In the context of PRINCE2 7, risk is defined broadly as an uncertain event or set of events that, should they occur, will have an effect on the achievement of project objectives. A critical aspect of the PRINCE2 methodology is the recognition that risk is double-sided; it comprises both negative im…In the context of PRINCE2 7, risk is defined broadly as an uncertain event or set of events that, should they occur, will have an effect on the achievement of project objectives. A critical aspect of the PRINCE2 methodology is the recognition that risk is double-sided; it comprises both negative impacts, known as threats, and positive impacts, known as opportunities.
Threats represent the traditional view of risk. These are uncertain events that, if they materialize, will damage the project's ability to deliver its products within agreed performance targets (time, cost, quality, scope, benefits, and sustainability). For example, a supplier going bankrupt is a threat. PRINCE2 practitioners manage threats by selecting specific responses designed to mitigate the downside, such as avoiding the risk entirely, reducing its probability or impact, transferring the financial risk to a third party (like insurance), sharing the risk with a partner, or simply accepting it if the cost of action outweighs the potential loss.
Opportunities, conversely, are uncertain events that could result in a favorable outcome. These are often overlooked in traditional project management but are vital in PRINCE2 for maximizing value. An example might be a new technology release that could speed up development. The goal here is to maximize the likelihood or impact of these events. Responses for opportunities include exploiting the risk to ensure it happens, enhancing its probability or impact, sharing the potential gain with a partner, or accepting it without proactive intervention.
Effective Risk Management Practice in PRINCE2 7 requires a balanced approach. The Risk Management Approach document must define how both sides of the coin are identified, assessed, and controlled. Ignoring opportunities means leaving potential value on the table, while ignoring threats endangers project viability.
Understanding Threats and Opportunities in PRINCE2 7 Risk Practice
What are Threats and Opportunities? In PRINCE2, Risk is defined as an uncertain event or set of events that, should it occur, will have an effect on the achievement of objectives. A common misconception is that risk is always bad. PRINCE2 explicitly recognizes two distinct types of risk:
1. Threats: Uncertain events that would have a negative impact on objectives. 2. Opportunities: Uncertain events that would have a positive impact on objectives.
Why is this Important? Project management is not just about preventing failure (managing threats); it is also about maximizing value. By formally identifying opportunities, the project management team can deliver extra benefits, finish earlier, or save costs. Failing to manage opportunities is considered a failure to realize the full potential of the investment.
How it Works: Selecting Risk Responses The central mechanism for handling these risks is the Risk Response. You must choose a strategy based on whether the risk is a threat or an opportunity.
Responses for Threats (Negative):
Avoid: Altering the plan to remove the risk entirely (e.g., removing a feature).
Reduce: Taking action to lower the probability or impact before the risk occurs.
Transfer: Passing part of the risk to a third party (e.g., insurance or penalty clauses).
Share: Parties share the pain of the risk (less common for threats than opportunities).
Accept: A conscious decision to do nothing, usually because the cost of action exceeds the loss.
Prepare: Creating a contingency plan to be executed only if the risk occurs.
Responses for Opportunities (Positive):
Exploit: Taking action to ensure the risk definitely happens (removing the uncertainty).
Enhance: Taking action to increase the probability or impact before the risk occurs.
Transfer: Assigning the opportunity to a third party who can manage it better (e.g., hiring a specialized sales team).
Share: Partnering to realize the opportunity (e.g., a joint venture).
Reject: A conscious decision not to pursue the opportunity (equivalent to 'Accept' for threats).
Prepare: Creating a contingency plan to capture the opportunity only if it arises.
Exam Tips: Answering Questions on Threats and Opportunities In the PRINCE2 Practitioner exam, you will likely face scenario-based questions asking you to identify the correct response type or critique a response. Use this checklist:
1. Determine the Polarity: Read the scenario carefully. Is the event helpful (Opportunity) or harmful (Threat)? If the event saves money or time, it is an opportunity. If it causes delays or costs, it is a threat. This simple step often eliminates 50% of the multiple-choice distractors.
2. Differentiate Pre-emptive vs. Contingent: Is the Project Manager taking action now to change the risk (Reduce/Enhance), or are they writing a plan to use later (Prepare)? If the action happens regardless of the risk occurring, it is Reduce/Enhance. If the action is a "Plan B" sitting on the shelf, it is Prepare.
3. Keyword Association: Look for specific verbs in the question: - "Remove the cause" or "Do it a different way" = Avoid. - "Ensure it happens" = Exploit. - "Buy an insurance policy" or "Contract out with penalties" = Transfer. - "Joint venture" or "Pain/Gain share mechanism" = Share. - "No action taken" = Accept (Threat) or Reject (Opportunity).
4. Check for 'Transfer' Nuance: Remember that in PRINCE2, you can Transfer an opportunity (e.g., to a department that can make better use of it), not just a threat. Ensure you check who ends up owning the outcome.