Management of Risks in Projects
|✅ Paper Type: Free Essay||✅ Subject: Project Management|
|✅ Wordcount: 2406 words||✅ Published: 17th Mar 2021|
A risk management plan is a key component of a success project. In the early days of program management aspects such as cost, and schedule were often favored for making decisions because teams understood schedule and cost (Kerzner, 2017). In recent years there has been an increase focus on risk management due to the rapidly changing business environment and the dangers that unmanaged risks can pose to projects. Companies that make risk management an integral part of their program management theology are taking steps to prevent setbacks, schedule slips, and budget over runs. This is best accomplished by developing a robust systematic process for identifying, analyzing, planning, monitoring, and closure of project risks. This systematic approach puts business in a position to be proactive about uncertainty instead of reactive which ultimately sets the team up for success. Risk management may cost projects budget and time up front but can save much more in the long run.
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Risk is is defined as the uncertainty that an event or condition may occur and will have an impact on one or more of the project objectives; scope, schedule, cost, or quality (Soliman, 2018). Risk management is becoming more important as companies launch larger, more complex projects that have aggressive schedules, budgets, and commitments to stay competitive in the dynamic business environment. Risk is inherent to any project which can be influence by internal and external sources that may not be within the teams control. When teams attempt to manage risk, it is critical to, when possible, manage the source of the risk instead of the risk itself. A detailed understanding of root cause is crucial before teams move forward with resolution. Addressing a risk source gives the team the power to solve the root of the risk which may address more than one risk at a time (Tiendung et al., 2009). Without fully addressing the root cause there is a risk that the solution will not fully address the risk or that the solution may create risk in the process. In physics there is a reaction for every action. This is no different in project management which is why it is important to have a proper action to ensure the reaction is positive. Organizations who understand this and take the time to develop and utilize robust risk management processes have a much higher chance for successfully completing a project on time and on budget (Baharuddin & Yusof, 2018). Without a process for risk management companies are putting themselves at risk for failure.
Risk Management Planning
Risk management needs to be a pillar of all project management just as a schedule and budget are. It is something that should be utilized in all project no matter how big or small the project is. Project risks can have a widespread and multidimensional impacts beyond the company that can include community safety as well as social and environmental issues (Arami & Ownagh, 2017). For example, between 2018 and 2019, the Boeing 737 Max had to incidents which resulted in the death of 346 individuals and is estimated to cost Boeing $4.9 Billion. Engineering projects involve engineers, technicians, suppliers, and subcontractors which creates complex project management. This means all parties must be involved when attempting save money, time, increase quality and optimize output, all of which creates new risks that need to be discussed and understood. (Moser, et al., 2016) As Boeing pushed to certify the aircraft to make commitments a robust risk management plan a detailed analysis may have presented the stakeholders with information that could have altered the decisions made. The individuals who lost their lives may be alive if the risks would have been fully understood. The corners that were cut due to the risk of the company not meeting its commitment may have saved million up front but that is nothing considered to the cost of their actions.
This situation highlights the fact risk management is not a activity that is only necessary during project initiation but is a dynamic tasks that requires reevaluation periodically throughout the project. As requirements change and projects develop so do the risks associate with the project. With many unknowns in the project initiation stage it would be impossible to identify all risks that will occur during a project. Teams that adapt to developing project risks projects are able to avoid failures in the deliverables, and budget over-runs from schedule slides, additional resources, and possibility financial penalties for missing deliverables (Gosnik, 2011). As new risks are identified it is important that these risks be shared with all stakeholders and the direction of the project should be evaluated.
