Strategic Project Risk Appraisal and Management - Coursework Example

Advanced Risk Management: Post-workshop Assignment Introduction This report is based on the application of a risk management process to an actual risk that occurred in the course of an actual project. The project that is referred to is the construction of a 13-storeyed office block for a government department in China. The risk that actually materialised and is referred to in this report is delayed implementation of the project as a result of the occurrence of several factors. The report is divided into three parts for purposes of clarity. In part one, reference is made to the context of the construction project. Part two of the report contains a detailed description of a project risk management framework. Lastly, in the third part of the report, the different ways in which application of the project risk management process would have contributed to better management of the risk that materialised in the course of the project are discussed. Part 1: Context of the Risk The risk occurred within the context of a small scale construction project that was undertaken in China. I was involved in the project as an intern. Therefore, I had first-hand experience of how the project was carried out and specifically how the project management team handled the risks that were part of implementing the project. A department within the government of China contracted a construction company to undertake a project of constructing a block of government buildings. The company was required to put up a 13-storeyed structure. As part of the scope of the work, the company was required to demolish the structures that existed at the site that had been earmarked for the construction before carrying out the actual construction work. There were several stakeholders to the project. These were the different parties who had interest in the construction project. As well, all the stakeholders had different roles to play in order to make the entire project successful. One of the main stakeholders was the government department, which was the client in this project. Hence, the department was charged with the responsibility of developing the scope of work that would be covered as part of the project. Furthermore, the government department was charged with the responsibility of financing the entire project. The second most important stakeholder of the project was the company that was contracted to carry out the construction work. The main role of the company was to implement the actual project by carrying out the specific activities that had been identified as what constituted the entire project. The contracted company had a functional project management team. The project management team was charged with the responsibility of ensuring that the entire project is implemented in full and within the required budgetary allocations. The risk in question was related to delays in the actual implementation of the activities that constituted the entire project. Initially, the project had been scheduled to take a specific period of time and to cost 8 million Chinese yuan. This budget and time frame were expected to cover for all the scope of work that the entire project entailed. However, delays in the implementation of the activities of the project led to an increase in the total cost of the project and failure to meet the deadlines that had been set at the beginning of the project. Several risk factors contributed to the manifestation of this risk. The first one was that the rainy season that had been foreseen extended well beyond what the project managers had expected. This caused delays in carrying out specific activities of the project. Furthermore, the client demanded particular changes to the design and this led to additional work and cost. Lastly, bureaucratic bottlenecks hindered effective communication between the project managers and the client, and this resulted in further delays in the disbursement of funds and implementation of the different activities of the project. Part 2: The Risk Management Process The risk management process is made up of the following six key steps: risk management planning, risk identification, qualitative risk analysis, quantitative risk analysis, risk response planning and risk monitoring and control (Bartlett 2004, p. 41-43; Harrington & McNellis 2006, p. 11; Schatterman et al. 2006, p. 3). In practice, the process of managing risk in projects in general is carried out in such a manner that specific tools are used for every single step of the process. A diagrammatic representation of the risk management process (involving six steps) is provided in the appendix section of this report. However, the following is a detailed description of every single step that should be undertaken as part of the risk management process. Risk management planning This is the preliminary step of the risk management process. Basically, risk management planning provides an opportunity for the project management team to develop a comprehensive framework that will be used for the entire risk management process (Heldman 2009, n.pag). The framework that is developed at this stage is used to provide guidance on the actual manner in which the risk management process is implemented in the course of implementing the activities of the project. Hence, the risk management framework that is developed during the risk management planning stage remains relevant throughout the course of implementing the entire project. One of the commonly used tools is the enterprise environmental factors (Harris 2012, n.pag). At this stage, different environmental factors that affect the entire industry are analysed to determine the possible risks that may occur in the course of the project. Also, the overall manner in which the risk management process is to be carried out is developed at this stage of the process (Heldman 2009, n.pag). The main output of the project risk management planning process is the project risk management plan. This is a document that describes the details that are related to the manner in which the risk management process of the project will be carried out (Stackpole 2013, n.pag). The project risk management plan usually contains details about roles and responsibilities of different individuals during the project risk management process. It also contains information about the activities that will be carried out as part of the risk management process and the different tools and techniques that