14 June, 2014

Management of Project Risk

Project Risk is the combination of the probability of an uncertain event and its consequences. A positive consequence presents an opportunity; a negative consequence poses a threat.

Type of risk 

Generic Risk : any uncertainty that, if it occurs, would affect the project. 
Project Risk : any uncertainty that, if it occurs, would affect one or more project. Exp. Time, cost, performance, satisfaction.
Business Risk : any uncertainty that, if it occurs, would affect the business to generate the expected profit. Exp: Profitability, market share, competitiveness, Internal Rate of Return (IRR), reputation, repeat work, share price.
Competitive Risk : the earning and cash flows of the project may be affected by unanticipated actions of the competitors.
Industry specific Risk : Any risk arises in the industry to which the project belongs. Exp: unexpected technological development, regulatory changes.
Market Risk : Any unanticipated changes in macroeconomic factors have an impact on all projects. Exp: GDP growth rate, inflation, interest rate, unemployment.
International Risk : The earning and cash flows may be affected for international events. Exp: changes in exchange rate, political violence.
Safety Risk : any uncertainty that, if it occurs, would affect one or more safety objectives. Exp: Low accident rate, minimal lost days, reduced insurance premiums, regulatory compliance.
Technical Risk : any uncertainty that, if it occurs, would affect one or more technical objectives. Exp: Performance, functionality, reliability, maintainability.
Security Risk : any uncertainty that, if it occurs, would affect one or more security objectives. Exp: Information security, physical security, asset security, personnel security.

Management of project Risk

Risk management is the identification, assessment, and prioritization of risks  followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the consequences of a particular risk.

The Value of Risk Management

Project risk management delivers the following values:

• Contributes to project success;
• Recognizes uncertainty and provides forecasts of possible outcomes;
• Produces better business outcomes through more informed decision-making;
• Is a positive influence on creative thinking and innovation?
• Offers better control –less overhead and less time wasted, greater focus on benefits;
• Helps senior management to understand what is happening with the project and the challenges the project has to overcome.

Risk Management Steps


1) Risk Management Planning
Risk Management Planning is the systematic process of deciding how to approach, plan, and execute risk management activities throughout the life of a project. It is intended to maximize the beneficial outcome of the opportunities and minimize or eliminate the consequences of adverse risk events.

2) Identify Risk Events
Risk identification involves determining which risks might affect the project and documenting their characteristics. It may be a simple risk assessment organized by the project team.
 
3) Qualitative Risk Analysis
Qualitative risk analysis assesses the impact and likelihood of the identified risks and develops prioritized lists of these risks for further analysis or direct mitigation. The team assesses each identified risk for its probability of occurrence and its impact on project objectives.
 
4) Quantitative Risk Analysis
Quantitative risk analysis is a way of numerically estimating the probability that a project will meet its cost and time objectives. Quantitative analysis is based on a simultaneous evaluation of the impacts of all identified and quantified risks.
 
5) Risk Response Planning
Risk response strategy is the process of developing options and determining actions to enhance opportunities and reduce threats to the project’s objectives. It identifies and assigns parties to take responsibility for each risk response. This process ensures that each risk requiring a response has an “owner”. The Project Manager and the project team identify which strategy is best for each risk, and then selects specific actions to implement that strategy.
 
6) Risk Monitoring & Control
Risk Monitoring and Control tracks identified risks, monitors residual risks, and identifies new risks—ensuring the execution of risk plans, and evaluating their effectiveness in reducing risk. Risk Monitoring and Control is an ongoing process for the life of the project.
 
10 (ten) Golden Rules of Project Risk Management
The benefits of risk management in projects are huge. You can gain a lot of money if you deal with uncertain project events in a proactive manner. The result will be that you minimize the impact of project threats and seize the opportunities that occur. This allows you to deliver your project on time, on budget and with the quality results your project sponsor demands. Also your team members will be much happier if they do not enter a "fire fighting" mode needed to repair the failures that could have been prevented.
 
Rule 1: Make Risk Management Part of Your Project - The first rule is essential to the success of project risk management. If you don't truly embed risk management in your project, you can not reap the full benefits of this approach. You can encounter a number of faulty approaches in companies. Some projects use no approach whatsoever to risk management.
 
Rule 2: Identify Risks Early in Your Project - The first step in project risk management is to identify the risks that are present in your project. This requires an open mind set that focuses on future scenarios that may occur. Two main sources exist to identify risks, people and paper. People are your team members that each bring along their personal experiences and expertise. Other people to talk to are experts outside your project that have a track record with the type of project or work you are facing.
 
Rule 3: Communicate About Risks- Failed projects show that project managers in such projects were frequently unaware of the big hammer that was about to hit them. The frightening finding was that frequently someone of the project organization actually did see that hammer, but didn't inform the project manager of its existence. If you don't want this to happen in your project, you better pay attention to risk communication.
 
Rule 4: Consider Both Threats and Opportunities -Project risks have a negative connotation: they are the "bad guys" that can harm your project. However modern risk approaches also focus on positive risks, the project opportunities. These are the uncertain events that beneficial to your project and organization. These "good guys" make your project faster, better and more profitable.
 
Rule 5: Clarify Ownership Issues -Some project managers think they are done once they have created a list with risks. However this is only a starting point. The next step is to make clear who is responsible for what risk!
 
Rule 6: Priorities Risks - A project manager once told me "I treat all risks equally." This makes project life really simple. However, it doesn't deliver the best results possible. Some risks have a higher impact than others. Therefore, you better spend your time on the risks that can cause the biggest losses and gains.
 
Rule 7: Analyze Risks - Understanding the nature of a risk is a precondition for a good response. Therefore take some time to have a closer look at individual risks and don't jump to conclusions without knowing what a risk is about. Risk analysis occurs at different levels. If you want to understand a risk at an individual level it is most fruitful to think about the effects that it has and the causes that can make it happen.
 
Rule 8: Plan and Implement Risk Responses - Implementing a risk response is the activity that actually adds value to your project. You prevent a threat occurring or minimize negative effects. Execution is key here. The other rules have helped you to map, priorities and understand risks. This will help you to make a sound risk response plan that focuses on the big wins.
 
Rule 9: Register Project Risks - This rule is about bookkeeping (however don't stop reading). Maintaining a risk log enables you to view progress and make sure that you won't forget a risk or two. It is also a perfect communication tool that informs your team members and stakeholders what is going on (rule 3).
 
Rule 10: Track Risks and Associated Tasks - The risk register you have created as a result of rule 9, will help you to track risks and their associated tasks. Tracking tasks is a day-to-day job for each project manager. Integrating risk tasks into that daily routine is the easiest solution. Risk tasks may be carried out to identify or analyse risks or to generate, select and implement responses.

1 comment:

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