Project Managers Spotlight on Risk Management - Coursework Example

?RISK MANAGEMENT Question For an engineering project of your choice, identify 10 risks and use both qualitative and quantitative analysis to analyse the risks. Give an explanation of the choices made. Given an engineering project of the construction of a spacecraft, the following risks can be identified with accompanying qualitative and quantitative risk analysis for their analysis; as well rationale for choice of each of the risk analysis used. Risk Risk analysis Rationale for choice of analysis Employee turnover Event tree analysis This is a risk that projects the possibility that some top employees may be lost from the human resource base of the project. The event tree analysis would come in as a quantitative analysis that will be used to identify the series of effects that the project would suffer at the point of the employee turnover to the point of completion of the project (Gabby, 2009). Change in management structure Preliminary Risk Analysis Given the fact that there are different priorities for the said project, there is the tendency that there will be major changes in the organizational management to suit some priorities as against others. The preliminary risk analysis would be used as qualitative analysis to identify the undesired event of organizational change and then suggest possible improvements and other suitable preventive mechanisms (Keong, 2002). Unavailability of hardware Hazard and Operability studies (HAZOP) The construction of spacecraft is an engineering project that demands a very high quantum of hardware input. There could however be possible unavailability and shortages. Once this happens, it would constitute an operational hazard (Perry, 2008). To this end, a hazard and operability studies would be useful in the “application of a formal systematic critical examination of the process and engineering intentions of new or existing facilities to assess the hazard” (Keong, 2002). System requirement changes Hazard and Operability studies (HAZOP) System requirement changes often arise when there are other risks such as unavailability of hardware and changes in management structure (Ankomah, 2005). Such a situation posses a risk and constitute a hazard because it could lead to eventual rejection of completed product by end users. This not withstanding, HAZOP can be used as a qualitative analysis to identify suitable replacements in systems that would not bring about the system requirement changes. Delays in specifications Failure Mode and Effects Analysis(FMEA/FMECA) The project would bring about the need to deal with essential interfaces that would have to be specified on regular time margins. However, there is the risk that these specifications may delay and not arrive on schedule. Such delays may cause failures in implementation, and this is why the failure mode and effects analysis would be necessary in identifying the mode of failure and the threat it would pose to the entire project. Underestimation of project size Fault tree analysis At the preparation stage of project management, extensive time is spent on budgeting and estimation of the project size. There is however the risk that external factors, such as inflation and shortage of hardware could bring about an underestimated project size. The fault tree analysis when used in this analysis would help in building a chronology of all possible causes of the risk so that with the line of cause well known, preventive mechanisms can be schemed towards the risk (Heldman, 2005, p. 132). Underperformance of CASE tool Failure Mode and Effects Analysis(FMEA/FMECA) The nature of the current spacecraft construction demands the preparation of a CASE tool. However, there is the risk that the CASE tool may not performance as much as it should perform. Once this happens, it would be considered a failure and thus a failure mode and effects analysis would be necessary in quantifying the mode of failure and predicting possible scope of effect of the failure on the product. Technological changes Fault tree analysis Technology is one of the fastest changing phenomena in the world. This fast pace of change affects everything, including major engineering projects such as the construction of spacecrafts. The implication of this is that whenever there is a major technological change in the world of technology, there could be a risk to the project of having to change the technology system all over and starting a new one. As stated earlier, The fault tree analysis when used in this analysis would help in building a chronology of all possible causes of the risk so that with the line of cause well known, preventive mechanisms can be schemed towards the risk (Heldman, 2005, p. 132). Product competition Cause-Consequence Analysis Competition is not absent in any major industry, and given the spacecraft construction industry, the competition is even more. This means that there is a potential risk of competition from other competitors who may have better competitive advantages than the present outfit undertaking the construction. Such competition may exist because end-users can not be predicted on their choices for finished products (Tawiah, 2009). It is in line with this that the cause-consequence analysis is preferred for this risk so that all potential causes of preference for other products instead of the present product could be identified. Shortage of funds Preliminary Risk Analysis A number of factors, including underestimation of project size could bring about the risk of shortage of funds. Once this happens, several other areas of the project may be critically affected. Some other areas that stand to suffer include hardware and technological provisions as they all demand sufficient funds for their sourcing. The human capital base may also be affected because remuneration and reward may not be forthcoming. As pointed out earlier by Keong (2002), The preliminary risk analysis would be used as qualitative analysis to identify the factors that may lead to shortage of funds and then suggest possible improvements and other suitable preventive mechanisms. Question 2 For the risks identified in Question 1, evaluate the 10 risks giving reasons for the evaluation choices made. From the Risk Management Guide (2010), it is said that “Risk evaluation is concerned with assessing probability and impact of individual risks.” The same source continues that for an effective assessment of the probability and impact of the risks identified, it is important to take into account, “any interdependencies or other factors outside the immediate scope under investigation.” Based on these provisions and outlines given, a risk evaluation grid can be constructed by using probability against impact to quantify the rating or extent of each of the ten (10) risks identified. The grid is presented as follows: Very High 9 14 18 22 25 High 7 12 17 21 24 Medium 5 10 15 19 23 Low 3 6 11 16 20 Very Low 1 2 4 8 13 Very Low Low Medium High Very high From the grid above, the numbers 1 to 25 represent the ranking of intensity of risk. Again, there are three major categorizations of risks, which