There are five systematic steps for comprehensive risk management which are identification, estimation, evaluation, response, and monitoring (Soliman, 2018). These steps provide a basic universal step but it is up to the business to develop a process for execution of each step. Processes that implement a robust systematic assessment are critical to identify project risks and develop appropriate responses (Caldas, 2009). Empirical studies have highlighted that project teams often have a higher focus on the negative risks and this hides the opportunities that can be identified (Klakegg, 2016). These process must not focus only on the negative risks associated with a project but must also consider positive risks that can be capitalized upon. By capitalizing on project risks team can increase revenue, optimize performance, and increase produce reliability. Ford Motor Company is a prime example of a company who was able to capitalize on a positive risk. Early years of the Ford F-150 that utilize the EcoBoost engine had issues with the software that managed the gear selection in the transmission. Ford developed new software to improve this on new vehicles. The positive risk they capitalized on is that by keeping the interfaces the same as previous F-150’s they were able to implement the improvement on earlier years of the produce line which help improve customer satisfaction and product reliability.
While it should be understood that teams can not manage all risks it is important that the risk is understood and managed. Protecting the value of a project involves managing the uncertainty and assisting reducing the uncertainty in the uncertainty in project outcomes and project commitments (Rangopal, 2003). In the last four decades there has been substantial development in the methods for risk manage that allow companies to reduce or eliminate uncertainty and achieve success (Chatterjee, 2018). There development are no doubt a combination of proactive activity and learning from mistakes but in the world of risk management it is important that history does not repeat itself.
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Just as companies have tools such as Microsoft Project for creating a project schedule and ADP Time Labor and Management for budget there needs to be tools for risk management. One of the most common tools is a risk register that ranks risk based in a score. The rank in the risk register should balance the possibility of occurrence and impact (Galil, 2017). This rank can create understanding within the project team and stakeholders which allows prioritization of resources to manage the risk. This risk register also needs to track risks just like Microsoft Project tracks completion of tasks. Not tracking the status of the risks identified is just as dangerous as never identifying them.
Managing The Risk
Risk comes in all shapes and sizes. This is why risk should be evaluated for every project and the team performing the risk assessment should be a diverse team with representation from all group involved. All to often individuals want to work in teams where everyone thinks alike to avoid conflict, but the reality is that the difference in perspective and opinions can lead to finding risks that may have been missed. As risks are identified the team needs to decide on an action to manage that risk. These actions generally include accepting, mitigating, sharing, avoiding for negative risks and exploiting for positive risks. Accepting risk is one of the most highly discussed decisions when it comes to risk manage. Accepting the risk means that the team will not taking any action. This is often only down when the likelihood or impact is extremely low or if the risk is something that is completely out of their control such as the weather would be in a construction project. Mitigation is understood as taking action to reduce the likelihood or impact an event will have if it occurs and is often the most frequent action assigned. Think of this like putting on a seatbelt when getting in a car, this action aims to reduce the impact that getting in an accident will have. Sharing the risk is something that is done very frequently in project. One way that companies share risk is through hiring subcontractor who specialize in a specific area of their project. Transferring risk is similar to sharing it but often aims to remove all liability from the project team. The most common example of this is insurance. Avoiding risk is often difficult to do but is the most desired. A good example is altering a design to utilize a material that has a low lead time and is commercially available. Exploitation of a risk allows companies to capitalize of their efforts. Once actions are assigned and a plan developed for how to achieve that action an individual should be assigned as a responsible party to monitor the risk and execute the plan. Failure to assign a responsible party can allow a risk to uncontrollably manifest which can cause problems such as poor quality, not meeting customer or user requirements, increased costs, and possible loss of business (Baharuddin, 2018). In taking action to manage risk and following a process teams are likely to execute on time and on budget. Managing the risks protect not only the company but can be viewed as a form of corporate social responsibility by protecting the user and the environment.
Project will always be subject to potential risk factors in the dynamic business environment which is why it is necessary to understand all aspects of that environment and make sure that all stakeholders are informed to be able to conduct a proper evaluation (Chatterjee, Zavadskas, Tamosaitiene, Adhikary, & Kar, 2018). Risk management needs to be a staple of a project managements plan for project execution. When teams have a structure and a process they are much more likely to be effective in their action. Unfortunately recent events have shown us that risk management can be the difference between life and death. This is why a well defined and robust plan for risk management is necessary and can be the single determining factor between failure and success.
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