9 Examples of Positive Risk

posted by Devin Fowler, Simplicable, September 14, 2012

Have you ever had too much of a good thing?

We usually think of risk as too much of a bad thing. However, risk can also be too
much of a good thing.

When your goal is to hit a target there are two sides to risk: risk and positive risk.
There's a risk you won't meet your target. There's also a risk that you'll exceed your
target. Exceeding targets isn't always desired.

Definition: Positive Risk

Positive risk is the chance that your objectives will produce too much of a
good thing. Positive risks are deemed as undesirable despite being
positive at face value.


Positive risk is almost a philosophical thing. It's all in how you look at it. Many people
are convinced it doesn't exist. Others think of positive risk as an opportunity.

Positive Risk As An Opportunity

Risk-taking is the process of accepting risk. Examples of risk-taking
include investing, developing new products and changing business
processes. Risk-taking is the basis of economic progress. It's often
positive.

Positive risk is different it's something you're trying to avoid.

That being said, when positive risks occur they can often be managed as
opportunities.


The entire practice of risk management is focused on controlling potential negative
outcomes. However, in the case of positive risks risk management occasionally
deals in opportunity.

Risk is the effect of uncertainty on objectives. The following examples of positive risk
are too much of a good thing.



1. Project Management
A project management team controls the risk that a project will go over budget and
the positive risk that the project will be under budget.

Being under budget is a good thing because the company saves money. However, in
the context of project management it's considered a planning error. You didn't really
save money the project manager overestimated the project.

In other words, under budget projects are something project managers try to avoid.
However, when it happens it's an opportunity to reallocate resources.



2. Mega Projects
A bridge is constructed to last 100 years. The project management team carefully
monitors quality risks (the risk it won't last to the 100 year target).

They also manage the positive risk that the bridge will last too long. If they discover
that the bridge will last 1000 years it was likely over-engineered.



3. Accounting
Your accountant points out the positive risk that if your income rises past a certain
mark that tax rules will apply that will reduce your net income.



4. Investment Banking
Most investment banks run large risk management programs to protect their assets
and reputation. They manage the risk that investments will be too aggressive. They
also manage the positive risk that investments will be too safe (i.e. investing too
conservatively).



5. Marketing
A nightclub in a small town is only popular on Fridays and Saturdays. They start a
promotional campaign to build Thursday nights by cutting all prices dramatically. The
promotion team manages the risk that Thursday nights won't be successful. They
also manage the positive risk that Thursdays will be so successful that customers
stop showing up on the weekend.



6. Career
An ambitious manager seeks important responsibilities. She manages the risk that
she won't take on enough work to achieve recognition. She also manages the
positive risk that the firm with trust her with so many responsibilities that she'll be
unable to deliver.



7. Program Management
A program manager who is managing a portfolio of projects controls the risk they will
be delivered late. He also manages the positive risk that they will be delivered early.



8. Sustainability
A small island nation in the South Pacific begins a digital marketing campaign to
attract tourists. They want a sustainable number of tourists to add to the local
economy.

They also manage the positive risk that the campaign will attract too many tourists.
They believe that too many tourists will have a negative impact on the local culture
and ecology.



9. Non-Sustainability
A tire is designed to last 60,000 kilometers. Engineers manage the risk the design
won't be durable. Unexpectedly, the tire design lasts 1 million kilometers. The
company worries that their customers will stop replacing tires so they don't release
the product.



Managing Positive Risk
Risk management is focused on controlling the chance that something
undesirable will happen.

Although positive risks are something you're trying to avoid they can often be
managed as opportunities when they occur.

The tire company that discovers a tire that lasts 1 million kilometers might be able to
market the tires at a high price to customers looking for extreme durability.

The island nation that's getting too many tourists can tax hotels. The higher prices
will reduce tourist numbers and generate revenue for the country.

When your accountant tells you to reduce your income to avoid tax complications
you may be able to reduce your taxable income by donating to charity.

Risk Management - Useful Tools and Techniques
In this section, the tools and methodologies that you can use during various phases of managing a risk are briefly
described.

