Types of risk: An overview

To manage risks effectively, you first need to understand them. In the first part of our blog series, we took the first step: the team came together to identify the different risks involved in developing a keyboard. To maximise the benefits of this identification process, all possible areas need to be considered. But which types of risk exist in which areas?
It is important to note that there are different types of risk. The risks listed here may be called differently elsewhere or may not be mentioned at all. This list does not claim to be exhaustive.

A common distinction is made between internal and external risks, into which other risks are then categorised. Internal risks are within the project's immediate environment and are therefore easy to influence as the project team has direct control over them. An example of an internal risk could be the frequent unavailability of a team member, leading to delays in meeting deadlines and milestones, i.e. schedule risks. To mitigate this risk, available resources can be reallocated, with other team members taking on tasks, or milestones can be rescheduled.
 
External risks, on the other hand, are more difficult to influence because they are outside the immediate project environment and therefore beyond the control of the project team. Therefore, efforts should be made to become less dependent on them and thus minimise their impact. For example, the project team cannot directly influence customer buying behaviour. However, a back-up plan can be formulated to adapt the product if buying behaviour changes.

Another way of categorising risks is to distinguish between operational and strategic risks. Operational risks are short-term uncertainties within the project that can affect resources such as time, cost or quality. These are short-term risks that affect individual aspects and, unlike strategic risks, do not threaten long-term success.
 
Strategic risks are long-term in nature and should be addressed as soon as possible to prevent them from becoming a significant threat. For example, if it turns out that it was a bad idea to design a keyboard with an USB port only. In such a case, the keyboard may not be successful in the long run. This strategic problem then leads to a number of operational risks, as the project team has to solve the problem, for example, through further development. This in turn can increase costs and tie up additional resources.

In addition to these two comparisons, there are other risks, such as schedule risks.
 
A schedule is usually drawn up before the project starts. If, over time, deadlines and milestones are missed for various reasons, this can lead to further problems, such as increased costs. Such delays can therefore affect the overall progress of the project and lead to a chain of challenges that may jeopardise the project as a whole.

As mentioned above, financial issues can arise. During the course of the project, more money may be required than originally anticipated for a variety of reasons. In the keyboard example, the cost of materials could suddenly increase. Such unforeseen expenses can strain the budget and require adjustments to the financial plan to ensure the successful completion of the project.

Technical risks can arise in several areas of a project. One possible risk is the use of new technologies, which may involve the risk of errors, delays and increased training costs.
 
Another risk is competition. If technically advanced competing products come to market faster than your own product, your product may lose its appeal, and the expected market success may not be achieved. These technical risks must be carefully monitored and managed to ensure the success of the project.

Economic risks can also have a significant impact on the success of a project. A major challenge is dependency on a small number of suppliers. This dependency can lead to significant problems if one or more suppliers fail or change their terms. Another risk is a shortage of required materials. Such shortages can slow down the production process and cause additional costs.
 
Mismanagement of business partners is also a significant economic risk. Poor communication or misunderstandings can lead to delays and increased costs.

It is clear that there is a wide range of risks that can affect a project or product. Many of these may not even be known, so it is vital to investigate potential risks thoroughly as part of the risk management process. In this way, you can prepare for different risks and find ways to manage them effectively. Through thorough research, the team now knows what types of risks need to be considered during risk identification.