Risk Management Standards - Literature review Example

Risk Management

Introduction

Risk management can be defined as the identification, assessment and prioritization of the risks in a coordinated manner by applying the economical use of recourses in order to monitor, control and minimizes its impact on an organization, (Dionne, 2013). The objectives of risk management are the assurance of uncertainty does not deflect endeavors of the organizations’ or business’ goals and mission. According to Huber & Rothstein, (2013), organization risks come from different sources such as uncertainty in production or development that arise from project threats, legal liabilities, financial markets, accidents, credit risk, natural disasters and unpredictable root causes. In management, there are two categorize of events, positive events which are classified as opportunities and negative events classified as risks. According to the definition of risk, the possibility of a risk occurring in a project affects the achievement and success of an objective. Thus, risk has the uncertainty. Risk management helps project managers to have control over their risk, ("Fraud Risk Management", 2015). Every organization has different categories of internal control which give different results. For example, internal environment, setting of objectives, identification of events, assessment of risk, response, control, information and communication and monitoring levels. The current paper provides a critical analysis of risks in the project, identify and discuss important risk factors to be considered by project managers and the role of global environment in informing professional practice in relation to risk factors.

Method of Risk Management

Marle, F. & Gidel, T. (2014) outlines the method of risk management which are performed more or less in the following order; identification of the characterized threats in a project, assessment of the vulnerability of critical projects to specific threats, determination of the risk i.e. the expected consequences of the project, identification of ways to reduce the risk and prioritization of the risk reduction measures based on outlined strategies.

Risk Management Standards

There are several risk management standards in places like the National Institute of Standard and Technology, Project Management Institutes, and actuarial societies, (Reamer, 2005). Public health and safety, industrial process, security, financial portfolios, actuarial assessments and engineering have different approaches to handling risks in their project management. These risk management standards should be able to create value by expanding resources to mitigate risks and have fewer consequences of inaction, utilized as an integral part of the organization process, be part of decision making, addresses uncertainty and assumptions and be a systematic and structured process. Furthermore, risk management standards allow the project managers to address issues based on the available information, be tolerable, include human factors in decision making, be transparent and inclusive, capable of continuous improvement and enhancing and re-assessment of the risk in a project, (Angermüller, Eichhorn, & Ramke, 2005).

Risk Management Analysis

Critical analysis of risks includes methods applied for prioritization of the identified risks for further response and planning. The method of risk analysis is applied to the created or identified risks in management to provide the projects coordinators with the clear characteristic of the underlined risks that have the most influence in the form of negative or positive impact on attaining the objectives of the project, (Collyer & Warren, 2009). Projects risks are a scalable activity which should be analyzed according to their complexity by utilizing critical annalistic techniques in the form of qualitative and quantitative. Different risks in an organization have different levels and approaches to their occurrence and the risk management system should assess each identified risks with carefulness and ensure proper planning for its impact on project objectives. Analysis of risk project enables assessment team to address the uncertainties and risks of the project, (Rose, 2014). There are a number of project risks that can be handled through the process of risk management analysis. These factors include;

Discovering the Risk

Project and risk management analysis are highlighted according to their profanities and possible impact to an organization. Risk probabilities involve the likelihood of the outlined risk happening, while risk impact is the causes or consequences that the results of the risks will have on the objectives of the project, (Herrmann, 2012). These risks are related and because major threats to an organization, for example; financial risk, technical risk, political risk and risks related to the operation of the project. These risks require appropriate measures in planning for effective management which is concerned with designating different strategies to tame future risks. Project managers should be prepared before they implement the objectives of the projects by deciding the actions to be taken to reduce threats associated with risks and take advantage of the opportunities discovered in the process of the risk analysis. The process of risk analysis involves assigning the department of risk responsibilities of assessing the risks and response plan outlined in this process implemented, (Rose, 2014). This serves as the foundation of successful planning on how project deals with identified risks can be handled and the nature of the risk event response plan tackled. In every organization, risks are different and needs to be treated according to the goals of the organization.

Risk Factor Estimation

The second step of risk management analysis in a project is the estimation of possible losses and impact to the project. At this stage, several measures and approaches are taken into considering such as avoidance, transfer of negative risks and exploitation of the positive risks. The strategies of approaching to these risks help to enhance the impact of the organization through passive acceptance of the strategies followed by the plans of proactive and reactive contingency, ("Globalization of Risk Analysis: An International Journal," 2009). Luxury activities that may cause disaster should be avoided especially if the organization doesn’t have control over them, safety and security measures developed to help in handling risks, employment of trained and qualified personals to mitigate lack of awareness, and search for donors to help boost the financial problems are some the essential projects risks to be implemented by an organization. Cleland, D. (1999) in their book “Project management. New York: McGraw-Hill” states that enhancing and exploitation of the positive risks should be applied to any uncertainties like; commitment of the members, donors, and subscribers of the organization to increase awareness towards a healthy lifestyle in the organization and ensure the goals are achieved.

