The 

Project Rating Index
• The Project Definition Rating Index (PDRI) is a
methodology used by capital projects to
measure the degree of scope definition,
identify gaps, and take appropriate actions to
reduce risk during front end planning. PDRI is
used at multiple stages in the front end
planning process
• Cost risk
• Cost risk is an escalation of project costs. It is the risk that the project will cost more than the budget
allocated for it. Perhaps the most common project risk, cost risk is due to poor budget planning,
inaccurate cost estimating, and scope creep. The risk is higher when clients want too much even though
the project has few resources only. Cost risk can lead to other project risks such as schedule risk and
performance risk.
• Schedule risk
• Schedule risk is the risk that activities will take longer than expected, and is typically the result of poor
planning. It’s closely related to cost risk, because slippages in schedule typically increase costs and also
delay the outcome of the project, including its benefits. Delays result in missed timelines and a possible
loss of competitive advantage. Schedule risk leads to cost risk because longer projects cost more. It can
also lead to performance risk, missing the timeline to perform its intended mission.
• Performance risk
• Performance risk is the risk that the project will fail to produce results consistent with project
specifications. This is a common risk that is difficult to attribute to any single party. A project team can
deliver the project within budget and schedule and still fail to produce the results and benefits. On the
other hand, performance risk can lead to cost risk and schedule risk when the performance of a team or
technology results in an increase in cost and duration of the project. In sum, the company lost money and
time on a project that failed to deliver.
Governance risk
• Governance risk relates to board and management performance with regard to
ethics, community stewardship, and company reputation. It is directly related to the
behavior of the executives who are project sponsors and stakeholders. This risk is
easier to mitigate and manage with proper stakeholder engagement.
Strategic risk
• Strategic risks are types of performance risks. It results from errors in strategy, such
as choosing a technology that does not work as expected. A good example would be
choosing a project management software that does not help the project team in
their responsibilities but instead takes more of their time to work on the software
than on the actual project.
Operational risk
• An operational risk includes risks from poor implementation and process problems
such as procurement, production, and distribution. It is also a type of performance
risk because poor implementation prevented the ideal outcome to happen
Market risk
• Market risks include competition, foreign exchange, commodity markets, and interest rate risk, as well as liquidity and
credit risks. Planning for market risks is difficult and requires expertise because these types of risks are unpredictable.
But sound business and financial strategies can help protect the business.
Legal risk
• A legal risk arise from legal and regulatory obligations. They can come from contract risks and litigation brought against
the organization. Internal legal issues are also legal risks. These are unpredictable and can come from state policies,
business competitors, and employees.
External hazard risks
• Risks associated with external hazards can include risks from storms, floods, and earthquakes. They can also result from
vandalism, sabotage, and terrorism. Other sources are labor strikes and civil unrest. All serious incidents can have
severe impact on cost and schedule.
Project deferral risk
• In addition to project risks, project deferral risk is another important risk. Project deferral risk refers to the risks
associated with failing to do a project. Like project risk, this risk can arise from any of the risk sources. It can also occur
if there is only a limited window of opportunity for conducting a project. Failure to conduct the project now creates a
risk that makes it impossible to effectively conduct a project later.
• As indicated by these examples, project risks include both internal risks associated with successfully completing each
stage of the project, plus risks that are beyond the control of the project team. These latter types include external risks
that arise from outside the organization but affect the ultimate value to be derived from the project. In all cases, the
seriousness of the risk depends on the nature and magnitude of the possible end consequences and their probabilities.
 What is risk mitigation?
• Risk mitigation refers to the process of planning and
developing methods and options to reduce threats
—or risks—to project objectives. A project team
might implement risk mitigation strategies to
identify, monitor and evaluate risks and
consequences inherent to completing a specific
project, such as new product creation. Risk
mitigation also includes the actions put into place to
deal with issues and effects of those issues
regarding a project.
 Five risk mitigation strategies
• Assume and accept risk.
• Avoidance of risk.
• Controlling risk.
• Transference of risk.
• Watch and monitor risk.
 Assume and accept risk

• The acceptance strategy can involve collaboration between team

members to identify the possible risks of a project and whether the
consequences of the identified risks are acceptable. In addition to
identifying risks and related consequences, team members may also
identify and assume the possible vulnerabilities that risks present.
• This strategy is commonly used for identifying and understanding the
risks that can affect a project’s output, and the purpose of this
strategy helps bring these risks to the business’ attention so everyone
working on the project has a shared understanding of the risks and
consequences involved. The following example shows how the
acceptance strategy can be implemented for commonly-identified
risks.
 Risks impacting cost
• The accept strategy can be used to identify
risks impacting cost. For example, a project
team might implement the accept strategy to
identify risks to the project budget and make
plans to lower the risk of going over budget,
so that all team members are aware of the risk
and possible consequences.
 Risks impacting schedule
• The accept strategy could help identify
possible risks that could impact scheduling,
such as keeping the project on track to meet
deadlines
 Risks impacting performance
• These types of risks can involve performance
issues like team productivity or product
performance (such as software or
manufactured goods) and can be identified
and accepted as part of project planning so all
members are aware of potential performance
risks.
 Avoidance of risk
• The avoidance strategy presents the accepted and
assumed risks and consequences of a project and
presents opportunities for avoiding those accepted risks.
Some methods of implementing the avoidance strategy
are to plan for risk and then to take steps to avoid it. For
example, to mitigate risk on new product production, a
project team may decide to implement product testing
to avoid the risk of product failure before final
production is approved. The following examples are
other ways to implement the avoidance strategy
 Risk to performance
• Mitigation of performance risks, such as insufficient
resources to perform the work, inadequate design or poor
team dynamics, can allow a project team to identify
possible ways to avoid these types of risk situations that
may cause issues with project performance. For instance,
a production team might test more durable product
materials to avoid the risk of product failure with less
durable materials. Similarly, if there is performance risk
within the project team’s dynamics, interactive team
management can be implemented to avoid issues within
the team.
 Risk to schedule
• Avoidance of schedule implications can be implemented by
identifying issues that could come up that would affect the
timeline of the project. Important deadlines, due dates and
final delivery dates can be affected by risks,  such as being
overly optimistic about the timeline of a project.
• The avoidance strategy can help the project team plan
ways to avoid schedule conflicts, for instance, by creating a
managed schedule that illustrates specific time allowances
for planning, design, testing and retesting and making
changes as necessary. Non-working times could also be
planned, so that risks to time management can be avoided.
 Risk to cost

