Project risk and Procurement - Essay Example

The differences appear because the future is not known or is not exactly predictable. Thus, it is evident that risk exists from the onset of an activity. The risks generally arise because either there are hazards within the activity or there is a lack of certainty about the activity which is being undertaken. Therefore, the nature of risks becomes identifiable in terms of information, control and resources (skills, money, time and equipment). Broadly, risk can be classified as litigation, reputation risk and environmental risk (Lansdowne, 1999).

For example, one of the major cigarette manufacturing companies had to recall around 3 million cigarettes once it became aware of the fact that their cigarettes were potentially contaminated. This created significant negative publicity for the company and resulted in loss of reputation (Egbuji, 1999). Furthermore, this has also resulted in reduced revenue. In the similar way, Toyota, the giant car manufacturing company had to recall a number of products because of some issues in the braking system.

This hampered the reputation of the firm badly (Elsenstein, 2013). However, the activities of Toyota after this incident took place, exemplifies the way how a company should manage its risks. This report seeks to investigate about the different types of risks associated with project management. In addition, the report will also throw light on activities undertaken by companies for managing the risks in small and large projects. The risk measurement techniques usually applied by the companies will be also discussed in this project.

Risk in Project Management In the recent past, major corporate disasters such as the Enron Collapse, insolvency of Lehman Brothers etc. have increased the need of efficient corporate governance (Cervone, 2004). Similarly, catastrophic natural disasters, such as Earthquakes, Tsunami and man-made tragedies such as terrorism activities have greatly increased the risk awareness and its consequences (Barki, Rivard and Talbot, 2001). A company involved in project activities also encompasses different risk management activities (OGC, 2007; Otway, 1992).

There are several types of risks associated with projects such as mechanical engineering, construction projects or information technology projects. In the context of project management, risk is defined as “a problem that has not happened”, but is yet to occur (Pavlak, 2004, p.20). As a result of that risk management is positioned high in every project manager’s agenda (Pender, 2001). There are various types of risks associated with project management. The most common risks are as follows: - Cost risk: - Cost risk is typically the escalation of the project cost due to improper estimation of the cost and scope creep.

The cost risks are directly associated with the financials of the company. One of the most common examples of cost risk is the over budget. Project managers often falter in determining the cost requirement of the entire project and as a result of that the budget exceeds and companies experiences financial loss (Williams, 2005). Schedule Risk: - The schedule risk is the type risk in which managers fear that a certain activity will take longer than the expected time. Such kind of