Aspects of Project Risk Management Assessment Answer
It is very essential for an organization to ensure that all the activities undertaken in a project management process are efficient and effective. For this purpose project management team undertakes different types of processes and such processes include risk management process. Project risk management is one of the most essential parts of project management as it helps in the identification of all the factors that can affect the overall outcome of a project. Any project or business activities are undertaken by the organization are being executed in the business environment and the nature of the business environment is very dynamic. There are various external factors generated by the external environment and these factors can have a significant negative impact on the operations of the company (Sadgrove, 2016). In addition to that, there are various internal factors generated within the organization that can also affect business operations such as inefficiency of the project team members. The risk management process helps the business organization to identify the potential risk factors and ensure that their impact is as minimum as possible. The main focus of this report will be to identify different aspects of project risk management. The theoretical aspect of project risk management will be discussed in this report including general practices that can be helpful for identification and mitigation of risk in any project management process.
Concept of risk management
Any uncertain event occurring during the course of business or project undertaken by the organization that can have a potentially negative or positive impact on overall operations can be called as a risk factor. The primary focus of a risk management process is to ensure that this negative impact of the identified risk factor can be minimized so that actual results are similar to the results estimated during the initial stages. There is no specific factor that generates or creates these risk factors and these risks in business can arise out of people processes technology and resources. For a better understanding of these risk factors, it is a common practice among the business organization to categorize it into two categories i.e. external factors and internal factors. This type of categorization is helpful in preparing plans for mitigation (Burns and Dewhurst, 2016). For the purpose of external factors, the primary focus of organizations is to ensure that impact is as minimum as possible as external factors are beyond the control of Management. On the other hand focus in case of internal factors is to mitigate the identified risk completely as they are generated within the organization and are in total control of the organization.
Importance of risk management
Risk management is one of the most important processes into day to day operations of the company as it helps and avoiding any factors that can have a negative impact on day to day operations of the organization. In the case of a business, the organization undertakes a particular project then it is obvious that such a project would have a lifetime and certain objectives. The management process is useful in the successful execution of a project under consideration (Bromiley et.al, 2015). Some of the factors with the help of which importance of project risk management can be described as follows-
Planning for success- a Business organization can easily establish internal and external risk factors that can have a negative impact on the success of the project. With the help of such identification, management is ensuring that all the project activities are undertaken in accordance with the planning. In the absence of risk planning management will not be able to execute the plans efficiently and it will reflect on the overall success of the project under consideration.
Meeting deadlines- One of the most important parts of any project management process is the time factor attached. Every project is required to be completed within a particular time period otherwise it will affect its overall revenue generation capabilities. For example, if management is establishing a new office in a new region then financial estimations made by the organization will be dependent on the point of time from which the project will be started. Therefore delay in completion of a project will reflect the loss of revenue for any Organization in this scenario (Brustbauer, 2016). The risk management process helps in identifying the factors that can have a negative impact on the ability of the organization to complete a project with an estimated period of time and strategies can be prepared to ensure that the deadlines are met.
Cost-efficiency- A significant amount of financial and other resources are dedicated by the business organization towards projects undertaken by them. For example, if a particular organization is moving from a manual system to an automatic system then the number of financial resources allocated to the project will be very high. In this scenario, it is very essential for our organization to ensure that the project outcome is achieved in the first attempt otherwise additional financial resources will be required. In addition to the loss of revenue and loss of time will add to the financial failure of the company. Risk management helps in identifying the factors that can result in an increased cost of operation. In addition to that, management would be able to achieve overall objectives in the first attempt if effective and efficient a risk management process undertaken (Olson and Wu, 2015).
Identifying deficiencies and finding alternative solutions- One of the most important functions undertaken by management is that business organizations are able to identify deficiencies that might have a negative impact on the success of the project. During the risk management process of management might also identify some operational or financial problems in the project and strategies for amendment can be made accordingly.
Factors to be considered in risk assessment and management
Environmental and internal analysis
It is already defined that there are two categories of risk factors that can have a negative impact on business operations and these factors are internal factors and external factors. For the effective and efficient identification process, it is very essential for an organization to conduct an environmental analysis of the business environment in which it is operating for identifying external factors. On the other hand, internal analysis is essential for the purpose of identifying internal factors (Sweeting, 2017). Focus on only one of the above-mentioned analyses will decrease the level of efficiency and effectiveness achieved in the project risk assessment process.
Early identification of risk factors is very essential for an organization as it helps in minimizing the negative impact of such factors. It is essential for the project manager to start the process of risk assessment and identification during the pre-planning stage. This type of assessment helps the business organization to ensure that amendments in the project management process can be made in accordance with the risk assessment plan. In addition to that roles and responsibilities of human resources can also be changed accordingly. Management will be able to minimize the financial impact of risk factors due to early identification. This can be done by considering the perspective of different stakeholders during the process of risk assessment and management.
Appointing owner of the risk
Appointing owner of the risk is also an essential step to be undertaken in project risk management which is generally ignored by project managers. This can be defined as the process that helps in delegation of work in relation to risk assessment and management. With the help of the strategy management of the organization can easily experts in a different field to manage risk identified in their field of expertise. For example, the financial officer of the organization can be appointed as the owner of financial risk factors (Oliva, 2016). With the help of expert knowledge in the field of financial management, the officer can easily identify risk factors in a more efficient manner as compared to the operational manager that is generally appointed as the project manager.
