Life is full of uncertainty. Project managers call that risk. Consider the following scenarios:
- A Silicon Valley software company subcontracts part of a product development effort to a software shop in Los Angeles. How will the project manager in San Jose make sure the subcontractor produces the right product on time?
- To reduce administration costs and streamline admissions, a hospital is considering reengineering its process for creating and storing patient records. How can hospital administrators accurately estimate the cost of the change when they aren't even sure what the change will entail?
- In the design to build a completely new fighter aircraft, a defense contractor specifies lightweight composite materials. How can the contractor be sure the new materials will hold up under the pressures a fighter jet endures?
In these projects, there is uncertainty about the schedule, the costs, and the quality of the end product. How can this uncertainty be managed?
Risk management is the means by which uncertainty is systematically managed to increase the likelihood of meeting project objectives. The key word is systematically, because the more disciplined the approach, the more we are able to control and reduce the risks. This chapter presents a framework for transforming the uncertainty inherent in projects into specific risks and developing strategies for managing them.