A risk category is a classification of risks based on the organization’s business activities. It gives a systematic overview of the underlying and possible risks they face and potential risk sources. Individual project risks can be grouped into risk categories for evaluating and responding to them.
Risk can be defined as an event or circumstance that has the potential to adversely affect objectives. A thorough understanding of various types and categories of risk can help you better prepare your organization for any unanticipated events, increasing the likelihood that your objectives will be met.
- How to Identify Risk Categories
- 27 Risk Category Examples
- 1. Scope
- 2. Estimates & Assumptions
- 3. Budget
- 4. Technical & Architectural
- 5. Technology
- 6. Interface
- 7. Performance
- 8. Quality & Process
- 9. Project Schedule & Dependencies
- 10. Logistics
- 11. Resourcing
- 12. Budget
- 13. Communication
- 14. Contractual
- 15. Internal procurement
- 16. Suppliers & Vendors
- 17. Subcontracts
- 18. Client stability
- 19. Partnerships
- 20. Legislation
- 21. Market Rates
- 22. Business continuity risk
- 23. Regulations
- 24. Weather
- 25. Facilities
- 26. Report Order Briefing
- 27. Security risk
- Grouping Risk Categories
- Risk Breakdown Structure Template
How to Identify Risk Categories
Purpose and Need
Identify what you want to accomplish or achieve. Once this is established, it will become much easier for you to determine the main risks involved with your project. This means that before assessing any type of risk, one must first have a clear understanding of why they are doing something to know how best to approach certain tasks which may pose as threats later down the road.
Project Goals, Objectives & Outcomes
This includes understanding what you want your final product or result to be as well as identifying any subgoals which may lead up towards achieving these larger objectives. Writers on this topic need to provide clear examples of goals and outcomes for their audience so that they can use these same tools later on in the process. This means that your software needs to be user-friendly and capable of allowing users to perform the same action with minimal difficulty.
Understanding the constraints of a project is important for identifying risks because it allows writers to determine what can be changed or adapted to overcome obstacles. One should ask themselves questions like “Does the task at hand need to be done by a certain date?”, “Are there any regulations which must be followed?” and other similar inquiries so that they know exactly what restrictions are involved with the project.
Risk Assessment Techniques
An organization’s process assets must be examined to see if they have a defined set of risk categories or not. Users can employ strategies such as the Delphi technique, root cause analysis, SWOT analysis, documentation reviews, information gathering approaches, brainstorming, risk register, risk outputs, impact matrix, risk data quality evaluation, and simulation technique
27 Risk Category Examples
This is where your project fails to deliver on what it said it would do, causing issues with meeting deadlines and budgeting targets. This can be due to several different reasons – some of which are outlined in the previous bullet point under the “contractual risk” category.
All scope risks, whether quantified or not, must be taken into consideration. In the broad category of scope risk, you can find everything from scope creep to hardware defects. Software defects are insufficiently specified scope to unforeseen changes in the legal or regulatory framework to integration problems and everything in between.
2. Estimates & Assumptions
Few undertakings get off to a perfect start. Few projects would ever get off the ground if absolute assurance were an “absolute” condition. That is why “assumptions” and “estimates” are critical defining variables in ensuring timely and realistic project outcomes.
Making estimates necessitates the use of assumptions. Assumptions that are violated are the same as risks that are realized. Both of these factors can be accommodated by using some estimate buffering. While estimating, it can be extremely beneficial to identify and document project risks, just as it can make assumptions.
Budget risk emerges from an incorrect estimate of a budget allotted to a specific project or activity. Budget risk is also known as cost risk. The consequences of this risk include delays in project completion, premature project handover, inability to provide a quality project, or a compromise in project quality compared to what was promised to the client.
4. Technical & Architectural
Technical and architectural risks are the types of risks that jeopardize an organization’s overall functionality and performance. These risks arise due to the failure of software and hardware tools and equipment used in a specific project.
