Corporate Performance of Harvard Business - Essay Example

Risk and uncertainty are major concerns in managing business and projects. INTRODUCTION In almost everything that we do in our business world(No author, 1999) today involves some degree of risk such as customer habits change, new competitors appear and factors outside your control could delay your project. Risk management(No author, 1998) analysis will help us to assess these risks as we decide what actions to take to minimize disruptions to our project management plans. These risk analysis tools(No author, 1999) will also help us make the best decision among many viable alternative courses of actions in order to control project plan's risk. Risk is basically defined as 'the perceived extent of possible loss'. Although many different people have differing views of the impact of a particular risk, It is a fact that what may be a small risk for one person could be large enough to destroy the livelihood of someone else. Additionally, risk can be defined as the probability(No author, 2000) of an event multiplied by the cost of the event. The following paragraphs explain the nuances of the different risk management techniques. BODY Briefly describe & explain the established techniques used for risk management applied to project planning, There are many Risk management techniques. Avoidance is one type of risk management technique. Also, modification is another type of risk management technique(No author, 2000). Further, Retention is a very viable risk management technique. Lastly, Sharing is another popular risk management technique. To complete, risk reduction is very good alternative. Avoidance - Whenever an organization cannot offer a service while ensuring a high degree of safety, it should choose avoidance as a risk management technique(Drucker, 1980). Do not offer programs that pose too great a risk. In some cases avoidance is the most appropriate technique because a nonprofit simply doesn't have the financial resources required to fund adequate training, supervision, equipment, or other safety measures. Avoidance even includes not performing an activity that could produce risk. For example, A person would be discouraged to buying a property or business in order to avoid taking on the liability that comes with it. Another example is that a project manager would be not flying in order to avoid taking the risk that the airplane would be hijacked. Avoidance may seem the answer to all risks, However, avoiding risks also means losing out on the possible gain that accepting (retaining) the risk may have allowed. An organization that does not enter a business to avoid the risk(Strickland, 1999) of loss also avoids the possibility of earning profits. Avoidance is a good risk management technique. Modification - Modification(Wheelen, 1996) is be clearly defined as changing an activity to make it safer for all involved. Many policies and procedures can be made as examples of risk modification. For example, an organization that is very concerned about the risk of using unsafe drivers may include an additional DMV record check to its current screening process. Also, an annual road test for all drivers can now be implemented compulsorily. For clarity, an organization that is also concerned about the lack of male and female chaperones for an overnight camping trip could modify its policies and procedures by modifying the night camp activities into hosting a day-long mountain hike and picnic instead. The night male only shift guards in the company project(Papows, 2002) could be modified to an male and female shift status because there are female night shift employees working the graveyard hours. Modification is good if it improves project performance. Retention - Retention could be done on two areas. The first area is by retention of project design(Campbell, 1998). For example, a project manager may decide that the implementation of a new project process with the new techniques aren't as suitable as the original project process design because the new process will cause more losses or increase the current expenses(No author, 1998) of the company. The project manager may therefore decide to retain the less harmful original risk of harm or loss. Some companies make conscious decisions to retain risk every day. For example, when the manufacturing company may decide to continue producing cars which carry with it a high fire and factory(Irwin, 2000) accident insurance as compared to getting a new insurance policy that has lesser insurance premiums but the insurance coverage when purchasing liability insurance is lesser as compared to the current insurance coverage in terms of fire and employee accidents. The company then must decide to retain the original risk scenario. This can be a rational and appropriate approach to managing risk. However, a few organizations get into trouble is because the project manager preferred to retained the current risks unintentionally. This unintentional retention of accident and fire risk can be the result of failing to understand the exclusions of an insurance policy, insufficient understanding of the scope of risk(Campbell, 1997) an organization faces or simply because no one has taken the time to consider the risk and how it can be addressed. Retention also involves accepting the loss when it occurs. Clearly, true self insurance(Harrington, 1999) falls in this category. Risk retention is a viable strategy(Collins, 1992) for small risks where the cost of insuring against most risks would be greater over time than the total losses sustained. All risks that are not avoided or transferred are retained by default. This includes avoiding risks that are so large or catastrophic that they either cannot be insured against or the premiums would be infeasible. War is also an example since most property(O' Brien, 1996) and risks are not insured against war, so the loss attributed by war is retained by the insured. Also even amounts of potential loss (risk) over the amount insured is considered retained risk. Retention may also be acceptable if the chance of a very large loss is small or if the cost to insure for greater coverage amounts is so great it would hinder the goals of the organization too much. Sharing - Sharing risk involves sharing risk with another organization through a contract. Two well known scenarios are insurance contracts and service contracts. The insurance contracts require an insurance company to pay for claims expenses(Campbell, 1997) and losses under certain circumstances such as in case of fires, floods earthquakes and other conditions specified in the insurance contract. The service contracts is a written contract between a provider of such services(Collins, 1992) like maintenance, office production staff, factory workers, office personnel, catering or catering. The project manager agrees that the outside service provider perform a service and assume liability for potential harm occurring in the delivery of the service. Risk transfer also includes causing another person or organisation to accept the