Identifying the opportunities
The concept of business opportunity is very near to the concept of risk assessment and management. It is very essential for business organizations and managers to ensure that they are able to separate these two factors in order to ensure long-term growth and development of the organization. Any business organization cannot survive without identifying business opportunities out of the risk factors. It is important for business managers to have the quality of conducting an effective and efficient cost-benefit analysis process for identifying the opportunities that can help in the long term development of the company.
Prioritization of risk
Another important aspect of risk management is the prioritisation of risk. This factor is essential to identify the procedure of risk management processes. It can be said that all the risk factors will not have a similar impact on the overall operations of the project. The degree of risk factors can vary in accordance with their probability of occurrence and potential impact on the final outcome of the project. Therefore assigning prioritization to each risk factor is very essential so that efforts and other resources can be dedicated accordingly. Therefore it can be said that risk factors are required to be managed in descending order of their priority (Florio and Leoni, 2017). This is due to the fact that the availability of financial as well as other resources is limited in the execution of any project.
Risk assessment and management is a continuous process that is required to be continued throughout the lifetime of a business for a project under consideration. It is not necessary that a particular risk factor will not affect business operations or project activities again if they are mitigated once by the management. The current business environment is very dynamic and there is a possibility that project activities will be affected by risk factors on a continuous basis. In addition to that, all the steps undertaken in the risk management process are required to be continued throughout the lifetime of the project rather than focusing on a particular step of the risk management process.
Automation of the risk management process
Another factor that is contributing towards increased efficiency of the risk management process is the use of risk management software for identifying the risk factors in a particular project (Hoyt and Liebenberg, 2015). These software uses trend analysis as well as documentation is prepared by management for identifying the possible risk factors that might be affecting the outcome of the project.
Risk management process
It is very essential for any organization to ensure that there is a fixed policy of an organization to identify is factors during the execution of a project. This type of fixed rules and regulations helps the business organization to identify risk factors in a more efficient manner as such processes developed after considering all the internal and external factors (Falkner and Hiebl, 2015). In addition to that, it also helps in the early identification of risk factors. Following is a basic structure of the risk management process that helps business organization for identifying risk factors in a particular project-
Identifying potential risk
First of all, it is very essential for an organization to conduct an environmental analysis and internal analysis in order to get familiar with the particulars of the project under consideration. This analysis will help in identifying the factors that can have a potential impact on business operations. There are various factors that are required to be considered during the assessment of preliminary risk factors such as a study of the company, experience, industry factors, etc. It is very essential for an organization to ensure that all the factors are assessed whether such factors have a positive or negative impact on the operations.
Measurement of frequency and severity
In this second step, management is required to assign factors of frequency and severity to each of the risk factors under consideration. This type of process will help business organizations to prioritization the risk factors under consideration. First of all, management is required to categorize the risk factors into positive and negative factors. Positive factors are required to be encouraged as they are expected to contribute toward the success of the project (Hammer, 2015). On the other hand, prioritisation list is required to be prepared with respect to all the negative factors in accordance with the quantum of the possible impact on the business operations.
Identifying alternative solutions
After prioritization of each of the risk factors that can have a potential negative impact, it is essential to identify strategies that can be helpful in mitigating the negative impact to a tolerable level. Identifying more than one solution is essential as keeping a backup plan is always a good strategy on part of any project manager. The timeline of a particular project is already decided and if a particular solution does not work then the project manager can implement the alternative solutions immediately to manage the risk. Identifying alternative solutions will also help in the continuous examination of risk factors and their management. Expert knowledge in the field of risk management will help in identifying a more appropriate solution to risk factors. Assigning roles and responsibilities in the risk management process will help in involving experts in different field of project management.
Implementation of strategy
This is one of the most important steps in the risk management process as this is type will be concerned with the actual implementation of the risk strategy. Implementation of strategy with respect to the prioritized risk factors will be the primary concerned of the project manager and its team (Lam, 2014). Alternative solutions for each of the risk factors have been already identified in the previous step, therefore this step will be concerned with the execution of the best possible solution with respect to the situation. Resource allocation will be another important factor to be considered in the implementation stage as limitation of available financial and other resources will definitely have an impact on this step. Throughout this process project manager will be required to consider target outcomes with respect to the tolerable limit up to which a risk factor can be effectively managed.
Monitoring and control
This is the last step in the risk management process that helps in continuous monitoring and evaluating the success rate of the risk management strategy. Risk owners have already been decided by the project manager and responsibility of risk monitoring will lie with such risk owners. This will help in maintaining accountability and transparency in the process of risk management. These risk owners are required to provide regular reports with respect to the efficiency with which risk management strategy has been affecting the outcome of the project in a positive manner. Internal controls are also required to be implemented to ensure that the efficiency of these strategies is maintained throughout the life of the project (Mikes and Kaplan, 2014). The monitoring and control process will also help in developing an effective organizational culture in which business organization is focused on the risk management process.
On an overall evaluation of this report, it can be said that a risk management process is very essential for the effective and efficient execution of a project. A significant amount of financial and other resources are contributed by the business organization towards any project and it is essential to ensure that probable outcome is achieved. This report has discussed the various important aspects of risk management with respect to project management principles. It is important for the project manager to ensure that all the factors that might be affecting the project management process are considered in risk management policies and procedures. The basic structure of the risk management process is also provided in this report and business organizations will be required to alter this process in accordance with their needs and requirements.