Project Risk Management - Report Example

Project Risk Management Name Institution’s name Date Project Risk Management Introduction Project management refers to the process of developing, categorizing and managing resources in order to achieve set goals and objectives (Kendrick, 2009). A project refers to a venture aimed at bringing forth a specific product or service. Moreover, it is noteworthy to assert that projects have a conception stage and completion stage. Organizations rely on short-term and long-term projects to achieve their broad objectives. The process of managing a project is not an easy affair; it requires strategic input to achieve the set goals. According to Hillson (2004), projects succeed because of effective management and fail because of poor management. Effective management of risks is an integral aspect in the success of a project. This essay will explore the process of project risk management by understanding what risks are, why they arise, types of project risks and how to effectively manage the risks. Understanding Risks and why they arise In organisational management, it is important for project managers to be cautious of their environment in order to effectively manage any risk factors that may arise. Risks are inevitable occurrences that alter the normal functioning of a project. According to Kendrick (2009), a risk is an uncertain incidence associated with the operations of a project, and often causes lose to an organisation. While running organisational projects, it is worth putting in mind that risks are likely to occur, and the most imperative thing is to comprehend how to manage the risk effectively (Kendrick, 2009). Through proper project management structures, risks should be handled with utmost proficiency in order to reduce their effects. It is significant for project managers to know why risks arise for them to take necessary measures in reducing their impact. Wysocki (2011) asserts that project risks stem from failure to manage or lack of effective management of a project’s resources and protocols. One of the reasons why project risks occur is the failure to manage the timeline of a project effectively. For a project to run as expected, it is important for project managers to ensure that the required resources are available at the right time (Wysocki, 2011). Therefore, the inability for a project to have sufficient circulation of vital supplies creates a loophole for risks to occur. Secondly, the extent of a project is extremely important when working towards success. The question of whether the expected tasks in a project are completed accordingly is of immense significance (Hillson, 2004). Once there are gaps in the articulation of the tasks required, then the possibility of risks is heightened. When important aspects of a project regarding its scope are not met effectively, this exposes an organisational project into jeopardy, and increases its chances of succumbing into risks. According to Hillson (2004) and Kendrick (2009), project risks arise because of the lack of enough and qualified personnel to undertake the implementation of the project. Different projects have different levels of technicalities, thus it is imperative for project managers to have adequate human capital to drive their operations. A project’s incapacitation on human capital is a major reason why risks arise (Heldman, 2005). Losing qualified employees in an organization leads to production of low quality products and services. New employees might not have the experience to deliver high quality outputs. Heldman (2005) argues that inability to meet the financial requirements of a project is a huge lapse that attracts risks in a project. When the costs of a project exceed the budget set, it is highly likely that an organization will incur financial risks. Without the required amount of money to complete a project, the project might end up failing or taking longer time than expected (Young, 2007). In light of this, Young (2007) highlights that project managers should perform a detailed analysis of a project’s requirements to avoid the occurrence of risks arising from budgetary issues. Types of Project Risks Scope Risk Scope refers to the steps needed to complete the tasks required in a project. Typically, before a project begins, it is important for a project manager to understand the goals to be achieved and the resources required to complete the tasks (Thomsett, 2002). Defects in resources, a poorly defined project, constant changes in the regulatory structure of a project and integration deficiencies are some of the manifestations of scope risk (Springer, 2013). For instance, when the team responsible for the implementation of a project work with wrong estimates, this is tantamount to a scope risk. Unsure estimates in a project affect the resources to be used and its outcome. A project manager should ensure that the estimates for the operation of a project are at a comfortable level to avoid scope risk. Schedule Risk Adhering to project timelines is one of the most primary priorities of project managers (Conrow, 2000). This implies that for mangers to coordinate their projects in an effective way, they need to maintain constancy in the vital processes in order to maintain the schedule of their task. Delays in important processes within a project are among the sources of schedule risk. Delays in decision making and resources (hardware and software) are indications of schedule risk. Another issue related