The Concept of Risk - Essay Example

Introduction Risk is defined as the possibility that a certain activity will result in a failure or a loss. In Project Management, Risk is often defined as the effect of uncertainties on the outcome of the project, these uncertainties can be due to lack of information or unavoidable circumstances. Crash of financial markets, project failures, legal issues, accidents and natual calamities can be the factors which add risk to any project. Therefore Risk Management is a very important part of Project Management; it incorporates the identification, analysis and resolution of possible risks associated with a project (Loosemore and Raftery, 2003). PRINCE2 or PRojects IN Controlled Environments2 is a project management technique which is very commonly practiced in the United Kingdom as it has been declared as the standard method for management of public projects. PRINCE2 was developed in the early 90’s by amalgamation of PROMPTII and PRINCE methods of project management and it is based on seven principles of project management; business justification, learning from experience, identification of roles and responsibilities, management through stages, management by exception, focusing on the project objectives and adapting to project environment (The Stationery Office, 2009). Scrum is an agile approach to project management, particularly software development. It is basically a framework which requires very less instructions as compared to other approaches of project management and is therefore much quicker and convenient to use. Moreover risk management in scrum also follows the framework and thus provides quick solutions (Merna and Al-Thani, 2011). A comparison has to be carried out between the two in order to find out whether agility is more important or reliability. Risk in Project Management The occurrence of an undesirable event is known as riks and risk management is a subject of great importance in project management. The risks which occur in project management is objectified and often occurs in the form of monetary loss and there is always an uncertainty associated with the occurrence of risk, however the results of a risk are always undesirable for the people and organizations involved in the project (Heer, 1998). Project Risk Management has become a very important field of study in recent years because the project costs are very high these years and substantial capital is involved in the execution of the projects. Moreover monetary loss is not the only issue, the time constraint has become much more important in the current economic and political scenario and the uncertainties in the execution of the project can delay the completion of the projects. These delays can result in fines and heavy pnealties and can also affect the execution of other associated projects, therefore it is imperative to analyse and manage risk properly. Some authors also include the risk of life in risk assessment associated with a project, however in this essay it will not be discussed as risk in project management because it is more relevant to health and safety issues (Jeynes, 2002). Thus there is a general consensus among the authors regarding the definition and concept of risk in project management. A risk is always an uncertainty in the execution of the project with a little probability of occurrence, however if occurs it always has undesirable result. Risk Management is always carried out in five steps: 1. Identification 2. Analysis 3. Resolution 4. Implementation 5. Monitoring Risk in PRINCE2 PRINCE2 is a process driven project management method and thus the management of a project as per PRINCE2 is carried out in steps. It gives ultimate liberty to the project management team to control and neutralize risks in project management. According to PRINCE2 risk is an uncertainty in the outcome of a project, this uncertainty is a two way pehnomenon, it can be a positive opportunity or a negative threat. Thus all the unclear outcomes of a project are termed as risk in PRINCE2 method of project management (Bentley, 2005). PRINCE2 methodology undertakes the fact that occurrence of risk is an inevitable phenomenon in the execution of a project and most of the times it is imperative to take risks in order to ensure the success of a project. However the risk to be taken can be managed by adopting certain precautionary measures and exit strategies. Since the occurrence of risk is inevitable therefore a project is always exposed to certain amount of risk during its various stages, the objective of risk management is to identify this risk and keep this exposure to a minimum in a cost-effective way. And while doing due consideration has to be given to the fact that the risk management actions should not affect the execution of the project or its profitability and productivity (Bentley, 2009). In PRINCE2 the following parameters are the deciding factors in the risk assessment and management: 1. Time 2. Cost 3. Quality 4. Productivity 5. Resource Utilization The first possible solution of a risk, according to PRINCE2 method of risk management is Prevention. However since risks are mostly inevitable therefore reduction of risk or transfering it on less important aspects of the project are other possible solutions (Kendrick, 2009). Risk in Scrum Scrum provides a new approach to risk management in projects. It brings down the decision making authority to the level of operation properties and certainties. Scrum is much quicker and provides rapid project management solutions (Pries and Quigley, 2010). It does not require a lot of data to be fed to the software and is based on a framework with background information of risk management. Scrum undertakes five risk areas into account and aids decision making as per the basic principles of project management on the basis of which the scrum framework is designed (Pichler, 2009). The risk areas which are considered by scrum are as follows: 1. Intrinsic Schedule Flaw 2. Specification Breakdown 3. Scope Creep 4. Personnel Loss 5. Productivity Variance There is a general perception that Scrum being an agile approach does not take into account the basics of project management, however the framework of scrum is based on the following nine components of project management: 1. Integration Management 2. Time Management 3. Cost Management 4. Scope Management 5. Quality Control 6. Human Resources Allocation 7. Procurement Management 8. Risk Management 9. Frequent Communication Though risk management is a part of the larger framework of project management in Scrum, risk in scrum is given importance because all other components of project management are very closely associated with it as risk intrinsically occurs in Time, Cost, Resources and Communication. Risk management in Scrum is carried out following feedback loops and thus the team members of a project has a chance to alter the planning as per the newly identified risk with every recurring loop. It also allows the team members of the project to utilize the early release options since the looping mechanism allows them to combine value with time. Working in sprints allows the project team to evaluate their performance and the risks as per the newly created project environment. Thus scrum is not only an agile approach, it also provides a high level of flexibility in project management (Schwaber, 2009). Comparison