Risk Management Process - Benefits, Limitations - Literature review Example

?The Process of Risk Management According to Edmund H. Conrow (2003), risk management can be defined as the ification, evaluation and prioritization of factors that can lead to risk situation or uncertainty for an organization. Kit Sadgrove (2005) suggests that the aim of risk management is to control and minimize the probability of issues that can give rise to unfortunate events after proper monitoring and planning. There are five general steps that make up the process of risk management 1) Identification of Hazards The first step includes documenting all the possible factors and events that may bring in risk for the company. The factors are usually identified by keeping into consideration the current and future political or economic situation, internal strength and weakness as well as the history of company’s performance. 2) Assessing Risk The second step is based on the assessment of the likelihood and outcomes of the risk. This means that the frequency and probability of the risk is measured in conjunction with the severity of its outcomes. 3) Create Controls and Make Right Decisions The third step in the risk management process is the formulation of control measures for minimizing risks. R. S. Khatta (2008) elaborates that controls are most effective when the causes that lead to risk are effectively dealt with. 4) Making Right Decisions The decision committee then reviews the control options and implements those which reduce the possibility of risks to minimum. Such decisions are highly dependent on the cost. 5) Monitoring and Evaluating Controls The controls being implemented need to be evaluated precisely. Constant monitoring of controls aimed at minimizing risks is also essential. Feedbacks are generated so as to analyze the effectiveness of controls (Steven S. Wilder, 1997). Role of the Project Manager in Risk Management Process John Bartlett (2004) writes that without any second thought, a project manager can be called as the champion of risk management process. A project manager is the one who has the responsibility of ensuring that the project is being run as planned and the entire team is enthusiastically engaged. He actively communicates with the suppliers and contractors and has access to the updated financial data. Few of the roles of project manager in the risk management process include ensuring the implementation of risk management process in the project. A project manager assesses the possible occurrence and severity level of the risk. He holds the responsibility of regularly updating the risk status to the seniors. A project manager also conducts meetings to review the risk; this is essential so that he could get update information on how well the entire process of risk management is going. He agrees to possible feedback and risk control response. One of the most significant responsibilities of a project manager includes closely monitoring of how effective is the role that is being played by the risk management team in the whole process. From these roles discussed in the previous sentences, we can get a clear idea that a project manager is the backbone for the successful implementation of risk management in any project. Benefits of Risk Management Risk management has obvious benefits in the step of project planning. Risk Management offers a structured framework which is an integral part of the planning process. It presents ways to maximize opportunities and minimize risks. It promotes the optimal utilization of resources in the project. With the help of risk management, there is an increased flow of communication between project members. The senior management gets a precise picture of the identified risks that may affect the project as well as the measures aimed at reducing those risks. The accountability pattern becomes more organized and improved. Decision making becomes effective due to the risk management process. The objectives of the project become more clear and achievable due to the involvement of risk management in planning. Risk management comes with the aim of ensuring more welcome and less shock opportunities. Furthermore, the management is better able to adopt a systematic approach to focus on risk operations concisely. Limitations of Risk Management Just the benefits of risk managements are significant, so are the limitations. Hubbard, Douglas (2009) suggests that very few or almost none of the projects exist that go exactly as planned because uncertainties are always there which limit the expected consequences of the project. However, these risks can be minimized, if not eliminated completely. One of the major limitations of risk management is that too much time is spent on identifying and assessing the risks that the time allocated for the implementation of control measures is reduced and therefore, results come with a negative inclination. When a lot more focus is given on assessment of risks and uncertainties, the resource utilization for making the most of opportunities is overlooked (Stulz, Rene M, 2008). It is a misconception that risk management will eliminate any kind of risks to the project. In fact, risk management is all about ensuring that the risks are reduced as much as possible because the occurrence of risks cannot be totally removed. There are significant limitations to the project planning if the data being provided for analysis is in qualitative form. Quantitative data is easy to access, analyze and yields less errors. Limitations also arise when the team members involved in the risk assessment have different opinions on the intensity of risk and due to this lack of consensus among the team; the risks identified are not really accurate. References Edmund H. Conrow (2003). Effective risk management: some keys to success. 2nd ed. Virginia: American Institure of Aeronautics and Astronautics, Inc.. p21-33.  Hubbard, Douglas (2009). The Failure of Risk Management: Why It's Broken and How to Fix It. John Wiley & Sons. p45- 46 John Bartlett (2004). Project Risk Analysis and Management Guide. Buckinghamshire: APM Publishing Limited. p54-55. Kit Sadgrove (2005). The Complete Guide To Business Risk Management. 2nd ed. Aldershot: Gower Publishing Limited. p1-33. R. S. Khatta (2008). Risk Management. New Delhi: Global India Publications Pvt Ltd. p1-21. Steven S. Wilder (1997). Risk Management in the Fire Service. New Jersey: Penn Well Publishing Company. p21-59. Stulz, Rene M. (2008), Risk Management Failures: What are They and When do They Happen? Fisher College of Business Working Paper No. 2008-03-017; Charles A. Dice Center Working Paper No. 2008-18. Read More