Risk Management and Risk Mitigation Tools - Essay Example

Project risk and procurement management University Student Id Course Abstract The essay explores risk management in projects and the strategies that can be used in the process of ensuring successful management of risks. The ability of the project manager to manage the potential risks determines the achievement of the objectives of the project. The essay discusses the various approaches that are used by the project managers achieve the set objectives. The various ways of measuring and ranking the risks are discussed in the essay. In the process of exploring the strategies that can be used in managing risks, the relevant practical and theoretical strategies are applied. The management of risks has become an issue of great concern in project management as project managers are looking for the best ways that can guarantee that the set objectives are achieved. The approaches that are employed in the process of managing risks can include contacting research to assess the potential risks that are likely to affect the success of the project. Analyzing the environment can help in identifying the potential uncertainties facing the success of the project. It is through the analysis of the potential uncertainties that are likely to affect the success of the project that the necessary strategies for mitigating the potential risks can be formulated for implementation. The project manager has to engage the project team members in the process of formulating the best strategies that can be employed in the process of mitigating the risks. The potential uncertainties facing the project can be realized through brainstorming after analyzing the environment hence engaging the team members is crucial in developing high-quality strategies that can ensure the future success of the project. The analysis of the project activities is considered vital in the process of coming up with the necessary strategies that can help in successfully managing the risks. Table of Contents Abstract 2 Introduction 3 Risk management 4 Risk mitigation tools 6 Response to the level of risks 6 Risk transfer 7 Risk buffering 7 Risk avoidance 8 Risk management approach 8 Measuring and ranking risks 10 Conclusion 11 References 12 Introduction Risks can be defined as the uncertainties that face project managers in the process of executing the project activities. The risks can negatively affect the performance of the project making it fail to achieve the set objectives (Taylor, 2003). The uncertainties affect the management of the project as they challenge the strategies set to achieve the project goals. However, risks can only be managed to the levels that can be acceptable but cannot be eliminated completely. Managing the risks can entail coming up with the necessary strategies in place that can minimize the probabilities of the risk taking place (Chapman and Ward, 2003). The project manager can also come up with strategies that can ensure that in case the risk occurs the impacts are not much adverse to the project progress. The risks mitigation is important in the management of projects as the risk occurrence can negatively affect the success of the project. The risk management entails the processes, people, systems and strategies geared towards managing the potential uncertainties. The primary aim of managing risk is to ensure that the stakeholder is reasonably assured the objectives set will be achieved despite the many uncertainties facing the project. The future responses to the risks can be planned in advance by the management in the process of managing the project for the future success (Cook, 2002). The ability of the management to ensure that the necessary strategies for managing a project are in place can help in ensuring the future success of the project. The risks facing a project can be identified through analyzing the business environment affecting the project. This essay will be exploring the way risks in projects can be successfully managed to ensure that the set objectives of the project are achieved. Risk management The process of managing risks entails planning the strategies that need to be taken in the process of mitigating the risks facing the project. The planning of the risk management usually requires an ongoing effort which cannot be interfered by the qualitative assessment of risks, or even by the establishment of contingency levels. The risk planning revolves around the planning of how the main risks can be mitigated as well as managed after they are identified (Burke, 2013). Moreover, the strategies for the risk mitigation and also particular action plans should be included in the execution of the project plan. The risk mitigation plans are designed to evaluate the various risk interactions together with their common causes (Raz, Shenhar and Dvir, 2002). The plans used in the management of the project risks characterize the major causes for the various risks which have been identified and also quantified in the initial phases of the process for risk management. The project manager has the responsibility of managing the potential risks that face a project by evaluating the possible alternative of strategies that can be used. For instance, the project manager has to identify the alternative tools, methods and also the mitigation strategies for each main risk. This involves developing criteria to prioritize and also assess the mitigation alternatives of the risks (Codd, Morrison and Metcalf, 2005). There are techniques that can be used by the project manager in the process ensuring successful management of project risks. For instance, the project manager has to commit the necessary resources needed for a particular risk mitigation alternatives. Besides, engaging the team through communicating about the planning results to every project team member