Risk Assessment in Project Planning - Coursework Example

RISK ASSESSMENT IN PROJECT PLANNING (Student Name) (Course No.) (Lecturer) (University) (Date) Risk Assessment in Project Planning Every organizational project is subject to risks of which if the state of perpetual crisis arises within a project implementation process, this shows the failure of the project managers to identify the risk fully. Risk identification, analysis, and management is a facet of Quality; hence, it is crucial to use basic techniques of analyzing and measuring to ensure that there is proper risks identification, classification, and management (Maylor 2010,314). Considered as an inevitable component while undertaking projects, project risk can be minimized by the managers to ensure the reduction in the impacts they cause. Therefore, after identification of the risk, project managers have the responsibility of coming up with mitigation measures plans to counter attack the risk (Webb, 2003, 183). Project team faces difficulties while trying to identify and name the risks arising when performing the projects. Solving these risks may involve using formed or formless brainstorming approaches to get inclusive information. Risk analysis is significant to recognize that the project team and other stakeholders can only handle risks relating to the project (Royer, 2001, 413). In most occasions, the risks influencing a project results from the suppliers of materials, resources used in the project, and the budget. Risks from the suppliers may occur whenever the supplier fails to meet the outlined timeline. Resource risk on the other hand results whenever the project team has neither the required skills nor knowledge about the project they are yet to undertake. Budget risk occurs when the project costs are more than the initial budget (Hulett, 2009,92). Many institutions like banks and investment management firms take risks frequently.  Risk analysis is very important even for these business entities.  For example, the role of management in financial firms is to help quantify the financial risks involved in every investment activity, and assign a risk budget across such activities.  Particularly, risk assessment is one of the requirements for the banks by their regulators to help identify and quantify risk. Moreover, it also ensures that that they have sufficient capital to maintain solvency should the worst effect occur. Risk is inherent in most project activities especially when the project team fails to identify and resolve them at an earlier stage. Consequently, risk analysis process simply helps to take better decisions (Maylor 2010, 82). If a project manager undertakes risk analysis and comes up with a reasonable and realistic estimate of timescale and costs of the risks identified, then either that cost or project timescale is cut; the responsible project team. Therefore, bears the blame when the project budget exceeds the stipulated cost, or it entirely overruns. Almost all the projects including those operating with instructional design rarely go according to stipulated strategies (Harrison & Lock, 2004, 239). As a result, competent project team must equip themselves on how to deal with unforeseen risks while implementing the project. For the reduction of the negative effects of risks, identification of the risk and planning how to avert them should be the initial step taken by the project team. Failure in considering the risks may result in decrease project quality or unnecessary increases in budget may as well set in. Furthermore, the project requires sufficient scoping and definition but many organizations do not like such overheads (Royer, 2001, 422). Risk analysis as a stage of the risk management process generally splits it into two categories. Qualitative analysis, which focuses on risks identification and subjective assessment of similar risks. Different from qualitative analysis, quantitative analysis focuses on the objective assessment of the risks. Qualitative analysis allows identification of sources or factors of the major risk. This is achievable through an aid of checklists, interviews or brainstorming meetings (Maylor 2010, 301). This is usually associated with some outline of the assessment, which is the explanation of each risk and its resulting effects or a subjective labeling of every risk. Quantitative analysis engages more sophisticated approach as it requires computer software. Some project team uses quantitative risk analysis as their most formal aspect of the whole process requiring both measurements of uncertainty in cost and time approximation and probabilistic grouping of individual uncertainties. The application levels of these techniques may vary from modest to extensively through projects. Preliminary qualitative study is necessary as it presents substantial benefit in terms of appreciating the project and its associated problems regardless of the project team taking it into account or not (Webb, 2003, 320). Risk analysis may also serve as baseline for highlighting potentials for risk 'closure' meaning the advancement of a specific strategy to deal with specific risks. Experience shows that simple qualitative analysis contribute to the preliminary level of quantitative scrutiny. The main sub-categories of quantitative analysis are sensitivity Analysis and probabilistic analysis. Sensitivity analysis is always the simplest form of risk analysis. Fundamentally, it simply determines the overall effect of changing one of the risk variables like delays in design or the cost of materials. Its significance is that it emphasizes on the impact of altering a single risk and noting the result of the project (Maylor 2010, 82). Practically, its performance is always for more than one identified risk to establish those with potential impact on the project’s cost and time frame. The technique can as well address the impact of risk on the economic return of a project. On the other hand probabilistic analysis is a type of quantitative analysis specifies a likelihood distribution for every risk and then considering their effects when combined. This is the most collective way of performing a quantitative risk analysis. Commonly used type of probabilistic analysis uses 'sampling techniques', commonly known as 'Monte Carlo Simulation’, which relies on the random calculation of values falling within a definite probability distribution. The general result for the project is a derivative from a the summation of selected values for every risk (Royer, 2001,183). Other forms of analysis include influence diagram and decision saplings. An influence diagram is a current technique for analyzing the risks. It provides an influential way of creating models of the project related issues, which focus on risk. Furthermore, it is used as the user interface to a computer based risk-modeling tool therefore allowing the development of very multifaceted risk models used to analyze the cost and time parameters of projects. Decision Trees is a technique uses graphically structure the models. It brings collectively the information desired to make project results as it demonstrate the present probable courses of accomplishment and all impending results. Every result must have likelihood worth representing the possibility of happening (Webb, 2003, 328). Risk analysis process is an important problem-solving technique to ensure the quality of an upcoming or ongoing project. It involves using quality and assessment tools in determining and prioritizing risks. An intellectual achievement in the modern risk management is risk transformation, the likelihood of unwanted events, from a matter of fate to the study area. Risk analysis takes into account risk assessment while risk management uses risk analysis technique to develop management plans in order to ameliorate the risks (Maylor 2010, 148). For example, in technical projects like those involving engineering designs, which designs reliable estimates of different parts that they combine with an assessment of the impact on system function of the failure of the parts. The project team uses these analysis techniques to direct resources for adjustment and redesigning engineering areas of aircraft, mechanics, and any other complex manufactured systems where developments have the most positive effect on decreasing potential failures (Harrison & Lock, 2004, 421). Achievements in these areas have led to the expansion of the risk assessment and management techniques to economies and ecosystems. There are two general technique of risk analysis. They include qualitative risk analysis, which involves prioritizing risks for further analysis through valuation and grouping of their likelihood of happening and impact, and quantitative risk analysis that focuses on numerical method of analyzing the result of identified risks on overall project objectives. The expenses of employing risk analysis techniques vary according to the scope of the project and the commitment to the whole process. The requirements for carrying out analysis are costs, time-scales, and resource requirements. Risk analysis cost varies from low to high depending mainly on the duration and technicality of the project. Little cost involves projects that take one or two days of management time up to a maximum of 6-11% of the cost of project management. The time taken in carrying out risk analysis is partially dependent subject to the availability of information. A comprehensive cost and time risk analysis often requires a period of between one to three months subject to size and complexity of the project (Maylor 2010, 219). Moreover, the risk analysis period depends on the extent of planning and cost grounding already in existent. However, helpful analysis can take as little as one or two days. The least resource requirement for project management is obviously one person within an organization in-charge of the project and with expertise in risk analysis techniques. However, in cases where the expertise does not exist within the organization, they can acquire from outside consultants. Following a distinct procedure is crucial t ensure proper risk analysis. Risk identification is the initial step involving brainstorming and reviewing all the possible potential risks associated with the project. In addition, risk prioritization takes place in this stage using risk assessment instruments. The identified risks frequently exceed the time capacity of project management team to analyze and develop unforeseen events (Webb, 2003, 121). The prioritization process often helps management team to handle the risks with both higher impact and probability of occurring. This initial step also identifies projects’ exposure the uncertainty; therefore, it requires an intimate knowledge of the project, area, and legal requirement for the establishment of the project. In addition, it is important to have good understanding of the plans and functional objectives of the project such like those ensuring its success (Maylor 2010, 182). The best method to handle risk identification is through the methodological approach to ensure identification of important activities within the project and all the risks associated with them. Risk description has an objective of displaying the already identified risks in a more structured format, for example, through using a table. A