Importance of Risk Management in Projects - Essay Example

Id Number Assignment Number Project Risk Management Importance of Risk Management in Projects In projects, risks are inevitable, and they refer to the possibility of an unexpected outcome or absence of the desired outcome, which disrupts the project. Risk management is carried out for the purpose of increasing the probability of positive events occurring and minimizing the probability of negative events leading to project failure (Henderson, 2007). Risk management deals with the uncertainty of projects in a proactive manner and the end result minimizes impact of project threats and increases possibility of a project’s success (Merritt, 2004). Risk management will help in identifying, measuring and minimizing uncertain outcomes that affect resources of a project. Risk management will entail systematically: 1) thinking of the problems that may undermine the success of a project and; 2) putting up strategies to counter these risks so as to ensure successful completion of a project. Risk management is important as it will involve finding out what can go wrong, how to prevent things from going wrong and what measures will be taken if the unexpected happens (Merritt, 2004). Risk management is important as it minimizes crisis that would occur due to the existence of unexpected outcome, by encouraging proactive management. It minimizes surprises and problems that may occur leading to project failure, for example, in construction site, risk management could involve identifying the weather patterns so as to prevent the occurrence of rain tampering with the construction going on. Risk management is a process that will involve identifying, analyzing, responding, monitoring and controlling a project, so that in the case an unexpected event occurs there is a plan to counter it so as to ascertain success. Identification will help in knowing what risks to expect (Merritt, 2004). Risk analysis will assess the likelihood and the consequences that will result if the identified risk occurs, and also assesses the probability and the impact each risk would have if it occurred. After analysis, risk planning follows and this draws up plans to minimize the consequences that the risk might have on the project. Risk monitoring will involve checking the progress of the risks throughout the project to ascertain whether the plans designed to counter the risks should be put in place to ensure project success (Henderson, 2007). Therefore, risk management will give the project a competitive advantage, since there is a well laid down plan to counter unexpected results. The probability of them occurring has already been determined, and measures to curb the negative impact are known (Barkley, 2004). By minimizing or countering occurrence of an unexpected outcome, timely delivery of projects is assured, as well as proper utilization of resources, as the project is completed using the allocated budget (Merritt, 2004). Finally, risk management is important as it assures customer and job satisfaction, as completion of the project on time is the desired outcome from both the workforce of the project and the customer. In What Key Ways Might a Project Employ Evaluation as a Process to Minimize Risk? Risk evaluation helps in understanding the risk for the purpose of managing it in the effort of minimizing disruption of the project. Risk evaluation will enable cost effective control of the project, as the different methods to be used to reduce the risk or counter it are laid down. Evaluation will help in identifying and managing the potential problems that may occur and undermine the success of the project (Australian Risk Services, 2009). Risk will involve the probability of an unexpected event and the negative effect that this event will have on the project. Evaluation will help in identifying the threats that are likely to occur, and then determining the likelihood of the threats, hence it will help in devising the counter measures to curb or minimize the threat (Chapman and Ward, 2002). In order to do an in-depth evaluation, important information on the project such as finances, security and or other information should be well known so as to predict and come up with plans to ensure the project is a success (Barkley, 2004). Evaluation will be used when planning projects and it will help in anticipating and neutralizing possible problems in the execution of the project. Evaluation will help the project manager to decide whether to continue or stop based on the extent of the possible risk expected to affect the project. Evaluation will entail a number of steps, which come in handy in determining the success of the project. The first step is identifying the threats that the project may encounter, which can come from different sources. For example, human threats may originate from illness, injury or death of a key individual in the workforce. Looking at the threats is important as it helps in making an analysis of the threat and how it can be minimized or how it can be dealt with. Project managers use tools such as SWOT and PEST analysis in evaluation of the threats that may occur in the future (Chapman and Ward, 2002). These tools help in identifying the threats, strengths and weaknesses of the project that are essential in determining the success of the project (Barkley, 2004). After identifying the risk, estimating the risks or working out the probability of the threat and their possible impact follows. Estimating the risks can be done using past date of a similar project or through calculating (Australian Risk Services, 2009). The next step involves looking for ways to manage the threats identified, and it is important to use the most cost