Risk Identification
There are many tools and techniques for Risk identification. Documentation Reviews
Information gathering techniques
Brainstorming
Delphi technique here a facilitator distributes a questionnaire to experts, responses are summarized
(anonymously) & re-circulated among the experts for comments. This technique is used to achieve a
consensus of experts and helps to receive unbiased data, ensuring that no one person will have undue
influence on the outcome
Interviewing
Root cause analysis for identifying a problem, discovering the causes that led to it and developing
preventive action
Checklist analysis
Assumption analysis -this technique may reveal an inconsistency of assumptions, or uncover problematic
assumptions.
Diagramming techniques
Cause and effect diagrams
System or process flow charts
Influence diagrams graphical representation of situations, showing the casual influences or relationships
among variables and outcomes
SWOT analysis
Expert judgment individuals who have experience with similar project in the not too distant past may use
their judgment through interviews or risk facilitation workshops
Risk Analysis
Tools and Techniques for Qualitative Risk Analysis
Risk probability and impact assessment investigating the likelihood that each specific risk will occur and
the potential effect on a project objective such as schedule, cost, quality or performance (negative effects for
threats and positive effects for opportunities), defining it in levels, through interview or meeting with relevant
stakeholders and documenting the results.
Probability and impact matrix rating risks for further quantitative analysis using a probability and impact
matrix, rating rules should be specified by the organization in advance. See example in appendix B.
Risk categorization in order to determine the areas of the project most exposed to the effects of uncertainty.
Grouping risks by common root causes can help us to develop effective risk responses.
Risk urgency assessment - In some qualitative analyses the assessment of risk urgency can be combined
with the risk ranking determined from the probability and impact matrix to give a final risk sensitivity rating.
Example- a risk requiring a near-term responses may be considered more urgent to address.
Expert judgment individuals who have experience with similar project in the not too distant past may use
their judgment through interviews or risk facilitation workshops.
Tools and Techniques for Quantities Risk Analysis
Data gathering & representation techniques
InterviewingYou can carry out interviews in order to gather an optimistic (low), pessimistic (high), and most
likely scenarios.
Probability distributions Continuous probability distributions are used extensively in modeling and
simulations and represent the uncertainty in values such as tasks durations or cost of project components\
work packages. These distributions may help us perform quantitative analysis. Discrete distributions can be
used to represent uncertain events (an outcome of a test or possible scenario in a decision tree)
Quantitative risk analysis & modeling techniques- commonly used for event-oriented as well as project-
oriented analysis:
Sensitivity analysis For determining which risks may have the most potential impact on the project. In
sensitivity analysis one looks at the effect of varying the inputs of a mathematical model on the output of the
model itself. Examining the effect of the uncertainty of each project element to a specific project objective,
when all other uncertain elements are held at their baseline values. There may be presented through a
tornado diagram.
Expected Monetary Value analysis (EMV) A statistical concept that calculates the average outcome
when the future includes scenarios that may or may not happen (generally: opportunities are positive values,
risks are negative values). These are commonly used in a decision tree analysis.
Modeling & simulation A project simulation, which uses a model that translates the specific detailed
uncertainties of the project into their potential impact on project objectives, usually iterative. Monte Carlo is
an example for a iterative simulation.
Cost risk analysis - cost estimates are used as input values, chosen randomly for each iteration (according to
probability distributions of these values), total cost will be calculated.
Schedule risk analysis - duration estimates & network diagrams are used as input values, chosen at random
for each iteration (according to probability distributions of these values), completion date will be calculated. One
can check the probability of completing the project by a certain date or within a certain cost constraint.
Expert judgment used for identifying potential cost & schedule impacts, evaluate probabilities, interpretation
of data, identify weaknesses of the tools, as well as their strengths, defining when is a specific tool more
appropriate, considering organizations capabilities & structure, and more.

Risk Response Planning
Risk reassessment project risk reassessments should be regularly scheduled for reassessment of current
risks and closing of risks. Monitoring and controlling Risks may also result in identification of new risks.
Risk audits examining and documenting the effectiveness of risk responses in dealing with identified risks
and their root causes, as well as the effectiveness of the risk management process. Project Managers
responsibility is to ensure the risk audits are performed at an appropriate frequency, as defined in the risk
management plan. The format for the audit and its objectives should be clearly defined before the audit is
conducted.
Variance and trend analysis using performance information for comparing planned results to the actual
results, in order to control and monitor risk events and to identify trends in the projects execution. Outcomes
from this analysis may forecast potential deviation (at completion) from cost and schedule targets.
Technical performance measurement Comparing technical accomplishments during project execution to
the project management plans schedule. It is required that objectives will be defined through quantifiable
measures of technical performance, in order to compare actual results against targets.
Reserve analysis compares the amount of remaining contingency reserves (time and cost) to the amount of
remaining risks in order to determine if the amount of remaining reserves is enough.
Status meetings Project risk management should be an agenda item at periodic status meetings, as
frequent discussion about risk makes it more likely that people will identify risks and opportunities or advice
regarding responses.