risk, typically, as mentioned above, transfer could be done by contract or by hedging. Liability among construction companies or other contractors is usually transferred this way. On the other hand, taking offsetting positions in derivatives are typically how many firms use hedging to financially manage risk. Some ways of managing risk fall into multiple categories. Risk retention pools are technically retaining the risk for the group, but spreading it over the whole group involves transfer among individual members of the group. This is definitely different from traditional insurance, in that no premium is exchanged between members of the group up front, but instead losses are assessed to all members of the group. Furthermore, risk management technique starts with IDENTIFYING the threats to the organization. The threats could be coming from humans, operations, reputation, procedures, project itself, financial, technical, natural, political and others.Risk Management techniques include Porter's five forces and SWOT analysis. Risk reduction. It Involves methods that reduce the severity of the loss. An example is sprinklers designed to put out a fire to decrease the risk of loss by fire. This method may cause a greater loss by water damage and therefore may not be suitable. Halon fire suppression systems can lessen that risk, but the cost may be prohibitive as a strategy. Modern software development methodologies reduce risk by developing and delivering software incrementally. Early risk techniques suffered from the fact that they only delivered software in the final phase of development; any problems encountered in earlier phases meant costly rework and often jeopardized the whole project. A current trend in software development, pushed by the Extreme Programming community, is to reduce the size of iterations to the smallest size possible, sometimes one week can be allocated to an iteration. Create the plan. Next, the project manager must decide on the combination of methods to be used for each project management risk(O'brien, 1996). Also, each risk management decision should be recorded and approved by the appropriate level of management. For example, the risk concerning the image of the organization should have top management decision behind it whereas IT management could have the authority to decide on computer virus risks. The risk management plan must propose applicable and effective security controls for managing the risks. For example, an observed high risk of computer viruses could be mitigated by purchasing and implementing a good anti virus software. A good risk management plan must contain a schedule for control implementation and responsible persons for those actions. Furthermore, the risk management techniques discussed above are old but is still not very effectively measured. Implementation. And, the project manager must follow all of the planned methods(Dilworth, 1993) for decreasing the effect of the risks. The purchase of insurance policies for the risks that have been decided to be transferred to an insurer should be immediately done. Shying away form all risks that can be avoided without sacrificing the entity's goals, reduce others, and retain the rest is a compulsory act. Review and evaluation of the plan. On the outset, the first risk management plans will not be perfect. However, practice, experience, and actual loss results will necessitate some changes in the plan and contribute information to allow possible different decisions to be made in dealing with the risks being faced. Finally, risk management Techniques in a project management setting includes many activities. To begin, planning how risk management will be implemented in the particular project stated that it should include risk management tasks, responsibilities, activities and budget. Also, there must be a risk officer assigned. He will act as a team member other than a project manager. He will be responsible for foreseeing potential project problems. Further, risk management techniques include maintaining live project risk database. Furthermore, each list of risks should have the attributes of opening date, title, short description, probability and importance. Optionally a risk can have an assigned person responsible for its resolution including the date by which the risk must be resolved. And, creating anonymous risk reporting channel is another risk management technique. And, each team member should have the possibility to report risks that he or she foresees in the project. Procedurally, another technique is preparing mitigation plans for risks that are chosen to be mitigated. Clearly, the purpose of the mitigation plans is to describe how the risks will be handled. The plan includes what, when, by who and how will be done to avoid the occurrence of the risks or to minimize the consequences if the risk unfold to become a liability. Finally, risk management techniques in a project management environment encompasses summarizing planned and faced risks, effectiveness of mitigation activities and effort spend for the risk management CONCLUSION: The discussion of risk management analysis above allows us to examine the many risks that pervade in all organizations. Risk management is based on a structured approach. This approach basically starts with thinking how, why and the effects of the threat. Next, it is followed by an evaluation of the probability of the actual occurrence of the threat such as fire, flood, earthquake and others. It also includes pondering on the cost and losses if the events do occur. Finally, risk analysis forms the foundation for risk management technique as well as crisis prevention. The emphasis of risk management is on cost effectiveness. Evidently, risk management includes adapting the use of existing resources, contingency planning as well as a good use of new resources. Therefore, the cost of implementing a good risk management policy must not cost more than the amount that the fire, accident, earthquake, flood and other unforeseen events. Some of the risk management techniques above are ideal in some situations but is not a good choice in other situations. In conclusion, some of the risk management techniques may involve trade-offs that are not acceptable to the organization or person making the risk management decisions. Once you have worked out the monetary cost of risks, the project manager can start to look at ways to manage them. And, it is important to choose cost effective risk management choices. In most cases, there is no point in spending more to eliminating a risk than the cost of the accident or event if it occurs. Often, it may be better to accept the risk than to use excessive resources to eliminate them. Finally, the management risks can be minimized because the TECHNIQUES above will either make the people concerned and more careful. 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Wiley & Sons, N.Y., 1992 O' Brien, V., The Fast Forward MBA in Business, J. Wiley & Sons, N.Y., 1996 Dilworth, J., Productions and Operations Management, McGraw-Hill, N.Y., 1993 Read More