Many organisations, rightly, attempt to assess risk as a way of governing and directing the projects they do. They recognise the importance of this but then do not recognise, and make the distinction between, Sponsor Risk and Project Risk. This can lead to misleading assessments and poor choices.
Project Risk is the risk that the project will not follow its intended path and achieve its objectives. Sponsor Risk us the risk that the project sponsor’s will be inadequately served by the project even if it goes well. Why is it necessary to make a distinction between the two? It is necessary because they are fundamentally not the same thing one can by high whilst the other is low, both ways around.
Risk assessments tend to be associated with projects and so there is a, natural, tendency is focus inwards, to focus on Project Risk without recognising the broader issues of Sponsor Risk. The project itself can become the end to be achieved. Subconsciously the collective definition of success becomes doing what the project set out to do, in the way the project set out to do it, come what may. Wider factors, those outside the project, are neglected and the need to act to mitigate these missed.
In theory, a practice that does not explicitly distinguish the two could execute well and produce an appropriate result. In reality, clearly distinguishing the two and addressing each in turn gives a far better chance of the ‘broader situation’ being consider and the right assessment made.
Some things to understand are that Sponsor Risk:
- Is affected by both the state of the project and by developments that are totally outside the project.
- Can change, generally for the worse, without anything in the project changing.
- Can be high despite the Project Risk against its plan of record being low.
- Can be low despite the Project Risk against its plan of record being high.
- May not linked to a single project but rather to a collection of projects.