanation: Risk Appetite is the level of uncertainty or risk that an organization or individual is prepared to accept in pursuit of value and opportunities.
Positive risk is directly linked to:
- a) Problem-solving
- b) Innovation
- c) Conflict management
- d) Time management
Answer: b) Innovation
Explanation: Embracing positive risks often leads to innovation, as it involves exploring new ideas and opportunities.
True/False: In managing positive risk, the best approach is always to maximize the risk.
- Answer: True
Explanation: In managing positive risk, one common approach is to maximize or enhance the risk in order to achieve the greatest possible benefit from it.
Which risk management strategy includes sharing or allocating ownership to third parties?
- a) Risk Avoidance
- b) Risk Mitigation
- c) Risk Sharing
- d) Risk Enhancement
Answer: c) Risk Sharing
Explanation: Risk sharing involves allocating ownership of a risk to a third party through contractual arrangements or partnerships.
True/False: Team members’ ability to recognize positive risks can affect the overall project outcome.
- Answer: True
Explanation: Team members who can recognize and manage positive risks can exploit them to benefit the overall project outcome.
Project management expertise can help to:
- a) Identify risks
- b) Analyze risk exposure
- c) Design appropriate responses
- d) All of the above
Answer: d) All of the above
Explanation: Project management expertise can help in all stages of risk management, from identifying and analyzing risks to designing appropriate responses, both for positive and negative risks.
Interview Questions
What is a positive risk in project management?
Positive risk refers to the uncertainties that could lead to positive outcomes in a project. It is often referred to as an opportunity and goes beyond the conception of risk as a potential harm only.
Can you explain how a positive risk can improve project outcomes?
Positive risks can offer unique opportunities for innovation, improvement, or increase in value for a project. Leveraging positive risks can lead to financial growth, enhanced performance, improved stakeholder relations, and more efficient project processes.
How can one identify a positive risk during a construction project?
Positive risks can be identified during the risk analysis phase, through techniques like SWOT analysis, brainstorming, expert opinion, and relying on historic data.
What is the difference between positive risk and negative risk?
The primary difference lies in the potential impact: positive risks can bring positive outcomes such as increased profits, improved efficiency, or innovation whereas negative risks result in losses, delays, or unanticipated harmful effects.
Can you provide an example of a positive risk in a construction project?
An example of a positive risk in a construction project might be the sudden availability of a more advanced construction equipment that can expedite the project schedule and enhance quality.
Is it necessary for a project manager to respond to positive risks?
Yes. Despite the positive nature, it’s crucial to plan and manage them effectively in order to fully reap the benefits. Unmanaged, they can lapse into missed opportunities.
What are the four strategies to manage positive risks or exploit opportunities?
The four strategies include exploiting (simplify execution), sharing (work with others to achieve benefits), enhancing (maximize potential) and accepting (take advantage of if it comes by) the positive risks.
How does the PMI’s A Guide to the Project Management Body of Knowledge (PMBOK) suggest managing positive risks?
According to PMBOK, positive risks are to be managed through strategies such as exploiting, enhancing, sharing, or accepting the risk.
What is a ‘risk appetite’ in the context of positive risks in the construction industry?
Risk appetite refers to the level of risk that an organization is willing to accept to achieve its objectives. In the context of positive risks, it denotes the extent to which an organization can undertake risks for the sake of potential reward or advantage.
How can Positive risk management pave the path for innovation in construction projects?
Positive risk management encourages proactive thinking and the exploration of alternative methods, designs, or materials that could potentially bring about higher value or performance in construction projects.
Is risk analysis a onetime process in project management?
No, risk analysis is an ongoing process. As the project progresses, new risks (both positive and negative) may arise, and existing ones may either change or dissolve. So, continuous risk assessment is crucial.
How to involve stakeholders in positive risk management?
Stakeholders can be involved in the identification, analysis, ranking, and planning responses to positive risks. Regular communication and including them in risk meetings ensures active involvement.
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