Management of Risk Factor

After the process of identification and estimation, the next step of risk analysis is the management of the risks, in this stage, project managers’ looks for proper strategies of managing this risk. These can be done through risk control, monitoring, and response which must be started earliest in the project and ensured it’s continued until the end, (Richardson, 1994). The progress of the project experience changes in several risks and even some can’t be possible to handle while others are addressed and disposed of. New risks will be identified in the process of project management, and they should be learned on the risk effect on the organization by developing visionary techniques of handling the identified risks. Blankenship, L. (2012), states that regular meetings should be arranged to enable that risk coordinators report the issues/risks identified in projects and discuss a solution with other stakeholders to ensure planning and solution to these risks are implemented for the effectiveness of the solution for future requirement. Management of project expectation ensures the project is implemented through communication to avoid the risks associated with the projects, and these should be done throughout the process of the project.

Regular Monitoring of the Applied Strategy

The success or deficiency of an organization primarily depends upon on the performance and competence of their project managers. Regular monitoring ensures that factors considered by the project managers have steady increase and prosperity of the organization, (Highsmith, 2004). There are other numerous elements that are vital for the project managers in order the company or organization thrive such as the ethical principles of the managers and organization employees.

Risk Factors to be Considered by Project Managers

In order to fulfill or satisfy the requirement of the organization, project managers need to acquire and be aware and equipped with a set of skills to help them manage the project and come up with solutions that will reduce or tame risk factors during the implementation of the project, (Maylor, 2005). These skills can be categorized into hard skills and soft skills depending on the nature of the risk.

Risk factors are located in different variables found in human nature, ranging from mental states and decision makings of infrastructural, technological assets and tangible variables. The connection of human and tangible factors of risk issues makes it necessary to focus closely on the human factors as the main drivers of risk management, (Cadle & Yeates, 2008). These will allow the human to perform challengeable environment that will enable them to face the risks. Risk management faces difficulty in the allocation of resources which could be spent on more profitable activities, though ideal risk management techniques help to minimize over spending and control any negative effects associated with risks. According to the definition of the term risk, it analyzes the event that is possible to occur and cause the effect to the achievement and objectives of the organization. Ward,( 2004) outlines risk management procedure by setting up working relation in the internal environment, objectives and identification, assessment, monitoring response and control of risk.

Meredith, J. & Mantel, S. (1995) outlines specific factors to be considered by the project managers in the examining and analyzing organization’s risk. These factors include;

• Size risks which are associated with the size and magnitude of the team or and organization at large.
• People risks which involve the availability, retention and skills, and techniques of the project team.
• Process risks which are related to the nature of the team, ability to handle risks with care and ready to follow the process of the team.
• Technology risk which focuses on the use of emerging technological methods to overall risks.
• Management risk is derived from the skills and knowledge of the team leader on whether is ready to work with the team to realize the goals of the project.
• Financial risks involve the management of the financial issues and risks in the organization without directing to other issues.
• Customer risks arise from the changes made to the requirement of the customers, lack of understanding among the customers and staff and the process of managing the changes witnessed in relation to the desires of the customers
• Estimated risks which involve inappropriate use of the resources and the time needed for the completion of the project
• Sales and support risk derived from the changes made by the team in enhancing the sales and sell the product to correct and adapt to the new technologies.
• Conflict risks derived from the misunderstanding of responsibilities by the staffs and the management.

Risk Options

Project managers of an organization should be aware of the reality of rapid changes that accompany the project, and these changes require continuous learning to redefine and realize the standards of the organization, (Gardiner, 2005). The changes require educating and empowering the employees to provide critical and latest information concerning the organization pride as well as offering incentive packages to help in motivating its employees. These will allow the employees view themselves as partners rather than common workers will, in turn, motivate active participation towards the innovation and improvement of the organization. As explained by Davidson Frame, J. (2012) project involves different people and each play the role in ensuring the success of the organization, project coordinators or managers must serve as the example for effective participation in an organization to achieve the project's goals and complete the assigned project within the speculated time, cost and quality. These can be attained by direct and instant communication with the members of the project. In united states of America, many companies and organization recognize the increasing challenges in the management of the project and strategic steps have been taken by the inclusion of the workforce in the provision of leadership and support, integration of diversity in the initiatives of the organization goals, and communication and dialogue among all the employees, (Collyer & Warren, 2009).

Potential Risk Treatment

The project managers play the lead role of the groups of the people from different field like; architect, engineering, marketing, quality surveyor, contractor and subordinate staffs. During the progress of the project, the manager needs to communicate and cooperate with the group from the onset of the project until the completion of the project. These will provide the skills necessary for the success of the project such as leadership, motivation, negotiating, communication decision making and managing conflicts or problem solving. Enhanced skills in the project managers will also help to improve and adhere with the knowledge and skills accompanying technological changes worldwide, (Zulch, 2014). Negligence of soft skills by the project managers will not ensure the effectiveness of the project is attained. Also, overemphasis on hard skills brings the disaster to the company and pave the way for the risks. Managers are not always expected at the site of the project but can utilize the technical knowledge and skills in the management of the project. After all, human factors still act as the first problem in project management.