Technology risk, often known as information technology risk, is the possibility that any technological failure would cause a firm to be disrupted. Companies are exposed to a wide range of technology risks, including information security incidents, cyber-attacks, password theft, service disruptions, and other issues of concern.
The potential for financial, reputational, regulatory, and strategic risk arises from any technology risk encountered. It means that having an effective technology risk management strategy in place is crucial for anticipating and preventing future issues from occurring.
When a project’s success is dependent on the interaction of two or more stakeholders, interface risks can arise. It is common for physical interfaces to occur on the same or adjacent development when different contractors are engaged in the design.
Performance risk is the possibility that a product, service, program, or project will fail to deliver as much value as is required in the given situation or environment. It can apply to internal projects, outsourced projects, and purchases of a product or service from another company.
8. Quality & Process
It is possible to run into quality and process risks due to inefficient application of customizing a process and hiring staff to the process who are not well trained, both of which can lead to compromised process outcomes and quality issues in general.
9. Project Schedule & Dependencies
Project Schedule & dependency risks are associated with unexpected linkages or missing inputs that significantly impact the project’s timeline. Dependencies primarily affect the project deliverables or the work are grouped with the risks associated with scope changes.
Logistics risks include risks associated with transportation, warehousing, shipping, and inventory management and risks related to leadership at all levels, including logistics functions and supply chain operations, among others.
The risks related to the recruitment of people for a project may be affected by changes in staff turnover levels within an organization’s workforce causing delays if replacement personnel cannot be sourced quickly enough.
Resource risk is the possibility that you will not complete a task due to a lack of available resources. Financing, time, skilled workers, and anything else required to achieve a specific goal are all examples of resource types. Resource risk arises due to inefficient management of a company’s resources, such as its employees and budget.
Budget risk can be defined as a risk that arises due to incorrect estimation of the amount of money that will be allocated to a specific project or process. Budget risk, also known as cost risk, has the consequences of delaying the completion of a particular project. It also involves handing over the project prematurely, failing to deliver a high-quality project, or offering a project with a lower quality than what was promised to the client. Budget risk is also referred to as cost risk.
These are risks associated with the inability to communicate with other entities, whether people, software or processes. Having identical information means that there would be no need for communication, and consequently, no Communication Risk. People, on the other hand, are not all-knowing oracles.
Any legal agreements you sign during this process could pose some type of financial if broken (e.g. a vendor takes your money and doesn’t complete the work). In most cases, a contract risk definition consists of one of two things.
1. The possibility of incurring losses due to the buyer’s failure to comply with the terms of a contract, excluding the case in which the buyer is unable to pay.
2. The possibility of incurring losses as a result of the transaction performing poorly. Sellers are most at risk when dealing with fixed-price contracts, and they are least at risk when dealing with cost-type contracts.
15. Internal procurement
This type of risk is associated with how well internal procurement works within organizations including anything from supplier management, logistics and vendor relationships all leading up to buying decisions made by purchasing departments. These risks occur due to:
• Overstatement or understatement of the need
• Unrealistic timescales and schedules (use critical chain or critical path to adjust)
• Poorly-designed requirements
16. Suppliers & Vendors
The risk associated with suppliers and vendors refers to any risk associated with the operation or organization of a supplier or vendor that can harm the activity of a client organization.
These are risks associated with subcontracting. A common practice in the software development industry is using non-standard subcontract conditions prepared by the contractor. In such subcontracts, many of the requirements are harsh. They are regarded as the most significant risk, for which they include risk allowances in the bid price.
18. Client stability
Whenever a new business relationship or transaction with a customer is initiated, there is a series of risks associated with that relationship or transaction. It is critical to identify and assess any potential risks that the customer may pose. This helps to reduce the likelihood that unexpected events will cause a system to malfunction.
A partnership risk is faced due to a partner’s inability to carry out their responsibilities.
