Risk Management - Risk Identification, Response, Planning, and Execution - Essay Example

Essay: Management Risk Management Managing risks on projects is a process that entails the fundamental assessment of the potential risks ascribed to a project and their subsequent evaluation. A risk mitigation plan is usually put in place for purposes of minimizing or eliminating the impact of potential risks on the project at hand. It calls for extensive, creative and critical thinking skills to carry out an efficient risk assessment and the mitigation of risks in project management (Adeniyi, 2010). Basing the risk management plan on the checklist for the previous risks that a company has been exposed to before, provides a platform upon which subsequent analyses and extrapolation of potential risks prone to the company can be drawn. This is vital information for the project managers as it helps in the effective management of the projects and other resources in the company. Identifying the actual source of these risks is a step towards sufficiently mitigating the problem. The challenge facing the project could arise from the human resource, financial management or technical hiccups; hence, knowing the root cause of the risks provides a lee way towards successfully managing it. In the process of managing risk, it is mandatory to understand the project life-cycle. It has four main phases and these include initiation, planning, execution and evaluation/closure. The project initiation phase defines the scope, purpose and objective of the project in question. It is followed by planning for the project which ensure that sufficient resources are available to espouse the whole management process. The laid down plan can then be executed by the project managers and its strategy assessed based on its performance in terms of risk mitigation (Meredith, 2012). The actual process of risk of risk management entails: Project Management Body of Knowledge (PMBOK) Assessing the PMBOK (project management body of knowledge) and its importance: Project Management Body of Knowledge (PMBOK) is a guide that provides a set of guidelines for the process of project management. The latest version of the management guide (fifth edition); published in 2013, has been recognized and approved by Project Management Institute (PMI) as opposed to the earlier versions that were recognized under the American National Standards Institute (ANSI); the body responsible for assessing and assigning standards (ANSI/PMI 99-001-2008) (Harrison & Lock, 2004). The fundamental role of this guide is to identify and set standards for project management-normally referred to as ‘best practice’. The knowledge and practice stipulated in this guide has been standardized to fit in a wide array of projects (basing on consensus and agreement between major stakeholders). The consensus is based on the application of knowledge, skills and techniques that are aimed at increasing the chances of success in the implementation process of any project. The approach used in the PMBOK guide is consistent with the other internationally recognized standards such as ISO 9000 (Harrison & Lock, 2004). The whole process can be summarized into three major segments: input-which includes the project design and plan; tools and techniques- that includes the materials and resources used to facilitate the actual process; and output-which represent the outcomes of the project management process. Risk Identification Risk identification is very crucial step in the process of managing risk as it provides the information upon which the subsequent processes is built in the process of managing risk. In order to effectively identify potential risks in an organization, the examination of prior experience from previous projects is mandatory. The company’s past records can be used by risk management experts to draw trends on the future prospects of the risks tied to a project. Risk also falls into different categories; for instance it may be client-based, political, contractual, political or environmental. In light of human labor, the challenge may arise from lack of the required skills and expertise to execute their mandated assignment sufficiently or inadequacies of the labor force in executing the project. Hence, categorizing risks makes it easier for the management to diagnose the department within which the risk occurs and be in a position to offer the required intervention measures. The Risk Breakdown Structure (RBS) has been used on a number of occasions to provide details of the possible risks in their various categories. The project team using this model to identify the risk in their organization has an easy time owing to the already-drafted risks and their possible remedies. However, models such as the risk breakdown structure (RBS) are limited in scope and they are also more generalized, hence it is difficult to detect unknown risks that have not been captured in the risk breakdown structure (Gates, et al., 2012). Risk assessment After the potential risks have been identified, risk assessment is undertaken by the project team to ascertain the potential impact of the identified risks on the work project. Basing their modus operandi on the probability that the risk will occur, the team of experts and professional risk managers evaluate the potential loss arising from the risks identified, starting from the most probable risk to the least. It is important for the project team to make use of the criteria on high-impact-risks to help narrow the scope and essentially focus on critical risks that have the potential to drastically affect the project and have a significant financial constraint on the budget cost. Risks with the potential to increase the overall budget cost by over 5% are considered high-impact-risks and the project team must focus more on these when designing the risk mitigation plan. This process is essential in risk management as it enables the risk management team to have an in-depth understanding of which risks have the largest probability of occurring and their subsequent impact on the project. Risk quantification After conducting an assessment of the risks, the project management team can then quantify the risks to ascertain there actual costs. This is essential as the management team can now have a clear picture of the potential percentage loss from the risk relative to the conceptual budget. From this analysis, the risks can then be categorized as either high, medium or low- impact risks based on the percentage loss that emerges. The nature of the project and its complexity will dictate the severity of possible risks to the project and this will be amicably illustrated after computing the financial breakdown and resource quantification in relation to the nature of the project in question Risk response, planning and execution The task force and project team make use of the data collected from the prior assessments to plan for risk management. It is essential to have a blue-print