What types of risks are involved in major projects?

As you have seen, major engineering projects can have many benefits. However, they also have many associated risks.

To ensure your project is successful, it is important to understand how to explain and categorise the risks associated with major projects.

In their 2001 article, the scholars Miller and Lessard helped to categorise different types of risks associated with managing various types of major projects. They explain that risk is characteristic to major projects.

They have identified three types of risk: technical, market-related and socio-political.

1. Technical risk

As an example, a project designed to construct a new satellite involves very complex technology. Some of these technologies might be new or untested, or they might be combined with other technologies in novel ways. Therefore, there is a high level of technical risk attached to them.

2. Market-related risk

The planning and delivery of major projects might take decades to carry out, therefore the final value of the completed project may not reflect the initial planned value. This is known as a market related risk. The success of a project may depend on specific market conditions. For example, oil and gas infrastructure projects might require the cost of oil to be 70 US dollars per barrel in order for the project to be viable and successful. Potential investors therefore need to forecast if, after five years of construction, the cost of the barrel will be above that threshold.

3. Socio-political risk

Major projects can often have a strong political dimension and have a lot of political investment and capital attached to them. For a political party or politicians, such projects might be 'flagship' projects. A project can often provoke controversy and reactions from the local community if they are adversely affected by a project’s plans. The latter are often described as 'not in my back yard' or NIMBY reactions: when the community is critical of proposed plans which have an impact on their direct surroundings.

The diagram below shows the different categories of risk and how they apply to some types of major projects. It is taken from: Miller & Lessard (2001). The diagram shows that research and development projects are generally the least risky projects in all three areas. However, nuclear power projects carry the most socio-political risk, and technical difficulty. Road and tunnel projects carry the most market-related risk.

The three risk types names by Miller and Lessard are just some of the types of risks associated with different types of projects. Identifying risks is only the first part of managing them, it is also vital to mitigate these risks.

Please refer to the glossary to check any terminology you are unfamiliar with: Glossary of Project Management Terms

Coming up...

In the next section you will explore the iron triangle measure of project performance.