Topic 3.8: Business case: organisational risk
At the project initiation stage, we are more interested in the relative risk to the organisation of proceeding with each alternative.
It is therefore important that we assess each alternative against the same criteria.
Given, too, that we will be undertaking a detailed risk-to-the-project analysis as part of our project planning, to do so in the project initiation stage would be both redundant and unnecessary for those options that we end up discarding.
So what are the risks to an organisation typical of any project?
And how do these compare to the risks of not initiating the project at all, as in the ‘do-nothing’ option?
These are some standard options – you may identify more that are specific to your enterprise and its context.
For example, an organisational risk factor for projects delivered on a remote island community could be their level of dependency on imported goods and services.
In that instance, options that are delivered 100% locally might be considered much lower in risk than those that rely on the vagaries of coastal shipping or air freight.
Another risk factor that could vary by option might be the timing of project cash flows; no doubt you can think of several that are specific to your own organisational experience.
As always, you should look to develop your own categories, thresholds and definitions of organisational risk.
You can then assign a risk score to each option; for example, five is high risk, three is medium risk and one is low risk.
The sum of risk scores can then be converted to a percentage for ease of comparison.
Note that when compared to the risk assessment for the other, project-based options, a number of criteria are not relevant to the ‘do nothing’ risk assessment.
This is why it is important to reduce risk scores to a percentage to facilitate ease of comparison.
It should also be noted that in some cases it will be a subjective judgement as to whether or not the risk of one criterion is low, medium or high.
The consensus of key stakeholders should be sought on the final determination, especially where conflict is likely.
Where the project risk profile contains critical economic or other risks, sensitivity analysis should also be performed on those metrics where a change will have a significant effect.
We will return to the organisational risk-assessment tool later in this course; for now, though, appreciate that this method should be preferred to traditional forms of risk assessment at the project initiation stage.
This is because the purpose of project initiation is to identify the optimal project alternative, and not to actually plan the project.