that works as the guideline towards planning for the actual project management process. The planning process is quite extensive and involving as it entails creating a financial plan, quality plan, risk plan, acceptance plan, resource plan, communication plan and procurement plan, all lined up together to achieve a common project objective. Data collected on the project dynamics is what is used to compile this plan into a master piece work awaiting the actual execution and implementation process. The project management team is then entitled to carry out the execution process, abiding by the guidelines of the designed project management plan. This is the most crucial step in whole process as it determines the performance of the designed risk management plan and all the other postulated plans. Risk monitoring and control During the execution phase, there is need for monitoring of the projects by the project managers to ensure that everything is in line with the strategic implementation plan. The project team is expected to deliver their delegated duties while the managers monitor and control the project deliveries. This is executed through various management protocols which include: Time management-keeping watch of the time spent on a project against the stipulated time on the project management plan. This ensures that the project is accomplished within the stipulated time frame and that no particular activity lags behind in the implementation process. Cost management-keeps track of the cost incurred in the actual implementation process against the outlined budget plan. It helps in monitoring cash flow and detecting any misappropriation of funds. Quality management-entails assessing the quality of the products and services delivered and the whole management process. Change management-entails reviewing and managing change on the original plan of the project during the implementation process when need be. Risk management- assessing the level of project risks and the ability of the intervention measures to control or minimize the risks. Communication management-this entails keeping all stakeholders informed of the project progress at every stage of the implementation process. Acceptance management-entails assessing the final deliverables and gaining consumer loyalty on the products. After getting positive feedback from clients, another phase review is reinstituted to ascertain whether the project objectives have been met before project closure (Kendrick, 2009). Risk mitigation/management This plan is aimed at reducing the impact of the risks of unexpected events based on the organization’s past records and other credible risk sources. The project team has four core approaches used in mitigating risks and these include: I. Risk avoidance II. Risk sharing III. Risk reduction IV. Risk transfer Each of these tools can be used to minimize potential risks to a project. The risk mitigation plan is holistic and works to minimize a wide array of potential risks depending on the nature of the project and the decision made by the project management team. Risk avoidance-this is a strategy used to minimize risk by merely advocating for the use of tasted and proven project models rather than using new models. This works to reduce the risk of trying out new strategies that have no track record of performance. Risk sharing-entails establishing joint ventures on big projects (international projects) with other similar organization in order to share the risk burden in case one arises. This strategy is advantageous as the other company may have experts and experienced project managers who will take the project to another level that could not have been attained by any single firm; each party complements the other in the process. Risk reduction-this entails investing resources to reduce the risk on a project. For instance, using a stable currency when dealing with an international project to curb the risks associated with currency exchange rates and inflation. Risk transfer-this is a contingency plan that works to shift the risk from the project to another third party. For instance, insuring certain aspects of the project is a method of transferring risks. Work Breakdown Structure (WBS) The work breakdown structure (WBS) essentially categorizes risks into various classes, enabling the risk identification process to be efficient and timely. It provides the possible risk’s causes. The role played by WBS is to breakdown complex projects into simpler tasks that can be easily managed by the project management team. It relates with the risk management process in the sense that managers make use of this model during the project execution phase to ease up the supervision role and the overall implementation process of an otherwise complex project (Geoff, 2007). The managers are able to simply estimate the cost, time and possible risks on a project while the task force has well-defined responsibilities enhancing their delivery without much hustle. The rules of WBS entail: breaking down high-level tasks into sub-tasks; ‘Two weeks rule’- where the smallest task should be at least two weeks’ worth of work; 8/80 is another rule under WBS that states that no single task should be below 8 hours or more than 80 hours of work (Geoff, 2007). The structure of WBS differs from one scholar to another. There is a tree structure, table structure or a list of items. (Geoff, 2007). The different levels of a project’s life cycle are affected differently by potential project risks right from the initiation to closure stage. This is because; different elements of the project take center stage at every particular stage. The project managers are required to be responsive enough in order to identify a potential risk early enough to mitigate it before hand and as a result guarantee the project’s success. The most crucial parts are, however, the planning and execution phases that form the backbone of the whole project. Efficiency, accuracy and keenness is mandatory during these two phases, failure to which the project is bound not to meet its objective. The project team is hence required to be categorical in terms of keenly following the operational guidelines and implementing them in the actual plan. In conclusion, it is evident that risk management is an integral part of the planning and management of the project and must be factored in during the project’s strategic plan in order to amicably mitigate risks and guarantee project success. References Adeniyi, M. A. (2010). Effective Leadership Management. Philadelphia, AuthorHouse. ARORA, A. (2013). CREDIT RISK MANAGEMENT PROCESS AND CREDIT RISK MANAGEMENT FRAMEWORK IN A COMMERCIAL BANK: AN INTEGRATED VIEW. Asia Pacific Journal Of Research In Business Management, 4(7), 1. Chen, J., Sohal, A. S., & Prajogo, D. I. (2013). Supply chain operational risk mitigation: a collaborative approach. International Journal Of Production Research, 51(7), 2186-2199. 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