The management of risk is proving to be one of the most difficult tasks for the project management profession. How can risk be managed effectively and who should be responsible for this task?
You are required to critically analyse the concept of risk; discuss how it can be measured and ranked and outline how a project risk management strategy may be constructed for a project of your own conception. In completing this assignment, you should address how appropriate practices can assist in minimising risk for your project.
Risk is an inescapable partner of the project managers. For successful dealing with risk, project personnel and project managers should have the quality to manage organizational work in an appropriate manner through which the actions performed by purchasing professionals, contracting managers and subcontractors for the purpose of achieving organizational objectives could easily be executed. In addition, recent project management demands project manager to have a wide knowledge of managing risks and procurement management to direct and control the project for attainment of success. Thus, project procurement and management can be defined as the process of acquiring or purchasing the products and services needed from the external project team to accomplish the work. For this purpose, it is required to understand the concept and importance of procurement. Procurement can be defined as the mainstream of business world which ensures that either the businesses have sufficient knowledge and ability for the selection process of vendors or suppliers or not (CIibulskiene & Brazauskas, 2016). Procurements help an organization to develop and establish a relationship between maintaining and selecting performance criteria. It is also essential for defining the organizational terms and conditions. The procurement function of the organization develops and spreads the organizational mission and values within the members of organization. For a better understanding of the concept of project risk and procurement management, this report includes various theories, models and related concepts that can provide a vast knowledge of the same. All information and theories in this report have been taken from authenticated sources including books, journal articles, and other online sources. At the end of the report, a conclusion has been drawn to provide an overview of the report that will help the reader to understand the importance of theories of project and procurement management (Dedu & Serban, 2015).
A probability of threat, injury, loss, liability or any other negative occurrence that is caused by internal or external vulnerabilities and these are required to be managed with the preventive measures with the objective of maintaining organizational performance along with gaining positive outcomes. Concept of risk management in the business context relates to the practices executed by leaders, managers and senior authorities for analyzing potential risks in advance so that within time, appropriate preventive measures could be taken with the objective of managing risk as well as to avoid the negative impact from the particular risk.
Risk can be defined as the potential of losing and gaining something of value. Risk can also be considered as the intended interaction with some uncertainty. Uncertainty is an unpredictable, uncontrollable and potential outcome of an action. Every project has numerous objectives and to attain those objectives, organization is required to perform appropriate steps along with analyzing potential risks attached with the execution of particular project. This helps the organization to gain appropriate goals and objectives along with determining all negative effects which could be occurred while executing a project. For example, construction projects have purposes and objectives related to quality, safety, cost and social impact (Gyamf, et al., 2016). Thus, risk can be generated form any of such objectives and in order to mitigate the risk, it is required for the organization to deal with them through effective measures. Uncertainty can be the result of some intrinsic unpredictability. For example, it is difficult to predict the future steps of a competitor while executing a project. It may be the result of lack of analyses and research about competitors.
The outcome of the risk does not affect only a single person, but it affects the whole project and the objectivity of such project. The results can either impact in a positive manner or in a negative manner. Risks can never be eliminated but some strategies can be formulated in order to manage such risks in a manner so that their impact can be either converted into positive results or their negative impact can be minimized up to some extent (Gyamfi & Boadaa, 2015). Risk assessment helps the organization to remove the errors and chances of errors which could be generated due to adaptation of unique and advanced strategies. It is required for the organization to determine effectiveness of the measures adopted by organization so that relevant risk factors could also be analyzed. Apart from this, organization could also execute monitoring and evaluating techniques at workplace on regular basis so that risk attached with the adopted strategies and techniques could be determined at initial phase or as soon as possible so that the negative effects could easily be detected and removed in time with the objective of enhancing organizational performance.
Risk measurement can be defined as the process of measuring and evaluating risks. It is known as a fundamental business practice which could be easily applied at workplace with the objective of making programs, projects, investments, commercial agreements, and operations effective and efficient as per organizational requirements. Measurement of risk depends upon the type of project and the severity of risk involved. For example, the risk involved in a finance project will be related to the making investment and estimation of return on investment. For such type of risks, five important measures named as Alpha, Beta, r-Squared, standard deviation and Sharpe ratio will be used. On the other hand, for analyzing risk related to external factors of an organization at the time of launching a new product, Porter’s five forces model, PEST Analyses, and SWOT Analyses can be carried out (Hao & Han, 2014). There are some common approaches to measure the risks for an organization while entering into a new market or launching a new product. Such approaches can be defined as follows:
Quantitative approaches
Qualitative Approaches involves the way of evaluating risks based on the probability and impacts. The impact can be categorized into high, low and medium on the basis of the project. Risk matrices are used for such categorization. The severity of the effects can depend on the cost, scope, resources, and schedule of the project. The analyses also help in identifying the risks which require urgent and recommended attention and vigilance (Huang, et al., 2010).