during the implementation is important for successful risk management (Wipplinger, 2007). The commitment and expertise of the project manager are crucial in ensuring successful management of risks of projects. Even though the plans for risk mitigation can be executed by the contractors, the project management is required to set up the standards for the planning process of consistent risk mitigation (Kerzner, 2013). Moreover, the owners of the project should have an outside expert review concerning the risk mitigation plans for the project which are not biased. Furthermore, the risk mitigation planning should proceed on even after the completion of the project through the capturing of the necessary data which can be of great importance in the future projects. However, both risk management and the risk mitigation are required to be long-term efforts made by the project managers during the project. In case a certain project has various uncertainties, both the scope changes and also the iterative recycling for the design becomes the norm. Also, some of the regulatory issues usually provide sources for the uncertainties that can bring about the conceptual planning of the project and can cause the recycling of the design to occur severally (Aloini, Dulmin, and Mininno, 2007). On the side of the projects which have high levels of uncertainty, the fixed-price contracts may actually not be appropriate. Therefore, such kind of projects requires contracts that are based on the performance incentives. However, failure of the project managers to recognize the scope changes and anticipate them, both iteration and uncertainty can cause unfortunate results when preparing the project budgets. Furthermore, both skills and techniques that are appropriate for the conventional projects usually provide poor results when used in the projects which have great potential for undergoing changes (Pinto, 2007). Therefore, for such kind of projects, the decision-making which is flexible is more appropriate. Risk mitigation tools Response to the level of risks In case a certain project has a low level of uncertainty, then the optimal policy for that project is actually to improve the current value of that project by completing it within the shortest time possible thus gaining benefits. Moreover, this kind of project is more appropriate for the contracts which have fixed-price and also which have schedule performance incentives (Godfrey, 2005). In addition, the projects which take a long time to be completed is always more costly as compared to the projects which take less time, thus delivering little value to the project owner. However, a large number of the projects usually take a long time because of their decision making processes which are dilatory and also because the project directors do not actually have the sense of urgency (Ward and Chapman, 2003). Risk transfer The common adage concerning risk management is that the project owner is required to allocate various risks to the parties which can manage them appropriately. However, it is quite impossible to allocate risks in a situation when there is no quantitative measure of them. Moreover, the allocation of the risks without a quantitative assessment of them can make every participant attempt shifting the risk responsibility to other participants, instead of looking for the optimal allocation (Godfrey, Merrill, and Hansen, 2009). In general, the contractors only accept to take various risks under the condition that they will be rewarded adequately. In addition, the project representatives are required to identify the various project risks which should be assigned to the contractors. Risk buffering Risk buffering refers to the establishment of a reserve which can absorb the impact of a large number of risks that face a project. One of the examples for a buffer is actually the contingency which controls the risk of a project running short of finance before the completion of the project. In addition, buffering into an extent can involve the allocation of additional manpower, machines and also time utilized by the project to be completed. However, risk buffering is mostly used by the project contractors and also the project owners (Larson and Gray, 2011). Some of the forms of buffering which are mostly used by the project participants include; man-hours and the overestimated project quantities. Risk avoidance Risk avoidance refers to the elimination of the various risks by making changes to the project parameters. Moreover, risk avoidance usually requires great assessment for the risks. The risk avoidance in most cases is underutilized as a risk mitigation strategy. After the identification of some of the risks, they can either be reduced or even avoided completely (Phillips, 2013). However, the majority of the risks are very hard to mitigate, especially the risks which have high impact and also the risks which have low-probability. Risk management approach Analyzing the scope of the project is also important in the management of the risks facing a project. The project manager has to make sure that he or she has the necessary understanding concerning the project to be in a better position to develop strategies that can be employed to mitigate the possible risks (De, Boonstra and Wortmann, 2010). The understanding of the project can include enough knowledge concerning the projects objectives, strengths, threats, opportunities, and weaknesses. The project manager can then be in a better position to develop strategies that can help in properly managing the potential uncertainties. The analysis of the project scope is crucial in ensuring proper understanding of the potential risks and the effects the moment they occur. As a result, the management team can formulate the strategies that can ensure successful management of the risks of the project. Besides, the past