Reasons for Considering Risk Management Plan Unnecessary - Case Study Example

Altex Corporation Case Study Introduction Altex Corporation was pleased to have been awarded a contract for the R&D phase ofthe DoD’s ATMP (Advanced Tactical Missile Program). The ATMP was meant to create very powerful weapons systems that the US would use to wade off possible attacks from enemy states such as Russia during the Cold War. The US government allocated large sums of money and resources to such programs. To speed up the development of such powerful systems, the DoD awarded contracts based on technological capability and speed. The cost of the projects was not a priority. Additionally, the bidding process was such that the second or third bidders were often selected to maximize defense contractors and sustaining competition. When Altex Corporation was awarded the contract for ATMP’s R&D phase, the project manager raised concerns regarding the lack of a risk management plan to the project sponsor. According to the project manager, this was necessary considering the magnitude and potential risks in the project. However, the project sponsor argued that the risk management plan was not mandatory and was unnecessary. He argued that meeting between 60 and 70 percent of the project specifications would be okay.The project manager got the impression that the project engineers were over-optimistic and that failing to prepare a risk management plan was recipe for disaster. However, the project sponsor remained adamant that the risk management plan was unnecessary and that if the project manager wanted to prepare it, he should do it alone, and submit it towards the end to the project(Kerzner, 2011). From a project management perspective, this paper argues that it was important to prepare the risk management plan prior to the beginning of the project. Reasons for Considering Risk Management Plan Unnecessary The project sponsor considered the risk management plan unnecessary for several reasons. First, risk management plans were not mandatory in contracts then (Kerzner, 2011).Therefore, the contractor was under no obligation to prepare the risk management plan. Second, the project sponsor thought that the military personnel were not conversant with the risks in developing new weapons technology. Therefore, he believed that there would be no punishment as long as they meant between 60 and 70 percent of the project specifications(Kerzner, 2011). Third, the sponsor believed that the risk management plan would jeopardize the long-term relationship with the DoD that was necessary to win future contracts and maximize profits(Kerzner, 2011). Finally, the risk management plan was considered unnecessary because of the perception that the army was so keen to see the project succeed by not revealing any potential risks to their superiors who could have cancelled the contract(Kerzner, 2011). Performing Risk Management Risk management planning should be performed in the proposal stage and not after the contract is awarded. This is so because the customers will use the risk management plan as a strong basis for making contract decisions. In the case of ATMP, the lack of a risk management plan during the proposal stage played a part in awarding the contract to the project sponsor based on the lies contained in the proposal. Apparently, the project proposal noted that the sponsor could even exceed the project specifications (Kerzner, 2011). The army may have decided to award the contract based on this lie. Additionally, the current conflict between the project sponsor and project manager regarding the risk management could have been evaded if risk management planning was done in the proposal stage. Customer Expectation of Risk Analysis and Risk Management Plan The customer has the right to expect a risk analysis and risk management plan from the contractor whether or not this was specified in the contract. When a customer awards a contract to a contractor, the customer specifies the requirements or specifications of the project to be delivered. By accepting and signing the contractor, the contractor is bound to deliver all the project specifications. Therefore, in case of any risks that may hinder the delivery of the project specifications, the customer has a right to known the specific risks. At any stage in the project management cycle, the customer may require a risk analysis or the risk management plan because the project essentially belongs to him. In case of any risks that might result in additional costs or rescheduling of project time, the customer will be involved. This gives the customer the right to expect a risk analysis and risk management plan from the contractor even when this is not part of the contract.AsGarrett (2005, p. 110) notes, one of the main considerations for customers in procurement decisions is risk management analysis. Altex Corporation Risk Management Plan Decisions If the project was fully funded from within, Altex Corporation would have been more interested in developing a risk management plan. This is because Altex would have to bear the full cost of any potential risks in the project implementation. The company would not want this and thus would be keener in developing a risk management plan to identify and mitigate the risks. The risk management plan reduces such risks to the company (Roberts, 2011, p. 141). Army’s Reaction if Presented with Risk Management Plan Early The army could have reacted differently if the contractor presented the risk management plan early. For instance, if the risks were too high and the contractor had no adequate risk management plans, the army could have not awarded the contract to the contractor. However, if the contractor specified how each potential risk was going to be mitigated in a convincing way, the army could still have awarded the contract to the contractor. The army was so keen on ensuring a quick delivery of the project given the prevailing circumstances then. Justification for Risk Management Planning Every project or program should have a risk management plan. This is because every program or project has its potential risks. It does not matter the size of the program or project. The risks could be high. Apparently, all programs and projects are selected because they are important. Therefore, there is usually no expectation of failure when selecting and implementing them. This requires the risk management plan. Without a risk management plan, the chances of project or program failure are higher. The argument that risk management planning may be unjustified for small or minor programs or projects negates the fact that risk management is part of the project management process. The project management cycle cannot be complete without a risk analysis and risk management plan. Conclusion Risk management is a critical part of project management. Although risk management applies to all phases of the project management cycle, risk management planning should be conducted in the project initiation phase. This will inform the various project decisions. The resulting risk management plan will provide an important blueprint for managing risks that may arise in the course of project implementation. References Garrett, G., A. (2005). Managing complex outsourced projects. Riverwoods, IL: CCH Incorporated. Kerzner, H., R. (2011). Using the project management maturity model: Strategic planning for project management. 2nd Ed. Hoboken, New Jersey: John Wiley & Sons. Roberts, P. (2011). Effective project management: Identify and manage risks - plan and budget -keep projects under control. Kogan Page Publishers. Read More