• Avoiding cost issues is another

implementation of this strategy. For example,
a project team may outline all anticipated
costs as well as account for any costs that
could come up so that the consequences of
going over budget can be avoided.
 Controlling risk

• Team members may also implement a control

strategy when mitigating risks to a project.
This strategy works by taking into account
risks identified and accepted and then taking
actions to reduce or eliminate the impacts of
these risks. The following examples highlight
how control methods can be implemented for
risk mitigation.
 Controlling risks to cost
• A project team might implement control methods that
can detect possible issues with the project budget. For
instance, controls for risk mitigation might include a
focus on management, the decision-making process or
finding flaws in the funding for the project before issues
can arise. This can also give a project team insight into
how funds are being delegated, and if there is a risk of
going over budget, the team can identify this before it
happens and take measures to control it such as reducing
spending or eliminating a resource that could prove too
costly for the project
 Controlling risk to schedule
• Implications to scheduling can be controlled by
diversifying tasks and the time it takes to
complete them among the project team. Control
methods could include tracking the time it takes
to complete each task and assigning specific tasks
to team members according to the time involved
with each task. The project team might also take
into account time management strategies to help
control any risk to project scheduling
 Controlling risk to performance
• Implementing control strategies for
performance risk can include methods of
directing a team’s daily tasks, quality control
methods for new products and measures for
taking action to control issues that could affect
the overall performance within a project
 Transference of risk

• When risks are identified and taken into account,

mitigating the consequences through transference can be
a viable strategy. The transference strategy works by
transferring the strain of the risk and consequences of
another party. This can present its own drawbacks,
however, and when an organization implements this risk
mitigation strategy, it should be in a way that is acceptable
to all parties involved. The following example shows how
and when transference strategies are used for risk
mitigation.
 Transference for performance
• If, for instance, a production team has built a new product,
but the result presents defects. The defects may not be
directly caused by issues in production, but rather, caused
by issues with materials purchased from an outside vendor.
• The product company may choose to assume the
consequences and move forward with resolution strategies
—like product recall—or the company may transfer the
consequences to the outside vendor responsible for
providing the product materials by requiring the vendor to
cover the costs associated with the product defects
 Transference for scheduling
• Sometimes a project takes longer to complete, and
while this is a risk itself, transference strategies can
be used to shift the burden of being behind
schedule to the team members responsible for
time management, rather than the company as a
whole. With the consequences transferred to the
team members responsible for scheduling, the
production team, design team or others can focus
on completing the rest of their tasks.
 Transference for cost
• Transference of consequences regarding cost can
include holding accountants and financial advisors
accountable for issues in budgeting. For instance,
consequences for a project that goes over budget
can include higher production costs and funding for
materials. If the consequences are shifted to the
finance teams responsible for tracking the budget,
production managers and team members can focus
on their responsibilities while the finance team
takes measures to fix cost issues
 Watch and monitor risk
• Monitoring projects for risks and consequences
involves watching for and identifying any changes that
can affect the impact of the risk. Production teams
might use this strategy as part of a standard project
review plan. Cost, scheduling and performance or
productivity are all aspects of a project that can be
monitored for risks that may come up during
completion of a project. The following example
illustrates ways to monitor and evaluate risk and
consequences that can impact a project’s completion.
• Monitoring Cost
• A finance team or budget committee can
evaluate and monitor risks to cost by creating
a reporting routine to outline each
expenditure of the company. This strategy
works by allowing teams to continuously
assess the budget and change any cost plans
accordingly.
 Monitoring schedule

• Monitoring project schedules can include weekly

updates to evaluate each team member’s tasks
and how long it takes for them to complete each
task. The team can then reassess and keep track
of any issues that could risk the project falling
behind schedule. Computer software, like
calendars and project management tools, can
help monitor and evaluate time management
and project schedule
 Monitoring performance
• Monitoring the performance of products, team members
and resources used to complete a project are all examples
of ways to implement performance monitoring.
Evaluating and assessing different aspects of a company’s
performance can help mitigate risks to a decrease in
performance, and tools like productivity software can help
track and evaluate performance processes within the
project. Employee performance can be monitored by
planning and implementing regular performance
evaluations and product performance can be monitored
by continuous product testing and review.