information concerning the risks that might have occurred in a similar project is crucial in the management of risks (Lyons and Skitmore, 2004). It is through the assessment of the previous similar project that the project manager can be in a position to realize the risks that are likely to face the project hence formulating the appropriate strategies that can help in managing risks. Risk identification is another approach that can be used in the management of the risks facing a project. Identifying the risks can entail can involve determining the likelihood and the impacts of the risks. The risks can be identified through structuring all the project activities to assess the potential risks. The significant risks associated with the project can be identified easily through analyzing the individual activity of the project (Del and de, 2002). Each activity in project management has its potential risks hence analyzing the uncertainties facing the project activities can best be used in the process of analyzing the project risks. The risks can be identified using different approaches that can include scenario analysis and historic trend analysis. These approaches can be utilized to gather the necessary information aimed at managing the risks facing the project (White and Fortune, 2002). The historic trends can include the past events that might have occurred in similar activities hence creating the likelihood that same risk can occur in the future. The other approach that can be used by project managers is designing risk strategies that are aimed at mitigating the risks. The risk mitigation strategies developed need to ensure that the team members are engaged to help in coming up with the necessary strategies for successful management of the risks (Pich, Loch, and Meyer, 2002). The risk strategies risks can include risk acceptance, risk financing, risk avoidance and risk mitigation. The potential impact of the risk is what determines the nature of the risks that are developed to manage the risks. The risks that have low impact and low likelihood of happening are likely to be accepted by the project as they are not significant as their occurrence might not affect the ability of the project to achieve the set objectives. The development of the risk management strategies can be crucial in the management of the project risks (Meredith and Mantel, 2011). The primary aim of developing risks management strategies is to mitigate the risks to point that the uncertainties have no significant impact on the project. However, the risk management strategies ought to ensure response programs that are effective for the critical risks. Measuring and ranking risks Risks are measured based on their impacts the moment they occur using low-medium-high approach. The approach assists in assessing the significance of the risks as the ones with a high impact are considered significant while those with low impacts are insignificant and can be accepted by the project manager (Kwak and Stoddard, 2004). The focus in the management of the risks is mainly on the risks that have a high impact the moment they occur. The risks can be measured in terms of the influence on the objectives of the project where high impact risks can result in loss of confidence of the stakeholders on the project. Risks are ranked depending on their likelihood to occur in the management of the project. The risks that are most likely to occur are likely to be given priority in the mitigation process where the best strategies that can ensure successful management of risks are put in place (Norrman and Jansson, 2004). The risks can be ranked based on the quantitative approach that establishes possibility of taking place. Project managers make use of a risk matrix in order to determine a particular set of risks which need to be addressed first after measuring and ranking process of the risks. A risk matrix is actually a tool which is used for the purpose of measuring risks by subjecting them to a certain ranking depending on their effect on an organization (Jüttner, 2005). The risk matrix comprises of consequence ranges and also has axes for the likelihood. Besides, a risk matrix shows both the decision maker and the manager a glance of what kind of a risk as well as the view of what the risk involves in the terms of adjustments, costs, procedural changes and the behavioral. In addition, the risk matrix can assist the managers in making a more informed decision in case a certain situation arises. Conclusion Risk management is a concept which denotes about a potential negative effect to a certain asset or even various characteristic of value which may result in from a certain future event. On a daily basis, the risk is in most cases is usually used with a probability of a loss which is known. Moreover, the risk is always measured in the terms of effect and also the likelihood. However, because the risk is actually correlated direct to the loss, it is, therefore, necessary for a business owner to be capable of assessing various risks which are likely to affect his or her business and then address them appropriately. Consequently, failure of paying attention to the various risks can have a great impact on the bottom line of a company. There are still some of the businesses which are actually operated without necessary a risk assessment policy or even without assessing directly the effects of various risks in their organization. However, for any risk management which is effective is always costly, thus creating the necessity of concentrating on the major risks and ignoring the minor risks so as to minimize the cost of managing them. Importantly, a large number of business organizations usually recognize why it is necessary to identify the various risks which are within them in order control them. 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