effective approach. Evaluation will aid in coming up with contingency plans when risks are accepted, and action is taken to avert the risks. Recommendations for a Project That Does Not Have an Effective or Workable Risk Management Plan Currently In Place The project team should hold a brainstorming meeting, where they will discuss the risks they are facing, and the possible solutions to mitigate the threats. Brainstorming will allow the project team to come up with different ideas on how to curb or deal with the threat as they can come up with contingency plans aimed at resolving the issue at hand. Ideas from many people will ensure a good decision is made since it allows for discussions and evaluation of ideas. A contingency plan will not only deal with the major threats, but will make a “plan B” for even the smaller scale threats like loss of data. The project management team should make use of already available information about threats on their area of work. There is a lot of information available in various sources, such as the internet, on various risks concerning projects. Making use of this information gives the project team a rough idea of the threats they might face and how to curb or deal with them. After acquiring information on the threat, the project team can estimate and lay down measures that will ascertain that the project succeeds, since all facts about the project and its risks are known, and from here it is possible to make a good plan. The project team should deal with the threats as they occur, and this can be done by realizing that a threat has occurred and then taking up the necessary measures to eliminate the negative effect it may have on the project. Just like contingency planning, the project team should address the current situation or threat and ensure that it has been dealt with so that the success of the project is not undermined. Addressing the issues as they occur deals with the situation at hand immediately and chances of the threat occurring again are eliminated since facts about the threat are now known. The project team should use precautions set by the government or policy makers in their area of profession. All governments have made precautionary measures aimed at minimizing risk in various projects, such as construction, where there are precautions laid down to follow when erecting a building. The team can use this information to deal with risks that may occur by going through the different policies that have been set to govern the project in question. Making use of experts can also come in handy, and they will be used to advice ion the best method to be used to address the risk at hand. The project team should ensure constant communication with each other so as to be aware of the progress of the project. When the team members are informed on the progress of the project, they are able to monitor how best to take the next step to ensure project success. Constant communication helps the different stakeholders to share information necessary to complete the project on a timely manner, while ensuring that all risks are dealt with before they occur or in the event that they occur, they are dealt with appropriately. This ensures that the project runs smoothly, without the threats interfering with its progress. The project team can rely on the advice of the project manager to deal with the risk being faced. The project manager is responsible for giving direction and in the vent that the project does not have a workable risk management plan, the decision of the manager can be binding as he or she will give a guideline on how to deal with the risks at hand. The project manager will make the decision on the approach to be followed based on his or her expertise in the project, and this comes as an alternative to a risk management plan. The team should evaluate the risk management options that are available and decide on the most viable one. This is done through analyzing the costs and negative impacts of the threat as well as the benefits realized by the different courses of action. This helps the team in finding an immediate solution to the problem thereby dealing with the risk at hand, thus ensuring project success. Risk management options can be evaluated on their potential to manage risk across different scenarios as well as based on a single scenario, and the best is chosen from the different options available. References Australian Risk Services. (2009). The Risk Management Process. Retrieved on August 31, 2012 From: http://www.ausriskservices.com.au/risk/risk_management_process.htm Barkley, B. (2004). Project Risk Management. New York: McGraw-Hill Professional. Chapman, C and Ward, S. (2002). Managing Project Risk and Uncertainty. New Jersey: John Wiley & Sons, Ltd. Conrow, E. H. (2003). Effective Risk Management: Some Keys to Success. Virginia: AIAA Dow, W. PMP, Taylor, B. (2010). Project Management Communications Bible. New Jersey: John Wiley & Sons. EWF. (2008). Fundamentals of Risk Management. European Foundation for Welding, Joining and Cutting. Henderson, R. (2007). Managing Project Risk. ESI International Merritt, G.M. (2004).Techniques For Managing Project Risk. Retrieved on August 31, 2012 From: http://www.newproductdynamics.com/FldGd1998/FieldGuideChap13.pdf Mobey, A. (2002). Risk Evaluation and Its Importance to Project Implementation. International Journal of Productivity and Performance. Project Management Institute (2004). A Guide to the Project Management Body of Knowledge. Newtown Square, Pa: Project Management Institute. Royer, P. S. (2001). Project Risk Management: A Proactive Approach. Vienna: Management Concepts. Schwalbe, K. (2006). Introduction to Project Management. Boston: Cengage Learning. Read More