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Project vs Business Risk

P

pdf1987

Member
Hi

I'm wondering if anyone can clarify the difference between project risk and business risk when identifying risk for a capital project. There appears to be some overlap.

For example, in April 09 paper 1, Q5 it asks for risks associated with the project. One of the risks under business risk in acteds solution is costs being higher than expected, yet in the notes/flash cards "cost overruns" is given as an example of a project risk.

Another example in the same question is about factors affecting consumer demand (which would need to be assessed for viability) which sits under project risk in the acted solutions but I would have classed it more as a business risk.

I'm assuming we would get credit for it if it was put under either category, but I wanted to check as I'm thinking of a possible case where we would be asked to give one example under each category, giving breadth in our answer, and the examiners may be a bit more strict.
 
I think the main thing is that it doesn't matter - the different "categories" of risk should be used to help generate ideas, and I can't imagine being tested on categorising them in this way.

I do agree that there is an overlap between these two categories, but I think it's usually possible to choose between them.

Let's imagine the project is constructing a stadium. There is a risk that the cost of constructing the stadium is higher than expected.

I think we could argue that this is a project or a business risk. But if we drill down a bit further to look at the cause of the higher costs, then we might be able to distinguish between them.

If the cost overrun is due to an increase in the cost of building materials, then I would say that this is a business risk - it's not specific to the stadium - it's more specific to the building industry, so it relates to the business of building, rather than this specific project.

However, if the cost overrun is due to problems with the design of this stadium, I would say it's a project risk - it's not a general risk in the building industry - it's specific to this project.

But in the exam, I wouldn't even bother classifying it - I would just give a description of the risk (and if necessary, how to mitigate it).
 
Thanks, that was my feeling too. I just wanted to make sure I wasn't misunderstanding anything! :)
 
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