are low, medium and high. These are represented by the intensity of tone of color used in shading the grids. Based on the variables given as probability, which is represented by the likelihood of a particular risk taking; and impact, which is represented by effect of a given risk actually happening (Risk Management Guidelines, 2004), the 10 risks that are identified above can be evaluated by inserting them into the risk evaluation grid as follows: Very High (9) Employee turnover 14 (18) Unavailability of hardware 22 25 High 7 12 (17) Underestimation of project size 21 24 Medium (5) Underperformance of CASE tool (10) System requirement changes 15 19 (23) Shortage of funds Low (3) Change in management structure (6) Delays in specifications 11 16 20 Very Low (1) Product competition (2) Technological changes 4 8 13 Very Low Low Medium High Very high From the grid above, it can be noticed that among the ten (10) risks, there are two (2) of them, which are high risks. These are shortage of funds and unavailability of hardware. These are regarded as high risks because they can lead to the total halting of the project. Two (2) other risks, thus underestimation of project size and system requirement changes are considered as medium risks. This is because these two risks could also lead to the suspension of the project for a long time, though it may not bring about the absolute halting of the project. All other six (2) risks are considered to be low risks. This is because these risks have fewer chances of happening and once they happen, they have lesser impact on the project. Moreover, the project can still continue even in the event of any of these risks. All that there would need to be done would be resource adjustments (Risk Management Guidelines, 2004). Question 3 Work out the best way of treating the 10 risks identified in Question 1. Develop a detailed Risk Treatment Plan with options (two per risk), giving reasons for your treatment choices. Include a Significant Risk Treatment Plan for at least three of the 10 risks. Risk Treatment Option 1 Options 2 Employee turnover Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Retain risk Change in management structure Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Retain risk Unavailability of hardware Avoid the risk Transfer the risk Reduce the Consequences of the risk occurring System requirement changes Transfer risk Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Delays in specifications Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Retain risk Underestimation of project size Transfer risk Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Underperformance of CASE tool Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Retain risk Technological changes Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Retain risk Product competition Reduce the Consequences of the risk occurring Reduce the Likelihood of the risk occurring Retain risk Shortage of funds Avoid the risk Transfer risk Reduce the Consequences of the risk occurring The selection of treatment and their options are based on the overall rating of the risk. Subsequently, it would be noted that high risk out to be avoided at all cost and thus the selection of “avoid the risk” treatment, followed by “transfer risk”, which offers a high level of guarantee against the occurrence of the risk and the “reduce the consequence of the risk occurring”, which also gives some high level of assurance that the risk will not be devastating (Risk Management Guidelines, 2004). On the medium rated risks, “transfer risk” is selected as the treatment since the risks are not so threatening and once provisions are made in the form of transfer of the risk through avenues like insurance, the project can still be guaranteed of its continuation. On the part of low rated risks, “reduce the consequences of the risk occurring” is selected as the treatment because even if the risks are not avoided or transferred and they occur, all that will be necessary in avoiding jeopardy to the success of the project would be to minimize the impact of the risk. Based on the treatment and options assigned, the following risk management plan can be identified for three (3) of the risks; one each for low risk, medium risk and high risk. Threat/Risk Description of Risk Risk Value Action Treatment Personnel Timeline Unavailability of hardware In the course of undertaking the construction, there is the tendency that the project managers will run out of needed hardware and this would be a risk that will bring the entire project to a standstill from the point of unavailability. High Avoid risk The risk will be totally avoided and prevented from taking place. This is because once it happens, there is going to be a lot of adverse effect on the entire project. As a matter of fact, the whole project might come to a stand still as a result. Products Manager Before and during the project Underestimation of project size This is a kind of risk that comes with recurring effects such as shortage of funds and unavailability of hardware. The reason for this point is that if the estimate of the size of the project is not done well, allocation of resources will be affected. In effect, there is going to be shortfalls in resources used. Medium Transfer risk Plans are going to be made to ensure that the risk is transferred by replacing possible risk avenues with other provisions such as insurances. By so doing, even when the risk happens, the project managers can be assured that escape avenues have been created for them (Heldman, 2005). Budget officer Before the project Employee turnover Whiles the project is proceeding, some top managers and employees may resign from their post. This may bring some stagnation in delivery rate but replacement may be possible if the impact of the risk is curtailed. Low Reduce consequences Generally, this is not a risk that will bring the whole work to a standstill because it is not likely all employees will resign at the same time. For this reason, treatment efforts that seek to reduce the consequences of the risk on the project will be advocated. For instance there will be standby employees to take over in case of resignation. Human resource manager Before and during the project. REFERENCE LIST Ankomah D. (2005). Dispensing Economic Partnership and Trade Reviews. New York: Dynamite Press Series. Gabby G. (2009). Trade Maximisation and Growth. Oxford: University Press Limited. Heldman, Kim, (2005), Project Manager’s Spotlight on Risk Management, Harbor Light Press, San Francisco. pp123-148 Keong, T. H. (2002). Risk Analysis Methodologies. Accessed September 25, 2012 from http://home1.pacific.net.sg/~thk/risk.html Perry D. (2008). Macroeconomic Indicators and their Implications to Global Economic Growth. London: Oswald Press Association. Risk Management Guide (2010). Risk Evaluation and Assessment. Accessed September 25, 2012 from http://www.ruleworks.co.uk/riskguide/risk-evaluation.htm Risk Management Guidelines, Standards New Zealand. NZS HB 436:2004 pages 43-68. Tawiah J. (2009). Financial Renaissance and the impact of Globalisation. Durban: PrintMark Publications Limited. Read More