to schedule risks is relying heavily on external parties who do not fall in the project’s immediate span of control (Conrow, 2000). This makes it difficult for the internal stakeholders of the project to have a firm grip of their operations. According to Conrow (2000), in order for project managers to effectively manage schedule risks, the project process should be strategically organised to recognise any pitfalls regarding the timeline. Resource Risk A project’s main resources are finances and human resources. When a project is not adequately funded, it will be difficult for it to achieve its goals and objectives (Cretu and Stewart, 2011). For a project to run effectively there is need for adequate financial investment in training the personnel involved and reinforcing the technology needed. Without this, the project will be limited and fail to achieve the desired results. Likewise, from a human resource perspective, when the people working in a project are incapacitated in their ability to perform the task ahead, the organisation is likely to incur risks (Cretu and Stewart, 2011). Furthermore, if the project lacks enough number of people to complete it, this is highly likely to lead to a project risk. Technology Risk Project risks related to technology arise from the failure of the technological materials being used to deliver their expected output. A breakdown in software or hardware is likely to result into major setbacks for a project. Moreover, when the performance of technology does not satisfy a project’s benchmark, this implies that there is a technology risk involved (Royer, P. (2002). In order to avoid this risk, project managers need to invest in the most feasible technologies for their projects. Effective Management of Risks Minimising risks in a project requires the enactment of viable project management procedures. Since carrying out complex projects from conception to completion is not an easy thing, it is crucial for project managers to ensure that they take the necessary steps of risk management. Minimising risks through good project management practices can be achieved through the following procedures: (Redaktor, 2014) I. Risk Identification Bartlett (2009) argues that risk identification allows managers to point out on the risks that occur during the implementation of their projects. Risk identification is an important procedure in minimizing risks in organizational project management. According to Bartlett (2009), risks overwhelm managers because of their inability to identify their sources and effects in the running of projects. It is easier to handle a setback in a project when its genesis is well known, than dealing with something that is not recognised by the team. Through brainstorming techniques, a project management team is able to identify the potential risks involved (Barkley, 2008). This involves reviewing the probable sources of risks in a project (Cretu and Stewart, 2011). Through a critical analysis of the experiences and knowledge of the members involved in the implementation of the project, it is possible to identify the risks bearing a high possibility of occurrence. In addition, the identification of risks in a project enables project managers to categorise and prioritise the risk factors. Prioritising plays a vital role in the effective management of the probable risks in projects. II. Risk Quantification Risk quantification helps a project manager to analyse the possibility of a risk happening. Quantifying risks puts them in four categories; low average, high and critical (Fox and Walt, 2007). While quantifying risks, project managers are simply assessing the impact of a risk on the operations of a project. If the chances of a risk occurring and its impacts on a project are high, the project manager is supposed to take measures of mitigating the risk. Generally, this involves assessing the risk factors at a deeper level in order to have a viable response to the threat. While assessing the probability and impact of a risk, it is vital for the management to make informed decisions on how to execute the risk management process (Garton and McCulloch, 2012). The decisions made by the management in minimising the risk should have a long-term effect to avoid re-occurrence of the problem. III. Response to the Risk Effective project management requires project managers to respond to risk factors with feasible mitigation strategies. The strategies stem from a collective decision-making approach from the major stakeholders in the management of projects (Kloppenborg, 2012). The following are the strategies that project managers can use while responding to risks: (Schouboe, 2014) a) Avoidance of risks Based on the assessment of a risk, project managers can opt not to engage in a process that exposes a project into a risk (Little, 2006). If the negative impact of a risk is critical, a feasible option by the management might be to overlook any procedure that encourages the risk (Morris, 2007). However, it is worth noting that failure to undertake a process because of the risks involved might jeopardise the possibility of gaining benefits or profits. Therefore, making an informed decision is highly significant for project managers. b). Reduction of risk Reduction of risk refers to minimising the impact of a risk while still continuing with the activity that bears the risk. It also means that a team chooses to reduce the probability of a loss from happening. Risks in project management can