well-designed structure is necessary for ensuring a comprehensive risk identification, description, and assessment procedure. Through a consideration of the consequences and probability of every risk outline within a structured format, is easier to prioritize the key risks that should through further analysis. It is crucial to incorporate risk management skills even before the inception of the project and monitor them until completion. Risk estimation can be semi-quantitative, quantifiable, or qualitative in relation to the probability of the occurrence and their consequences. Consequences can be in terms of threat (the down work risks) and opportunities (the upside risks) categorized as either low, medium or high (Webb, 2003, 201). The indicators of higher risk estimates include potential of risk occurrence severally within a given period and any risk that has occurred recently. Risk assessment and evaluation involves problem-solving techniques progressing from problem identification to solution of the problem. Nevertheless, prior to determining how to manage the risk best, it is crucial that the project team identifies the root cause of the risks identified (Harrison & Lock, 2004, 262). The focus of the project managers should be on the factors causing the risk and the impact of these risks on the project. After estimation and quantification of the risk, their comparison and estimation follows against the criteria of each risk initially established by the project team (Maylor 2010). Analysis of these criteria involves focusing on issues relating to costs and benefits, compliance, and environmental factor. Therefore, risk evaluation helps in making decisions about the importance of the risk to the project. Developing responses to the risk is another step. At this stage, the project team is ready to commence the process of assessing remedies of managing the risks and preventing them from occurring. The main issues to address are the identification of the possible method of risk reduction and ways to cope with the risks should it occur. Responses to the risks associated with the projects fails into avoidance, mitigation, and acceptance. Since the project team are not able to manage all the risks, avoidances focuses eliminations of specific causes. Mitigation ensures increment in the monetary value initially located for the project since some amount will be used to curb the impacts associated with the project. An active acceptance involves developing of contingencies plan should the risk occur while passive acceptance ensures that the project developers accept the lower profit if some of the activities overrun. Properly developed response plan ensures there is appropriateness, that is, the determination of the correct response level using the magnitude of the risk. It should also ensure that it is affordable. This relates to the cost-effectiveness of responses, which should exceed the available budget. Development of Contingency Plan or Risks Preventative Measures involves tasking the project team to gather various existing ideas on how to eliminate risks identified or reduce their impact. Projects develop risk mitigation plans based on outlined objectives and organizational priorities (Cooper & Chapman, 1987, 291). The plans provide the foundation for making risk-based decisions on the information security solutions or hazards associated with the risks depending on the nature of project questions. This step is important in ensuring protection of the projects against the ever-growing threats to them by the risks (Maylor 2010, 301). Effective risk mitigation plan supports the goals and objectives of the project can operate throughout the system development life cycle. There are situations in which nothing can be done to prevent or handle the risk. In such cases, the project must ensure that their management strategy reduces any probability of the occurrence of the risk. Risk Monitoring takes two dimensions including keeping an eye on the already identified risks in case of any notable changes, should the impact increase or decrease, the management team takes an immediate action. Another dimension includes monitoring to check if there are any new risks during project implantation process. Finally Risk Reporting is about continuing awareness and the effectiveness of any actions or plans taken to control or reduce the risk. For example, informing other team members about a newly identified risk. The goal of risk reporting is to ensure every step of the project is closely monitored to curb any possibility of a risk occurring unexpectedly (Harrison & Lock, 2004, 319). Risks seem to have an affirmative correlation to the complexity. Projects with higher risk are complex. The procedure for conducting a risk analysis centers on understanding the negative effects that may result in case thing do not go as premeditated during project implementation. The project management then must develop mitigation strategies to address the identified risks. The investigation of the projects’ constituents and monitoring them to identify if there is any risk is known complexity analysis (Cooper & Chapman, 1987, 317). The information retrieved from the analysis is important in developing an appropriate implementation and risk management strategies. The project complexity determines its risk profile and is observable various stages of the project. The constituents of an organizational may be complex leading to difficulty in decision-making by the project team, therefore, an execution plan including those maintaining the standard of the project and for monitoring any unforeseen risk is crucial. Even as the organizational risk decreases