What is Risk ?

Having the best people execute the plan does not guarantee success. There are a host of external factors which may play a role in determining the outcome regarding whether a project has been successful or not. These are called Project risks. The formal definition of a risk is an event or occurrence that may negatively impact the project.

Risks can be mitigated and even prevented. However this requires a good amount of understanding of the risks and advance planning. It is for this reason that DMAIC methodology in Six Sigma has risk assessment as an inbuilt step. You cannot ignore it if you truly follow the DMAIC philosophy.

To better understand risks, it is essential that we understand that risks fall into categories. The major categories of risk are as follows:

• Stakeholder Risk: Stakeholders are people who have any kind of vested interest in the performance of the project. Common examples of stakeholders are as regulators, customers, suppliers, managers, customers etc. Stakeholder risk arises from the fact that stakeholders may not have the inclination or the capabilities required to execute the project.

• Regulatory Risk: An organization faces several kinds of regulations. It faces rules from the local and state government where they operate. It faces rules of the national government where it operates. It also faces rules of international trade bodies. To add to all this there are internal regulations which have been put into place for better internal governance and avoiding fraud. The Six Sigma team has to ensure that the project does not adversely affect the compliance towards these risks in any way whatsoever.

• Technology Risk: Many times the solution proposed by the project requires implementation of a new technology. However the organization may not be in a position to acquire these technologies due to financial or operational constraints. This poses obvious risks to the project as it can adversely affect the implementation of the proposed solution.

• External Risk: The execution of a project requires help and support from several outside vendors as well. The dependence on these vendors poses obvious risk to the execution of the project. These vendors lie outside the direct control of any organization. The organization may have very little ways to predict issues arising from external sources.

• Execution Risk: The project also faces risk of not receiving continued support from the organization. This is because the organization may discover better use of their resources in the additional time. It is also likely that the project may be poorly scoped causing it to spill over leading to wastage of resources prompting the management to abandon the project.

An experienced six sigma team will usually give the risk assessment part to its most capable member. The better prepared the risk assessment plans, the better chance the organization has of successfully implementing that project.