Introduction to Event and Non-Event Risk on the PMP Exam
There are not many “sure things” in the world, but the fact that professional project managers have lost countless hours of sleep worrying about what could go wrong is one of them. Risk management is a robust skillset within project management, such that extensive knowledge of it is needed for the Project Management Institute (PMI) Project Management Professional (PMP)® certification exam and there is even a PMI Risk Management Professional (PMI-RMP)® certification. To plan for and manage risk, it is critical to understand not all risks are the same, even among similar project types. Therefore, project managers who are studying for the PMP exam must understand the fundamentals of event risk and non-event risk.
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Risk in Project Management
PMI defines risk for project managers so both sides of possible outcomes – good vs bad – are acknowledged. PMP credential holders know the definition of risk in project management terms. But it is also important to know the types of risk, event-based and non-event based, and the differences in those risks to have an effective overall risk management strategy.
The “non-event” risk was expanded upon in PMI’s A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition to include “variability” and “ambiguity” risks. The informal name of “Non-event risk PMP” has stuck. However, PMI has not, as of this writing, included Event Risk, Non-Event Risk, Variability Risk, nor Ambiguity Risk in the online PMI.org lexicon. The inclusion in a later PMBOK® Guide edition, but a scarcity of clarification on the PMI.org website, speaks to the “newer” status of the “Non event risk PMP” concept and the related shifts within overall risk management methodology.
|Risk||An uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives. (Source: https://www.pmi.org/pmbok-guide-standards/lexicon)|
The risk descriptions provided in the above table come from different project management sources. As the risk management and methodology continue to evolve within the profession and PMI makes updates in both the PMBOK® Guide and PMP® certification exam, formal definitions may emerge. As with all project management tools, techniques, and concepts, as the profession itself experiences continuous improvement, so do the formal standards.
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At the core, event risk is something that may or may not happen, and the likelihood of it happening can not be controlled by the project manager. Think of it as an “external” event, upon which the project manager knows it could happen but there is no way to know for sure or when.
What are Event-Based Risks?
David Hillson’s 2014 PMI conference paper, How to manage the risks you didn’t know you were taking, is a great resource for understanding event risks. Here are a few key points about event-based risks to consider:
- Event risks are future possible events
- It may be called “stochastic uncertainty” or “event risk”
- If it occurs, it could have a positive or negative impact on different project components
- When it occurs, it is usually easy to identify although the impact may take time to emerge
Event-Based Risk PMP Examples
The classic examples of event-based risk are the big weather events. Think hurricanes, floods, and droughts. And depending on your type of project, construction for example, you as the project manager may need to plan for contingencies for large weather events. The health and safety protocols enacted for Covid-19 are an example of an event-based risk. Supply chain issues, costs of protective gear, and other risks went from theory to reality.
It is important to keep in mind an event-based risk may result in changes that are positive, negative, or both. From How to manage the risks you didn’t know you were taking, here are examples:
- A supplier may go out of business during the project
- The client might change the requirement after the design is complete
- New regulatory constraints might be imposed
- The project loses a key resource at a critical time
- A client may allow incremental deliveries
- A subcontractor may propose enhancements to standard operating processes
Note, an event can be triggered by natural forces, suppliers, clients, government regulations, or even internal resource changes.
How to plan for Event-Based Risks
Event-based risks are what many categorize as “traditional” risks in that they are identified on the project risk register and (according to PMI) “are addressed in the typical project risk process, with well-established techniques for identifying, assessing, and managing them.”
Let’s return to the earlier weather examples to understand risk types. Whereas a hurricane is an example of event risk, a record-breaking cold day is an example of a non-event risk. We know winter is cold in a given geographic area, but we cannot fully predict if a specific day in the future will have unusually low temperatures.
What are Non-Event Risks?
A non-event risk is the known uncertainty that one aspect of a planned situation could change. They are often more subtle than an event risk. PMI’s PMBOK® Guide – Sixth Edition includes “variability” and “ambiguity” non-event risks to add a further layer of risk identification and management.
|Variability Non-Event Risk||Ambiguity Non-Event Risk|
|uncertainty about some of the key characteristics of a planned event, activity, or decision||a lot like event risk, but more limited in terms of the unknown condition|
Variability risks, also called “aleatoric uncertainty” are those in which some aspect of a planned situation is uncertain. ”The name is taken from the Latin word alea, which is a game of chance with dice where there are a set number of possible outcomes but we don’t know which one will actually occur.”
Ambiguity risks are also known as “epistemic uncertainty,” from the Greek word episteme meaning knowledge since they describe uncertainties arising from lack of knowledge or understanding.
Non-Event Based Risk PMP Examples
Every project has a unique set of risks, and despite all project managers’ best efforts to plan for the unknown, some will still occur that are not part of the risk register or risk planning. However, understanding the types of risks empowers the project manager and team to be more thorough in risk identification thus reducing the number of “surprise” risks that occur.
Variability risk examples
From How to manage the risks you didn’t know you were taking, here are Variability risk examples:
- Productivity may be above or below target
- The number of errors found during testing may be higher or lower than expected
- Unseasonal weather conditions may occur during the construction phase
- Exchange rates could vary beyond the range used to build our quotation
Ambiguity risk examples
Ambiguity risk may be somewhat unsettling for project managers who spend so much of their effort on planning and executing work. Consider these ambiguity risk examples froma PMI.org conference paper:
- Elements of the requirement or technical solution
- Use of new technology
- Market conditions
- Competitor capability or intentions
- Future developments in regulatory frameworks
- Inherent systemic complexity in the project
For these types of risks, extra focus and effort may be needed to increase knowledge of the risk to then be able to remove some of the ambiguity of the impact it may have on a project.
How a PMP Would Plan for Non-Event Based Risk
Knowing what is a risk is only a small part of overall project management work with risk. Identifying a risk, categorizing it to better manage it, and then working to have strategies to manage the impact of a risk if it does occur, are all components of a cohesive risk management approach.
Variability risk planning
Variables are values that can go high, or low, and in different ranges in both directions. As such, standard probability distribution that gives insight into the “degree of uncertainty in key parameters such as time, cost, resource requirement, profitability, etc.” is recommended. The mathematical model used to better understand and plan for variability risk in project management is known as Monte Carlo analysis.
Ambiguity risk planning
With ambiguity, the more that can be moved from “unknown” to “known” the lesser the ambiguity and the more effective planning can be. Basically, tools to reduce the gap of knowledge can increase the accuracy of managing the risk. Tools that allow for smaller steps, or building upon incremental progress are most effective in planning for ambiguity risk such as:
- expert external input
- incremental development
Differences Between Event Risks and Non-Event Risks
What is shared by event risks and non-event risks is the responsibility of the project manager to identify and plan for as much of the unknown as reasonably possible. The “reasonably” part can be tricky in that budgets, timelines, stakeholders, and more can dramatically impact what is deemed the right level of risk planning.
The differences in event and non-event risks are connected to those same factors – budgets, timelines, and stakeholders. How much budget and time is allocated to all risk work, including the efforts on a specific event or non-event risk, will vary. Also, in some cases, a non-event risk may evolve into being an event risk. The study and work needed to successfully earn the PMP certification is a great way to build risk knowledge and to build confidence in knowing how to use risk tools.
Event Risk and Non-Event Risk for the PMP Exam
It is the inherent trait of “unknown” that necessitates project managers spending time developing knowledge of risk types. Whether refining your project knowledge or preparing for the PMP certification exam, knowing what is a risk and what type it is improves risk management decision making and prioritization.
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