Two main methods of Qualitative approaches can be described as follows:
Keep it super simple method:
This method is used in those project management teams that have lack of maturity I accessing and measuring risks. This is a one-dimensional risk measuring technique that involves rating risks as:
Probability Method:
The scale permits higher discrimination in comparison of commonly used low, high and medium scale (IACOB, 2014). This approach is used with complex and larger projects as compared to small projects. The responsible project manager and team members are more experienced and knowledgeable. This is a two-dimensional technique that is used to rate the probability and impact of risks. The probability is considered as the chances that a risk will occur or not. The scale used in this approach contains the values from 1 to 10 (Jainendrakumar, 2015).
Quantitative approaches:
It is a type of numerical analyses of the probability of risk against the objectives and mission of the project. It defines:
Individual probability:
It defines the probability of occurring risks against each and every objective. This helps in taking corrective actions to reduce the probability of occurrence of such risks or to reduce the effect of the same (Jovanovic & Milijic, 2016).
Quantified values:
It also helps in identifying quantified values of the risk related to the time, resource and cost of the project. It helps the project manager to make proper arrangements related to resources and cost so that the project could be accomplished in an effective and appropriate manner.
Further, based on numerical results, it is easy to rank the risks related to project. The risk that is resulted in getting high numerical values should be treated as highly ranked risks and same should be treated at first (Li & Saiz, 2016).
Risks are ranked on the basis of the results derives from the above measurement techniques. Ranking refers to the arrangement of risks in order to their chances of occurrence and level of impact. If chances of occurring a risk are more in comparison to others and such risk is ranked as Consequences of identified risks are describes used descriptive words and are ranked accordingly. These descriptive words include negligible, critical, marginal and catastrophic. The risks which are ranked as negligible are the type of least severe risks. Such risks should be assigned to the lowest rank and should be treated with minimum priority. On the other hand, catastrophic risks are termed as first in ranking the severity. These risks should be assigned to the highest rank and are required to be treated at first without any delay. All strategies are framed after considering the priority of such risk (Mohammed & Knapkova, 2016).
Risk ranking is not an easy process as all the strategies and treatment methods depend upon the ranking of the identified risks. Therefore, same should be carried out by the qualified professionals and project managers having experience in the same field. Risk ranking is based on the measurement of risks (W, 2013). It indicates that risk measurement techniques should be selected carefully because any mistake in the selection of the technique can lead to severe losses for the organization as well as the project management team. There are various tools that can be used to measure the risks and probability of occurrence of the risk. A good project manager should make use of such tools as per the requirement of the project to frame an effective and appropriate project risk management strategy (Nair, et al., 2014).
Project risk management strategies are those plans that help in identifying, anticipating and employing solutions in the case of occurring issues and problems in the project. An effective project risk management strategy is able to face unanticipated problems as the strategy maker has already considered all the possible situations that can during execution of the project (Emmer, et al., 2013). The process of constructing a well effective strategy for project risk management can be defined as follows:
For creating risk management strategy, it is required to access the type of risks associated with the project. To identify all the risks completely, one can adopt the method of defining the categories of risks, for example, business risks, project risks, system risks, corporate risks, people risks, objective risks etc. Such risks can be subcategorized further for easy and more precise understanding. PEST and SWOT analyses are also a very popular method for identifying risks presented in an external and internal environment of a project. For more understanding, a brainstorming session with subject matter experts, stakeholders and project team members can also be organized. The SME’s can act as executives to frame an outside perspective of the project. All identified risks should be written into the Risk Register and levels are decides for each the risk. These levels are generally based on the chances of occurring and seriousness of the risks during the project life cycle (Guerra, et al., 2013). The risk registers should have all the following information of each risk and its management:
Once the associated risks are identified, the same should be evaluated and identified by considering two important criteria:
Project managers give ratings to the risks analyzed and mentioned in the organization on the basis of low, high and moderate. Same should be analyzed with the preparation of matrix and chart to gain the effective idea about the influences of risk on the project. This rating and grading on the matrices can be further utilized to arrange the various types of risks that can help the project manager to mention measures at the right place in the project management strategy. The grades used in the projects can be in the form of numerical ratings or alphabetical ratings as considered comfortable by the project management team and the organization (Neves & Sanches da Silva, 2016). This is one of the main and important steps of the process of formulating project risk management strategy because all risks are ranked on the basis of the results of the evaluation. If any deficiency occurs in the process of evaluation of risks then the whole strategy and the results of the risk management strategy can get affected.
