Future Trends of Risk Management in a Project Company - Literature review Example

Future Trends of Risk Management in a Project Company Name Institution Course Date of Submission Future Trends of Risk Management in a Project Company Introduction Risk management refers to an activity that integrates risk recognition, assessment of risk, strategy development to manage risk, as well as risk mitigation through managerial resources (Berg, 2010). According to Brookhart (2005), Risk Management has a bright future. On the front of best practice, best financial organizations have experienced numerous benefits regarding the adjustments of risk management. Furthermore, risk methodologies advances as well as technologies have developed myriads of new tools to be utilized in the management and measuring numerous risks associated in business enterprises in a more timely and cost-effective manner than imagined before. However, some challenges still remain but that cannot erase the thought that the best is coming in terms of the profession of risk management. This paper will give insights about risk management future trends in the project field. In order to comprehend the future trends and impeding results, this research paper will briefly discuss the recent status and history of risk management in the field of a project. This way, potential future trends can conclusively be developed. Relevance of the Research This research will help enterprise organizations and project companies set strategic objectives for their industries as a result of the intricacy and volatility of the dynamic world; through learning from the historical consequences of risk management techniques. Also, the research will be a platform for their future profitability and sustainable growth. The past, present and future trends in risk management will enable them implement and improve comprehensive risk management programs for their enterprises. Historical Viewpoint of Risk Management In early 1980s, the field of project management was popularly recognized in the literature of project management. The content entailing identification of risk, risk estimation, development of risk response, and control of risk was equally known. There was emphasis on quantitative analysis of risk when it comes to risk management. For instance, the PERT methodology estimate characteristics were largely referred to. There were discussions and developments of quantitative probabilities estimation as well as probability distributions, and quantitative estimate methods. Modelling of risks and the utilization of various forms of probability distribution were viewed as crucial and interesting aspects to develop. To add, software of risk analysis entailing characteristics that would risk quantification and modelling was developed. The quantification of risk on practical applications was based on subjective probability distributions and subjective probabilities (Artto, 2013). Risk Management Application Past Artto (2013) contends that regarding the risk management applications in the 80’s, the major industry applications were cost and time risk analysis. Back then, the users of risk analysis and risk management were the engineering industries and process factory construction. Risk management had essence in electric utility and construction projects of energy system only. An empirical study was taken from the British Petroleum when it utilized software of Cost and Time Risk Analysis Program (CATRAP) for interior purposes only. Modelling risks with a number of distribution forms as inputs were allowed in the software. The software found its application in construction projects of North Sea oil platform. Similarly, the Norwegian Petroleum Consultants developed software of NPC for the companies of engineering, Norwegian construction as well as for oil platform and suppliers of related systems. Thus, it was not a product for commercial use. NPC also allowed risk quantification and modelling by utilizing various probability distributions. Beside subjective distribution, the software also had objective probability distributions calculated from cost data; and this made it interesting. It also permitted a combination of objective and subjective distributions by the use of weights that are pre-determined, and the cost-time risks integration enabled in the features of modelling. It is also crucial to mention the Lichtenberg successive principle when it comes to application of risk management, besides; commercial software was established based on the successive principle’s ideas. Amongst the features of the successive principle include the quantitative estimation of the project cost items while incorporating estimates of three point value. A list is then established in decreasing risk order. The item that contributes most to the uncertainty is identified and subcategorized. This brings out the specific critical items in a more detailed way by further divisions and subdivisions. Future Application of Risk Management Security The content of risk management on security of a project company or enterprise companies is associated with advances in technology, improvements in procedures and the continuous brinkmanship battle with people who have sought to be beneficiaries from harm. Project companies need to improve the security control quality before the alarming trend of attackers such as terrorists find loopholes in their amour. Many project companies and enterprise companies have the wit to deal with security issues in the contemporary world. And this intelligence in this sector has the potential to continue into the future. However, advances in sector like nanotechnology, robotics and genetics are likely to scale up the intricate nature of dealing with security problems. Even so, experts are optimistic that the future will realize exponential increases in the security area; and that, Artificial Intelligence (AI) computers similar to humanity and the capability of passing the test of Turing (a well enough simulation of a human being to make an interrogator foolish) will have its place by 2027 (Talbot and Jakeman, 2011). Furthermore, even though it takes ages to pass the test of Turing, it is expected in the near future that AI systems will have a wider effect on the society. The utilization of the AI system in supporting fundamental elements including control of traffic, generation of power as well as manufacturing will bring out new paradigm shift level in the manner people think about security. Although most project companies and enterprise companies recently utilize various systems like screening of employees and firewalls to regulate key systems access, these companies have to re-evaluate the concept ‘screening of employees’ when the employee is the computing system (Talbot and Jakeman, 2011). Nevertheless, Talbot and Jakeman (2011) argue that these companies will experience new and uncertain risks in the near future. For instance, they have started to experience hacking of Bluetooth systems by criminal elements. Risk management regarding security has to sustain its impressive information technology advances in the future and it is certain that the field of Security Risk Management will largely be the standard element for firm’s management systems, whereas the Security Risk Management timeless nature will be a characteristic in the prosperous business of tomorrow. Since the product and services concept become extra virtual with time, and advances in technology gives insights to the significance of intellectual property, the information security techniques development and the utilization of more intricate barriers of physical security will be punctuation to Security Risk Management. To add, training and education will be increasingly important as the intricacy of the risks of security and solutions enhance. The trend of Security Risk Management Professionalism is expected to increase