will be used in the process. Project risk identification The second step in the risk management process is project risk identification. Project risk identification is carried out to identify all the risks that are likely to affect a given project (Schatterman et al. 2006, p. 4). Importantly, the risks that may affect a particular project are usually described in detail so that their characteristics are clearly known to the project management team. Therefore, the project risk identification step is an important part of the overall project risk management process. There are several inputs that are used to carry out the process of identifying all the risks that may affect a project. One of the inputs is the project scope statement. This statement usually describes the scope of all the activities that are to be carried out as part of the project. Because of this, it provides an important source of information about the risks that are likely to occur during the implementation of the project. The second input is the risk management plan that is usually a result of the project risk management planning stage. The project risk management plan is used to provide details about the activities that are to be carried out in the course of managing the risks that are likely to affect a project. Several techniques and processes are used to carry out the risk identification process. The most common techniques and processes that are used to identify the risks that are likely to affect a project are as follows: reviewing documents, gathering information from a wide range of sources and analysing basic assumptions that are made in regard to risks (Harris 2012, n.pag). The output of the risk identification process is a risk register. The risk register is a complex document that outlines the different types of risks that the project management team believes may affect the project. The document also identifies the likelihood of the risk factors occurring. Qualitative risk analysis Qualitative risk analysis is used to assess and determine two things: the likelihood of specific risks that are associated with a project materialising and the impact of the risks if they occur (Schatterman et al. 2006, p. 6). Hence, qualitative risk analysis entails a detailed process of attempting to determine the actual probability of particular events which are associated with specific risks occurring and determining how the specific attributes of the project will be affected by the occurrence of these events. One of the most important inputs that are used at this stage of the risk management process is information about the organisational processes. This information is important for two main reasons. First, it is used to help in making an overall evaluation of the likelihood of specific risks occurring in the course of implementing the activities of the project. Secondly, information about the specific processes that take place within an organisation is important since it can be used to determine the extent to which the project may be affected when specific risk factors materialise during the life of the project. Other documents that are used during qualitative risk analysis are the risk register and the project risk management plan. These documents provide information that is used to carry out risk urgency assessment. Risk urgency assessment is used to determine the level of urgency that the occurrence of any particular risk should evoke in the project management team. The documents and tools are also used to carry out impact analysis and categorisation. Categorisation is done to classify the risks according to the likelihood of their occurrence and their impact on the entire project. The results of these techniques and processes are seen in the form of updates in the project risk register. Quantitative risk analysis The main difference between qualitative and quantitative risks analysis lies in the type of information and techniques that are used. Whereas qualitative risks analysis is purely based on the use of qualitative data, quantitative risk analysis is based on the use of quantitative data to determine the probability and effect of risks on a project (Harris 2012, n.pag). This is done by use of complex statistical procedures. For these processes to be carried out, the project management team usually refers to the project cost management plan as well as the project schedule (Stackpole 2013, n.pag). These two documents are the most important inputs that are used to determine the probability of the occurrence of risks and the impact of the risks on the different aspects of the project. Several tools and techniques are usually used at this stage. For example, different data gathering and representation methods are used to manage the quantitative data that is used in this process. In addition to this, quantitative or statistical risk analysis and modelling processes are used to determine the probability of occurrence of the different risks that are associated with the project and the impact of their occurrence on the project. As it is the case with the qualitative risk analysis, this step leads to the inclusion of various updates in the project risk register. Risk response planning The essence of the risk response planning is to identify and analyse all the options that the project management team can use to respond to the risks. In theory, responding to risks can take any of the following four forms: mitigating the risk, avoiding the risk, accepting the risk or transferring the risk (Heldman 2009, n.pag). By adopting any of these strategies, a project management team is able to develop the right response to any of the risks that have been mapped out. It should also be noted that at this stage, the project management team develops the most appropriate strategies to respond not only to negative risk opportunities, but also to the positive risk opportunities that may occur during the life of the project. During this process, the risk register and the project management plan are used to provide the information that is used to develop the contingency plans that are to be used to manage the risks. Similarly, updates in the risk register and project management plan are the most important outputs of this stage of the project risk management process. Risk monitoring and control The last step in the project risk management process is project risk monitoring and control. The essence of this step is to track the performance of the project by comparing it to the project