with continuation of the execution strategy, the managerial approaches of the project developers do not change the level of complexity in a project. While using Darnall-Preston Complexity Index (DPCI) in rating of the project, then projects with higher ratings in each group are likely to have higher and increased risking almost all the implementation stages of a project (Maylor 2010, 173). While conducting the risk analysis, it is important to consider its probability of occurring, the impact, and exposure. Risk probability considers the assessment of the probability that the negative effects of identified and outlined in the risk statement are likely to occur. It must be higher than zero for it to occur and if it is below zero, then the risk poses no danger. Similarly, the likelihood has to be not more than 100 percent and if it reaches that percentage, then that a common which will certainly occur and pose a problem (Bartlett, 2004, 310). Risk impact helps in approximating the severity of undesired results, the loss caused by the magnitude of the risk, or the possible opportunity cost if the risk occurs. Numeric scale is the most convenient way of approximating losses. Larger the numeric value portrays the greater impact the risk has on the project. In risk impact analysis, it is crucial to create a translation tables for the conversion of specific units like time or money into values comparable to the subjective units used within the analysis (Cooper & Chapman, 1987, 251). The overall measure of the threat posed by the risk and its combination with the actual magnitude of the impact caused by the risk is known as the risk exposure. As quantitative risk analysis, risk exposure is a product of risk probability and risk impact. Occasionally higher probability risks have less impact, which majorly are worth ignoring. The risks, which have higher probability high impact, are most significant to manage since they result in the highest exposure values (Maylor 2010). While quantifying the probability and the impact of the risk using the scores, it is suitable to design a matrix that considers a likely combination of scores and assigning either as low, medium, and high risk. The table below is an example showing probability and impact. In Information Technology, analysis of the risk offers a prioritized list for the guide operations in that profession, hence, helping in risk planning activities. Most businesses use Facilitated Risk Analysis Process (FRAP) to analyze risks associated with their activities. FRAP presume that more efforts for developing quantified risks are not cost efficient since calculations of approximates are time-consuming, and the documentation of the identified risk becomes too voluminous especially when put into practical use (Bartlett, 2004, 128). Upon identification and categorization of the risks, the project team identifies the measures on how to alleviate the risk. The decision for the required measures depends on the impact of the risk. A risk analysis assists in integrating security program objectives with the business objectives and necessities (Maylor 2010, 320). The more the alignment between the objectives of the business and security objectives, the more prosperous the two will be. Furthermore, analysis also ensures that the business draft a proper budget for a security plan and its element security components are in place to reduce losses associated with risks. Risk analysis as a method of identifying vulnerabilities and threats posed by the risks; ensure reduction businesses damage at an initial stage. Many business entities use Critical Chain Project Management (CCPM) to ensure proper planning and management of the project. This models aims to deal with unforeseen risks, which are inherent from the project execution to its completion while considering the amount of resources for such practices. Considered as a Theory of Constraint (TOC), CCPM ensures that the flow activities flows as initially planned through application of its five steps. this management theory focuses on five main steps including identification of the project’s main constraints, making a decision on how to explore these constrains, subordinating anything existing beyond the already made decisions, evaluating the constraints from the system, and giving a warning in case there any breach on the project’s guidelines. In business management, while trying to exploit the constraints associated with the project, it important to first deal with those considered a thread to the project through prioritization. It ensures faster completion of the projects and with higher scheduling reliability. CCPM protects the duration of the project; as a result, the date of completion of each task is highly dependable on it. It presents an opportunity to deliver supplementary projects over all in similar period, and at no increment in operational expense, therefore significantly improving the bottom line. Reference Bartlett, J., 2004. Project Risk Analysis and Management Guide. High Wycombe, Association for Project Management. Cooper, D. F., & Chapman, C. B.,1987. Risk Analysis for Large Projects: Models, Methods, and Cases. Chichester, Wiley. Harrison, F. L., & Lock, D., 2004. Advanced Project Management: A structured approach. Aldershot, England, Gower. Maylor, H. 2010, Project Management (4th Edition), London, UK: Pearson Royer, P. S., 2001. Project risk management: A proactive approach. Vienna, Virg, Management Concepts. Webb, A., 2003. The Project Manager's Guide to Handling Risk. Aldershot, Hants, England; Burlington, Vt, Gower. Appendix 1: Flow chart of risk management Appendix 2: Flow chart of risk management Read More