Ward, (1999) explains that risks should be organized by the project managers and the prioritizes risks are handled to ensure the success of the project by determining and grouping the risks according to the impacts it may cause to the organization. The project manager should use value or probability, e.g., improbable, probable or frequency of the risk. These can be attained by taking effective measures to foster awareness and different values, and behavioral changes through the diversity groups and teams integrated into the workplace. These efforts help to boost the establishment of quality interpersonal relationships and improved working relation to ensuring measures is taken in case of any emerging risks. After prioritization of the risks, the activities of the team involves planning,mitigation, monitoring and communication to all the members of the team. Planning for the risk management should be done to all the prioritized risks so that proactive actions can be taken. These can be attained by information buying through investigation, contingency plan, risk reduction, and risk acceptance.through mitigation, project manager develops strategic plans to reduce the possibility of risk. Mitigation helps to produce a situation where the risk items can be eliminated and resolved through the implementation of avoidance and risk protection. After identification, analysis, prioritization and actions established for the risks in any organization, the project manager monitors regularly the progress of the company and the resolution of the risk, ensuring corrective actions are taken by utilizing explicit risk management, (Vladimirov, Gavrilenko, & Mikhailovsky, 2010).

Risk Management Implementation

The successful organization is achieved by taking proactive measures and monitoring for the risk situation until its completion. During the process of project implementation, communication is necessary between the management, development team, customers representative and marketing them about the risks of the project for the effectiveness of risk management, (Zulch, 2014). The project managers assures and promotes the accordance of opportunities to the employees to meet basic needs and wants they wish to integrate into the system of the organization, the managers sets up a guide code that ensures all employees ideas are treated with dignity that can extend beyond the reach of the organization to the community to save the reputation of the organization, (Project portfolio management, 2009). Additionally, stakeholders of risk management should be involved in risk management in three different ways such as; enumerating the possible risks associated with technical capabilities, project manager must lead the team in following the process of risk management and allocating the required resources for proactive risk management and finally, ensure the customers participate in the continual identification of the project risks. these should be managed by the management of the organization or the firm to ensure the safety of stakeholders and customer’s reputation are maintained.

Global Environment Risk Management

The global environment of risk management informs professional practices to undertake the projects with prime objectives of reduction of dependency and improving the living standards of the people around the project by utilizing the manpower around them. Project environmental for global projects is far more complex than the domestic projects. The project managers need to focus on the internal and external, visible and invisible factors that play a role in an environment in the creation of higher risks during the process of project implementation. Some of the most common factors include; influence on various stakeholders, such as citizens, media, politics, and financial institutions, cultural and social ecumenical orientation of the native people, technological issues, political environment, and lack of leadership qualities and skills. Others are a shortage of resources, lack of ownership, poor infrastructure and external driving like inflation, currency exchange, and international politics, (Lientz & Rea, 1998).

Global professionals have different ways of managing major contextual environmental differences that exist in the planning and implementation of the global projects. The process involves participation by the international multilateral organizations such as the government and non-governmental organization through the technical assistance of finances. According to Dionne, G. (2013), these characters make them unique, thus require a project manager who can maintain the relation by ensuring communication, and use of local codes to promote the economy of the outlined state or nation. The project managers in the global environment must ensure that all the participants of the project (international and domestic) feel the cohesiveness of the team by focusing on the accomplishment of the objectives, scope, cost, time and the performance of the project, (Blankenship, 2012).

Project planning and construction requires that it follows the collaboration of the international environmental by consisting of local codes, practices, and geological conditions. The use of international and domestic equipment requires expertise to avoid complication and ensure the endeavors of the company, (Gardiner, 2005). In the case of cultural differences, the project manager should analyze the cultural organization and plan mechanisms to counter social effects and enhance the cultural consciousness of the team members and built a strong team. Additionally, competent managers should tend to label national character around the pace of the particular culture and should appreciate such cultural difference and cope up with them.

Conclusion

Risk management is the identification, assessment, analyzing, and privatization, planning and monitoring the issues that arise in the project implementation. The process of project management requires a competent manager who is able to integrate the qualities and skills of leadership to the organization to ensure the goals and mission are met. Maylor, H. (2005), states that teamwork plays an important role in the management of risks in a project which should utilize both hard and soft skills from the onset to the completion of the project. Risk factors in the project include the negative and the positive factors which should be analyzed by the project managers to tame the shortcomings and exploit the opportunities in order to attain the goals of the company. The most common factors affecting the implementation of the company includes financial problems, unskilled or understaffed employees and the political environment which can be addressed by avoidance, transfer of negative risks and exploitation of the positive risk by identification, analyzing and controlling them, (Rose, 2014). Additionally, technological factors can be addressed by acquiring modern technologies such as internet networking. Project managers serve as a leader and should act as an example to team members by promoting co-existence through communication, and motivation of the team members. Global project managers should be ready to tackle the issues of cultural differences, political atmosphere, and financial crisis by utilizing the local codes and adjusting to fit the culture of the given states. Furthermore, the local and international relation should be the priority of the project manager to avoid international conflicts.