Risk Management & Project Management - Essay Example

Uncertainty is defined as an absence of information, knowledge, or understanding regarding the outcome of an action, decision, or event. Risk is actually a measure of the amount of uncertainty that exists. Risk is directly tied to information. Risk is lower with more information and higher with less information. Risk relates primarily to the extent of the ability of a project manager to predict a particular outcome with certainty. The effects of risk can be positive or negative. Positive effects of risk are often referred to as opportunities.

Threats are the negative-or "downside"-effects of risk. Threats are specific events that drive the project in the direction of outcomes viewed as unfavorable (for example, schedule delays, cost overruns, and inferior product performance (Heerkens, 2001). Risk management is an activity that occurs throughout the life of the project. It begins in the planning process and continues until the closing process is completed (Heldman, 2003). Many approaches can be used to address risk and the threats it produces.

However, most processes for managing risk tend to follow some variation of a basic four-step approach. The first step is identification, that is, determining what threats exist. In this step, identify all significant uncertainties (sources of risk), including specific threats (also called potential problems or risk events) that could occur throughout the life of the project (Heerkens, 2001). In Project X, the areas of risk are scope, time, cost, and technology. The company would like the AMDS to be able to operate while it is being moved, while it was not included in the design accepted by the DoD.

The risk is present in the project scope. Also, the project should take 5 years to complete at a cost of $1.5 billion. Is the team able to complete the project within 5 years within the budget of $1.5 billion There are also risks in the technology. The AMDS may be successful in a demonstration environment. Will it achieve the same functionality in the event of an actual foreign attack Step two is quantification, or determining how big the threats are. For example, a risk identified above is schedule delay.

In this step, obtain information on the range of possible outcomes for all uncertainties and their distribution and/or probabilities of occurrence, to better understand the nature of the threats and their potential effects on the project (Heerkens, 2001). The project manager should quantify the delay and the resultant delay to the project. Step three involves analysis, that is, determining which threats are of greatest concern. In this step, use the knowledge gained through risk assessment to determine which potential problems represent the greatest danger to achieving a successful and predictable project outcome, ordinarily by considering the probability that a specific problem will occur and its anticipated impact on the project (Heerkens, 2001).

The last step is response, or dealing with the threats. In this step, determine the best approaches for addressing each high-threat potential problem, which may include evaluating and choosing among a number of alternatives, and create specific action plans. The options for dealing with high-threat problems are avoidance, transfer, assumption, prevention, mitigation of impact, and contingency planning. (Heerkens, 2001). An example of avoidance is the avoidance of testing of the AMDS in populated areas.

General liability and property insurance could be purchased for the AMDS to transfer the risk of damage to the AMDS resulting from natural disasters. The team of nuclear scientists, engineers, and technology professionals may resign at any time. But the project manager may choose to take no action on it. This is an example of assumption of risk. Confirming the project scope with the DoD is an example of the prevention of risks. An example of mitigation of impact is designing the MHU to be able to withstand the impact of natural disasters.

Contingency plans are specific actions that are to be taken when a potential problem occurs. REFERENCESHeerkens, G. (2001). Project management. United States of America, McGraw-Hill.Heldman, K. (2003). Project management jumpstart. Canada, Sybex.