Organizational Risk Tolerance in Project Management


As project managers, one of the important roles we have is assessing and managing risk for our projects.  But risk assessment cannot be performed in a vacuum.  The organization, customer, or end user needs to have a voice in how much risk should be tolerated.

Take, for instance, the NASA-manned space flight.  It involves risks to human life which can’t be completely mitigated.  On the other hand, many construction and engineering firms take a zero risk approach to human life and safety on their jobs.  Jacobs Engineering goes “beyond zero” in their approach to safety risks.

It’s interesting to think about the potential for conflicting safety standards within a project.  What if a beyond zero safety organization is performing project management for a firm that does not consider safety to be a priority?  The customer may see the money being spent to ensure safety as an unwanted cost, while the project management firm will consider these costs essential to their ability to perform work for their client.

Let’s move from health and safety risk to schedule risk.  In this case, the same potential for conflict arises if the owner and the PM don’t agree on what is tolerable schedule risk for the project.  But in this case, it is possible to use statistical modeling and forecasting to examine the probability of certain completion dates.

Read More