The risks affect the financial position, creditworthiness, or ability to perform.
In the business world, legislative risk refers to the possibility that regulations or legislation enacted by the government will significantly impact the prospects of one or more companies. These changes may harm the value of investment holdings in that company. Legislative risk can arise as a direct result of government action or from changes in the demand patterns of a company’s customers, among other things.
21. Market Rates
Suppose there is no downturn in the market. In that case, the market-rate risk is the risk of a decline in the value of either security or an investment portfolio, which can occur for various reasons. Market rate risk refers to the possibility of a financial loss due to factors that affect an entire market or asset class. Market risk is also referred to as undiversifiable risk because it affects all asset classes and has an unpredictable outcome. An investor’s only option for mitigating this type of risk is to hedge their portfolio.
22. Business continuity risk
If data is lost, services are rendered unusable or there is a loss in productivity due to lack of access to systems/services – you will have this type of risk on your hand. In order words, if something happens that renders one or more critical business processes inoperable for any length of time, it could put the entire company at stake financially.
Regulation risk refers to the possibility that a change in laws and regulations will have a material impact on security, business, industry, or market in the future. When the government or a regulatory body changes the laws or regulations, the costs of doing business can rise. The attractiveness of an investment can decrease, and the competitive landscape in a given business sector can change dramatically. In extreme cases, such modifications can completely demolish a company’s business model.
Weather risk is the exposure a company or organization has to dominant factor(s) that will lower its profits or lead it to fail. Anything that threatens a company’s ability to achieve its financial goals is considered a weather risk.
Facility risk refers to the possibility that a facility, such as a data center, will fail and cause a loss or software development disruption. This, in turn, causes the whole development process to remain at a stand still.
26. Report Order Briefing
Report order briefing provides in-depth expert analysis, forecasts, and data on a wide range of financial and operational risk factors. Failure to follow through with this process results in a risk of report order briefing.
27. Security risk
This pertains to any risks related to security breaches, natural disasters, or physical safety.
Grouping Risk Categories
After you have identified all risks you should group them together. Suggested groups could be…
Technical Risk Categories
Technical risks are those that cause an organization’s entire functioning and performance to fail. These risks develop due to the failure of software and hardware tools and equipment used in a specific project. The risk for this category may be due to capacity, Suitability, usability, Familiarity, Reliability, System Support, and deliverability.
- Team Communication
- Quality Assurance
Management Risk Categories
Management risk occurs due to inefficient resource management, which is why it is always necessary to have appropriate management planning in place to ensure that the project does not suffer any consequences.
- Other Projects
Commercial Risk Categories
Commercial risks broadly cover all non-political risks. Completion and financing risks, for example, may exist during the software development phase. From the perspective of a company, commercial risks are non-payments by private sector buyers due to the default, insolvency, and failure to use software developed under the contract. Commercial risks harm project costs and revenue streams, and they can put a project’s commercial viability in jeopardy0
External Risk Categories
External risks often include economic events that arise from outside the corporate structure. External events that result in external risk are impossible for a company to control or predict with high accuracy. As a result, lowering the associated risks is difficult. Economic factors, natural factors, and political factors are the three types of external risks.
Risk Breakdown Structure Template
A risk breakdown structure, or RBS for short, is a hierarchical chart that breaks down project risks from higher-level categories to lower-level risk categories. A risk breakdown structure is an important tool in a project manager’s repertoire when it comes to risk management.
The risk breakdown structure provides a framework for categorizing and evaluating the risks associated with a project, making it easier for project managers to plan for and minimize the risks’ effects. Use our risk category template made with lucidchart here
A Risk Breakdown Structure allows project managers to define and categorize their risks into larger groups with lower-level components that can be assigned specific actions during execution. The benefit of using this tool is it provides a clear path forward when analyzing possible problems without requiring extensive planning at the beginning of your projects. This helps you ensure you are spending time on activities that will have the greatest impact on mitigating these issues.