risk management plan so that specific corrective measures can be taken as required (Stackpole 2013, n.pag). To achieve these objectives, the project management team uses the project risk register, project performance reports and project management plan to reassess and audit risks. Further, the information that is contained in these documents which serve as the input for the monitoring and controlling process is used to analyse trends in the performance of the project. Based on these techniques and processes, changes in the project risk register, recommended corrective actions and recommended preventive actions are produced as outputs. Part 3: Application of the Risk Management Process to the Identified Risk The project risk management process created in part 2 of this report would have been more successful in the management of the risk that matured in the course of the construction project as described in part 1 of this report. It should be noted that there are several areas where the combined effect of the risk management process created would have led to better management of the risk that occurred in the course of the construction project. These are described as follows. One of the areas in which this process would have led to better management of the risk that occurred in the course of the project is related to qualitative and quantitative risk analysis. It has been stated in part 2 of this report that qualitative and quantitative risk analysis processes are used to identify the probability of the occurrence of particular risks and determine the likely effect of the occurrence on the aspects of the project. In this case, the project management team successfully identified the risk factors that were associated with the risk of delays in the implementation of the activities that constituted the project. The project team identified the rainy season as one of the main factors that may interfere with the implementation of the project. The team also identified possible delays in the disbursement of funds as another factor that could cause overall delays in the implementation of the entire project. Further, the team noted that delays in the implementation of the project would definitely affect the scope and cost of the entire project. However, the team did not make adequate use of the techniques of qualitatively and quantitatively analysing the possible occurrence of risks and evaluating their impact on the project. This is where the risk management process that has been described in part 2 of this report would have been useful to the team. The process provides a mechanism that can be used to analyse the possible severity of risks on projects using qualitative and quantitative methods. The process also provides a means of categorising risks based on their likelihood of occurrence and impact on the project in case they mature. This technique would have been used to identify the possibility of the rainy season extending well beyond what it had been expected to last and the possible effect of this on the scope of works of the project as well as the overall cost of the project. Further, the various techniques in the risk management process would have been used to identify and categorise bureaucratic bottlenecks as one of the main risk factors that are associated with the project. Using industry reports, in addition to the analysis techniques, problems in communication between contractors and government departments would have been identified as one of the most common risk factors that occur in government-funded projects. This risk would have been categorised as one of the risks that were not only highly likely to occur, but which could also have the most severe effect on the project, if they occurred. Another important area in which the use of this project risk management process would have led to better management of the risk that occurred during the life of the project is risk monitoring and control. It has been stated in part 2 of this report that risk monitoring and control entails using the risk management plan, project management and performance reports to analyse the actual performance of the reports with reference to risks. It is based on this step that risks are avoided, transferred or effectively managed. In the course of the project, the project management team was faced with an extended rainy season, demands from the client to change the design of the building and, most importantly, bureaucratic problems that caused delays in the disbursement of funds. The team responded to these problems by increasing the cost of the project and halting the process for some time while waiting for the client to disburse additional funds. What is important to note is that the process that has been described in part 2 of this report would have provided a framework that would have been used to manage the risks more effectively. Conclusion It has been noted in this report that an effective risk management process is made up of six distinctive steps as shown in the appendix. It has also been noted that all these steps require the use of different documents, information, tools and techniques. Further, all these steps give rise to specific outputs in the form of new documents or changes to existing documents. It has been indicated that an application of this method to the risk management process used to manage the risk of delays that occurred in the course of implementing the construction process would have helped the project management team to manage the risk in better ways. This would have been seen in terms of the qualitative and quantitative analysis of the risk as well as in the manner in which the risk was monitored and controlled. References Bartlett, J 2004, Project risk analysis and management guide, APM Publishing, Buckinghamshire. Harrington, HJ & McNellis, T 2006, Project management excellence: the art of excelling in project management, Paton, New York. Harris, E 2012, Strategic project risk appraisal and management, Gower, London. Heldman, K 2009, PMP project management professional exam guide, John Wiley and Sons, New York. Schatterman, D, Herroelen, W, Van de Vonder, S & Boone, A 2006, A methodology for integrated risk management and proactive scheduling of construction projects,’ viewed 4 May 2016, . Stackpole, CS 2013, A user’s manual to the PMBOK guide, John Wiley & Sons, New York. Appendix The following is a diagrammatic representation of the project risk management process that has been described in this report. Read More