3. Risk Concepts

3.1 First principles
There are no fundamental scientific laws in risk management akin to the laws of motion, conservation and continuity from which applied scientific results are obtained. Most of risk management is qualitative and subject to judgment colored by experience, prejudice and politics. However, there is one fundamental principle that can be postulated and used.

Specifically, any element of a venture that entails a new aspect for the performing organization is a source of risk. (Barring malfeasance, incompetence including criminal neglect, and accident, it can be argued that "newness" is the only real source of risk.) The attitude here is that if all risks associated with newness are accommodated then whatever remains will in all probability be of small import and impact.

Risk management thus involves identifying the new aspects of the venture in question, and then adopting strategies to avoid, mitigate or otherwise accommodate the issues identified according to priorities suitable for the program. There is a temptation to include to the "customer's satisfaction" between "identified" and" according" in the previous sentence, but customer satisfaction is reflected in what is meant by suitable priorities.

In the present context, inexperience is a synonym for newness.

A caution: If inexperience is a primary source of risk then the hiring of experienced personnel may appear to be an immediate cure, but this approach must also be assessed for newness. If a previously unused consultant is hired to plug a gap in experience then the consultant poses a derived (and often very serious) risk. A person new to an organization, no matter how knowledgeable, is often more of a problem than a solution. Unless an organization has a good track record for using consultants then a special plan should be implemented to track the contribution of any consultants to assure that what is desired is being accomplished. If people are hired to plug gaps in experience then a similar risk prevails.

The secret to risk management is to be creative in applying tests for newness to the activities, tools, people and products that constitute the venture. The key issue can be a new product, a higher or lower price, a tighter or looser specification, a higher or lower production rate, a new customer, a different time of year, a larger or smaller physical scale, a new paint, a new glue, new computer programs, a new manager, a new production machine, a new performance envelope, a new environment, new personnel, new subcontractors, new terms for proven subcontractors, tight schedules, new performance tolerances, unfamiliar parties to an interface definition, new types and/or scopes of interfaces, new corporate environment, etc.

In effect, any and all aspects of a venture should be tested for newness in any conceivable nuance. In Section 5, Risk Management Tools, the WBS and SOW will be recommended as the framework for achieving closure in the search for newness.

The issue that is being begged at this point is that of the seriousness of the risks so identified. (The seriousness is measured as noted earlier as the combined consequences and likelihood.) No two ventures will have the same risks and no two organizations will face the same consequences for a given set of risks. Therefore, it is all but impossible to generalize about seriousness as opposed to newness. Some assessments of relative seriousness of consequences are given in the discussions of ranking tools.

However, experience indicates that the seriousness aspects tend to sort themselves once a given set of risks is postulated.