have a positive and a negative impact, thus reducing the risk in project implies that a team wishes to create a balance between the negative impact of a risk and the positive impact of carrying on with the activities bearing risks (Wysocki, 2011). c). Risk transfer After assessing a risk and the risk factors associated with a project, a project manager can choose to transfer the risk to third parties, who in turn share the losses and gains from the risk (Webb, 2003). Making contracts with insurance companies is a way of transferring the risk to a third party. Through this, a project manager knows that the burden of a risk does not solely belong to an organisation (Webb, 2003). d). Acknowledgement of a risk Acknowledgement of a risk refers to the instance whereby an organisation accepts outcome of a risk; whether it is a loss or a gain. According to Weeks, (2010), an organisation may choose to acknowledge a risk when the probability of a huge loss occurring is minimal, or the cost of insuring a risk is too high for the project to undertake. Project managers choose to retain a risk if it does not affect their projects’ goals and objectives, or if it is beyond their control. IV. Risk Monitoring and Management Effective project management relies on monitoring mechanisms to assess the success of the strategies put in place, as well as managing the changes that occur during the implementation of a project (Kloppenborg, 2012). Risk monitoring should be conducted on a constant basis in order to identify the occurrence of new risks in a project. Hence, monitoring risks is imperative in appraising the performance of a project. Conclusion Project management is extremely essential in today’s corporate world and institutional management. Effective project management not only produces the desired outcomes, but also enables project managers know how to handle risks. Based on today’s volatile business environment, the success of a project depends on the ability of an institution to adapt effectively to the ever-increasing changes. Failure to effectively manage the threats posed by project risks jeopardises the capacity of a company to achieve its goals and objectives. The inevitability of project risks deems it necessary for project managers to learn how to manage risks efficiently in their projects. In order to handle project risks in the most proficient way, it is imperative for project managers to have an in-depth comprehension of the most prevalent risks affecting projects. It is significant for organisations to apply viable risk management and monitoring strategies in order to enhance high performance in their operations. Therefore, it is certain that understanding risks, why they occur and how to deal with them is an invaluable asset for project managers. References Bartlett, J. (2009). Practice Standard for Project Risk Management (4th ed.). Newtown Square, Pa.: Project Management Institute. Barkley, B. (2008). Project Management in New Product Development. New York: McGraw- Hill. Conrow, E. (2000). Effective Risk Management: Some Keys to Success. Reston, Va.: American Institute of Aeronautics and Astronautics. Cretu, O., & Stewart, R. (2011). Risk Management for Design and Construction. Hoboken: John Wiley & Sons. Fox, W., & Walt, G. (2007). A Guide to Project Management. Cape Town: Juta. Garton, C., & McCulloch, E. (2012). Fundamentals of Technology Project Management. Chicago: MC Press. Heldman, K. (2005). Project Manager's Spotlight on Risk Management. San Francisco, Calif.: SYBEX. Top of Form Bottom of Form Hillson, D. (2004). Effective Opportunity Management for Projects Exploiting Positive Risk. New York: Marcel Dekker. Top of Form Bottom of Form Kendrick, T. (2009). Identifying And Managing Project Risk Essential Tools For Failure- Proofing Your Project (2nd ed.). New York: AMACON. Kloppenborg, T. (2012). Contemporary Project Management: Organize, Plan, Perform (2nd ed.). Mason, Ohio: South-Western Cengage Learning. Little, G. (2006). Test of Professional Competence in Management. Burlington: Elsevier. Morris, P. (2007). The Wiley Guide to Project Organization & Project Management Competencies. Hoboken, N.J.: J. Wiley. Redaktor. (2014). Risk management list of usual designed for risks connected with corporeal before honest. Retrieved from: http://orcyn.pl/2014/03/04/risk-management-list-of-usual- designed-for-risks-connected-with-corporeal-before-honest/ Royer, P. (2002). Project Risk Management: A Proactive Approach. Vienna, Va.: Management Concepts Roberts, P. (2012). Strategic Project Management Creating the Conditions for Success. London: Kogan Page. Springer, M. (2013). Project And Program Management: A Competency-Based Approach (2nd ed.). West Lafayette: Purdue University Press. Schouboe, H. (2014). ISO 27001 and Risk Management. JSC CONSULT SOLUTIONS. Retrieved from: http://jscconsultant.co.uk/iso-27001-and-risk-management/ Thomsett, R. (2002). Radical Project Management. Upper Saddle River, NJ: Prentice Hall PTR. Top of Form Bottom of Form Wysocki, R. (2011). Effective Project Management Traditional, Agile, Extreme (5th ed.). Indianapolis, IN: Wiley Pub. Webb, A. (2003). The Project Manager's Guide to Handling Risk. Aldershot, England: Gower. Weeks, S. (2010). HR Manager's Guide to Project Management. Toronto: Carswell. Top of Form Bottom of Form Young, T. (2007). The Handbook Of Project Management A Practical Guide To Effective Policies, Techniques and Processes (Rev. 2nd ed.). London: Kogan Page. Read More