its momentum. However, other things are likely to be the same. There is likelihood that human beings will still be the central components in the equation, and measures of security and strategies will continuously delay and/or prevent attackers (Talbot and Jakeman, 2011). Global Community Talbot and Jakeman (2011) argues that even in nation-states that deem themselves safe, the risk of foreign exchange, responsibilities of extra-jurisdiction and barriers of culture will increase the daily operations intricacy. Project companies based in foreign countries are popular in focusing on the risks that are familiar to them like occupational health and safety (OHS), financial risks and project management to the unique cultural and regional threats detriment. Even companies that are based exclusively within their home boundaries, legal frameworks cannot escape issues of geopolitics and many flout the application of geopolitics to them. An empirical example is the outbreak of Iraq war which showed effects of prices of oil on transport and travel. The property sector is not an exception either. In many places in the world, rising economies are connected to global effects of unprecedented investment levels in the sector of mining and resources. As firms scale up to have larger global interaction and presence, they become more vulnerable to geopolitical risks and conflicts. That is, as the world keeps shrinking, numerous firms have become greatly susceptible as, till relatively lately, strategies were based more often on the past solid geopolitical relations. In this arena, to remain a world actor in the contemporary world, a company should survive downturns of economy as well as developments of geopolitics. These economic downturns and geopolitics are likely to be experienced in handy in the future, perhaps even more of them. This will make organizations alert and witty as technological advances increase so as to remain players and competitors worldwide. The future world will be a sophisticated context. The Life Cycle of a Project It is important comprehend the relationship between project stages for capital projects and risk management. There is continuous application of risk management in the life cycle of a project. The plans and specifications are accurately specified over the cycle. The risk related to project time and cost is minimized and will continue to be minimized in future despite the dynamic complexity of risks that will be faced (Artto, 2013). The Future of Risk Management Process Artto (2013) attests that the project risk management development’s focus has changed slightly from quantitative side development to development of comprehensive process of risk management. The process of risk management and how it ought to be organized in a project company will be a central point in future. In the 80’s, on risk management development Artto visited the UK’s University of Southampton and emphasized on establishing quantitative risk treatment and risk modelling. From that, today’s risk management development emphasis focuses on comprehending and developing risk management processes in various project life cycle stages and risk management organization. This will remain the same in future. AS/NZS 4360 versus ISO 31000:2009 Moraru (2012) posits that when it comes to the definition of the word ‘risk’, AS/NZS 4360:2004 holds that risk is a chance of the happening of something that will impact on the objectives. ISO 31000:2009 on the other hand defines it as uncertainty effect on objectives. AS/NZS 4360:2004 defines risk management as the structures, culture and processes directed towards the realization of potential opportunities at the same time managing adverse impacts. On the other hand, ISO 31000:2009 defines it as activities that are coordinated towards the direction and controlling of a firm regarding the risk. Moreover, ISO 31000:2009 holds that risk management process is the systematic application of policies of management, practices and procedures to the works of consulting, communicating, context establishment, identifying, treating, evaluating, analysing reviewing and monitoring (Moraru, 2012). ISO 31000 is naturally a successor of AS/NZS 4360:2004. ISO 31000:2009 Standard aims to harmonize the processes of risk management. It provides a coherent and unified approach of the principles of risk management and framework. It provides a mutual comprehending amongst project stakeholders as opposed to guiding the practices of risk management like the AS/NZS4360:2004 does. It thus has a place in the future rather than AS/NZS 4360:2004 (Moraru, 2012). Issues Related to Project Company The discussion of risk management has majorly been done based on single projects. As the number of companies increase, as well as myriad of projects in the lines of production, it is crucial in the future that the risk management perspective widens to fit in the multi-project arena. In establishing a project organization’s risk management, there are two crucial future development areas. They include risk management related to bidding and bids; as well as risk management related to project portfolio (Artto, 2013). Artto (2013) predicts that the planning of risk responses will be emphasized more in the developments of the future. The systematic forms that the planning of risk response will take are predicted to base the integration of planning of risk response as well as risk estimation. To add, the existent application of knowledge will be in effective support of response planning when both risk responses and risks are included in an integrative way. The existent knowledge on failures of projects can be a learning lesson for comprehending unfavourable results, the reasons behind them and the required responses. It is likely that in the near future, we will face uncertain and new risks. The existent knowledge on project failures will enable the realization of experienced-oriented solutions and policies and how to avoid risks in many sectors (Talbot and Jakeman, 2011). Moreover, amongst the significant risk management vehicles are the contracts. Artto is optimistic that the developments in the future have the potential of providing new contract strategies, types of contracts, formulas of contracts and conditions of contracts. In the current years, the perspective of risk management in practical applications has scaled up from one project to a risk perspective related to a project organization entailing projects in its line of product. The perspective of project organization means not only project portfolios under implementation but also bids portfolios which represent likely projects of the future with other aspect kinds and uncertainty dimensions intrinsic. Conclusion To sum this up, the paper has discussed the scope and content of project risk management. It reflects future trends in project risk management as a field. It does this by comprehending the past time span in order to conclude the developments of potential future trends. In general, risk management is defined based on identification of risk, estimation of risk, development of risk response and risk control. In project organizations, the sheets of risk response are used empirically as tools meant to guide identification, estimation and planning of risk response. List of References Artto, K. A. & Kahkonen, K, 2013, Managing Risks in Projects.: Routledge, London. Berg, H.P 2010, Risk Management: Procedures, Methods and Experiences. Retrieved 28th October 2014 from Brookhart, M 2005, Bank Asset/Liability Management, Vol. 21. Retrieved 27th October 2014 from www.alcopartners.com/WhitePapers/BALM_Jan05.pdf Moraru, R. I 2012, Current Trend and Future Developments in Occupational Health and Safety Risk Management. Retrieved 28th October 2014 from Talbot, J and Jakeman, M 2011, Security Risk Management Body of Knowledge, Vol 69. New Jersey: John Wiley & Sons. Read More