Performance risk refers to the potential negative consequences that a business may face if a product, service, program, or project fails to deliver the expected value. This can include financial losses, damage to reputation, and operational disruptions. Performance risk can arise in a variety of contexts, including internal projects, outsourced projects, and purchases of products or services. The following are illustrative examples.
A human resources software package claims it will reduce HR overhead by 30% with automation and streamlined business practices. The human resources team considering a purchase identifies the risk that the product will have data, integration, usability and process mismatch issues that may increase overhead costs as opposed to reducing them.
A fashion company plans to outsource customer service to a partner. Business units identify the risk that customer satisfaction will fall below target levels.
The probability that a product will completely fail such that it has no value whatsoever. For example, the probability that a program to develop a custom tool for issuing government paychecks will completely fail such that paychecks can’t be issued.
The probability that a purchase, service or project will fail to meet a requirement that it has committed to meet. Any in-scope requirement can be listed as a risk if there is any probability that it will not be met. For example, a requirement that an office redesign project reduce noise in core working areas could identify a risk that noise would remain the same or increase after the redesign.
Any business benefits stated in the business case for a purchase or project are risks if there is any significant probability they will not be met. For example, if a business case for the purchase of an industrial robot states that it will increase the throughput of a production line by 8% there is a typically a risk that this benefit won’t be achieved due to unanticipated problems with the product or its integration with your environment, processes and systems.