of PRINCE2 and Scrum While comparing PRINCE2 and Scrum it should be kept in mind that Scrum is a newer approach and also an agile one therefore it does not undertake the minor details of a project. Therefore risk assessment in PRINCE2 is certainly more extensive than in scurm, however the agility scrum offers sometimes beats the qualitative advantage that scrum has to offer. Scrum is not a formal methodology of project management whereas PRINCE2 has been endorsed by governments of certain countries and various organizations as a standard mechanism of project management. Project assessment and alteration is also different in the two methodologies; in PRINCE2 the assessment of project progress and mitigation of risk is done at every stage of the project in the critical path, whereas in case of Scrum a time-based framework is defined in which a single sprint is completed, the project planning and thus the risk management strategies can be redefined after every sprint. The time period of a single sprint is normally kept at 30 days (Barkley, 2004). PRINCE2 generally follows a traditional approach to risk management with extensive planning by estimating the possible risk involved. The assessment of risk at every stage is carried out prior to the start of the project in order to make the project secure however while doing so the actual project environment cannot be incorporated in the risk assessment and planning. Change in strategy is normally not preferred after the start of the project because all the possibilities of changes in project conditions are incorporated in project planning prior to the start of the project, however these changes are estimated and can be different from the changes in project environment which occur during the actually execution of the project (Chapman, Ward and Ward, 2003). Scrum is an empirical process and thus the risk management strategies change as the project proceeds further. In scrum approach, nothing is done to handle change in project environment before the start of the project because it gives a lot of flexibility with regards to alteration during the execution of the project. It follows the principle of inspection and adaption in contrast to PRINCE2 which works on estimation and planning. All the aspects of risk assessment are checked and modified with every changing sprint and loop in scrum whether its time related risk, risk in costs or quality assurance. The looping mechanism also gives more authority to the project manager in scrum because all the decisions related to change in strategy are not communicated to the baseline board however while increasing the authority of the project manager, it also puts additional responsibilities on the project manager and requires him to be very competent in his field (Crouhi, Galai and Mark, 2006). PRINCE2 adopts a more traditional approach and undertakes the risks involved in time, cost and quality. Whereas scrum has replaced these three pillars of risk assessment are replaced by transparency, inspection and adaption. Thus the approach adopted in scrum is more of a universal nature and does not limit risk assessment to merely time, cost and quality as in the changing economic scenario of the world other parameters are also involved when it comes to risk assessment such as logistics, legalities and safety. Another issue with the cost-time-quality approach is associated with the fact that in methods like PRINCE2 all the planning is done in the beginning of the project and the planning follows an ideal approach in which the project is to be delivered on time, under-budget and with exemplary quality however in actual scenario the targets set with regards to these three parameters cannot be achieved simultaneously. In scrum approach the targets are revised after each sprint and thus the documented specifications and objectives can be achieved. Thus each sprint review makes the risk assessment and planning more realistic (Leintz and Larssen, 2006). Another important difference between the risk management practices of in the two methods is the role of the members of the project management team. The leader of a project management team following the scrum methodology is often referred to as a Scrum Master rather than a project manager. In traditional approaches like PRINCE2 the project manager is not supposed to have a sound technical knowledge of the components of the project and he only aims to maximize the productivity of the project. However since the Scrum Master has a lot of authority in the decision making process therefore he is required to have a sound knowledge of the technicalities involved in the project because while analyzing the risks at the end of a sprint, the Scrum Master has to take quick decisions and he cannot wait for the technical staff to make conduct an analysis for him (Frankel, Hommel and Rudolf, 2005). Thus after conducting the comparison between the two it can be easily commented that scrum being a novel approach to risk management in projects is more adapted to the changing economic scenario which requires more productivity in lesser time whereas its more likely to achieve the standard quality with the PRINCE2 approach but the cost and time constraints are violated very frequently. Conclusion The study of the two approaches reveals that PRINCE2 is a more traditional approach of risk management in projects whereas scrum provides an agile and flexible method. This is the reason that scrum is gaining more popularity as compared to PRINCE2. However the agility and flexibility is sometimes achieved at the expense of standard quality, but such incidents occur when the Scrum Master is not technically sound. There is a general trend among the organizations which use PRINCE2 to shift towards scrum, but such a transition is not very quick and will take time, but this is an accepted fact that scrum is going to be the future of risk assessment and planning in project management. References Barkley, B. (2004) Project Risk Management, McGraw Hill Professional. Bentley, C. (2005) Practical PRINCE2, The Stationery Office. Bentley, C. (2009) PRINCE2: a practical handbook, Elsevier Science. Chapman, C., Ward, S. and Ward, S. (2003) Project Risk Management: Processes, Techniques and Insights, John Wiley and Sons. Crouhi, M., Galai, D. and Mark, R. (2006) Essentials of Risk Management, McGraw Hill Professional Frankel, M., Hommel, U. and Rudolf, R. (2005) Risk Management and Opportunity, Springer. Heer, R. (1998) Risk Management, Dearborn Trade Publishing. Jeynes, J. (2002) Risk Management: 10 Principles, Butterworth-Heinmann. Kendrick, T. (2009) Identifying and Managing Project Risk: Essential Tools for Failure Proofing Your Project, AMACOM. Leintz, B. and Larssen, L. (2006) Risk Management for IT Projects: How to deal with over 150 issues and risks, Butterworth-Heinmann. Loosomore, M. and Raftery, J. (2006) Risk Management in Projects, Taylor and Francis. Merna, T. and Al-Thani, F. (2011) Corporate Risk Management, John-Wiley and Sons. Pichler, R. (2009) Agile Project Management with Scrum: creating products that customers love, Addison-Wesley Professional. Pries, K. and Quigley, J. (2010) Scrum Project Management, CRC Press. Schwaber, K. (2009) Agile Project Management with Scrum, O’Reilly Media The Stationery Office (2009) Managing Successful Projects with PRINCE2, The Stationery Office. Read More