This step helps in identifying triggers with the associated risks. It includes dividing the team into subgroups that will deal with each risk assigned. These subgroups will be responsible to study about the risks in depth and recognize the signs of warning and triggers of the risks. These triggers can help the team that either the project is running into danger or not (Tsuru, 2013).
At this stage, the project manager is responsible to determine the responsibilities and roles of each team and team members that can be taken by them at time of facing risk scenario. Commanding power is given to professional to settle and manage the budget for all risk categories. The responsibilities and roles can be distributed on the basis of department, expertise and working title of the team or individual (Pareek, 2011). This should be included in all the stakeholders to gain their understanding and vision of the risk management strategy. These professionals can contribute up to a high level in the identification of triggers that can be further listed in the project management strategy and plan.
Now each team is required to take up their brainstorms and ideas that reduce the threats. These should be contingency plans or preventive measures to eliminate or decrease the effects of the risks have at the time of completion of the project. The team members should think about grabbing the opportunities that come in the planning phase of project life cycle (SA & D, 2016).
Opportunities are often considered as the positive risks if these are handled carefully. Project manager takes appropriate action with regards to the management of risks in an appropriate and effective manner. On the basis of collective ideas form organizational employees, the project manager needs to formulate a strategy for the purpose of dealing with the risks (Saluja & Idris, 2012). By using the brainstorming session knowledge, effective result of the session can be generated to frame the strategy to deal with identified risks in an effective manner.
This strategy is the fundamental part of a project risk management plan. The project manager needs to document all the available solutions for all kinds of risks identified in the project. These strategies are generally related to risk mitigation for the purpose of keeping the risk aside.
These strategies either helps in reducing the chances of occurring risk or will help in reduction of the impact of such risks. The risk mitigation strategies are the result of the ideas fastened form the brainstorming session (Serpell, et al., 2015). Two types of mitigation strategies can be formulated:
This strategy is formulated in such a manner so that it can help in reducing chances of risk or the seriousness of the risk before it impacts organizational performance in negative manner.
These strategies are related to the planned events in case of determination of risk. In other words, these strategies are the answers of the questions: ‘what step should be followed if…?’ The risks having highest priority required to attend at first by the project manager and the mitigation strategies should be understood as per the action plan. The risks with low priority should be attended later but same should not be neglected or ignored (Teply, 2012).
By following above steps, an effective strategy for project risk management can be formulated which can identify the risks at earlier stages and can help either to eliminate such risk or to reduce the impact of such risks (Toma & Dedu, 2014).
The process of formulating a strategy for managing risks involves the considerations that should be taken care of at the time of framing strategy. Above mentioned steps can vary from project to project or industry to industry.
Conclusion:
On the basis of above study, it can be concluded that risk is a wider concept that is associated to the each and every aspect of human’s life and business’ operations. An individual can never eliminate risk and also not able to discover all possible risks by the planning and management of risks. One needs to spend a lot of time for the proper risk management to identify and analyze the occurrence possible risks. It can also be concluded that there are various strategies and methods that can help an individual to evaluate the risks. On the basis of evaluation, same should be ranked for the purpose of making a strategy for appropriate treatment of identified risks. Further, the report also concluded some important steps that should be considered at the time of formulating a strategy for gaining positive outcomes through execution of project risk management. All the methods, information and strategies mentioned in this report are derived from the authenticated articles and books published in this stream. It can also be concluded that risk management process is a never-ending process for project managers because the risk is included in every type of project. For managing such risks in an effective and efficient manner, a project manager should have sufficient knowledge of risks management process and strategies. The strategies should be framed in such a way so that these could minimize the chances of occurring risks along with reducing the impact of risk. However, risk cannot be eliminated but it could be minimized. Most appropriate tools for managing risks are acceptance, ignorance and transfer of risk. Thus, a manager should always try to minimize the occurrence and impact of risks rather than adopting preventive measures for stopping occurrence of risk. Therefore, risk managing process should be executed in careful manner with the help of above-mentioned methods and strategies.
References
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