Project Risk Management - Assignment Example

PROJECT RISK MANAGEMENT Name: Institution Affiliation: PROJECT RISK MANAGEMENT PART A – APPLICATION The Real Estate project for this case study is the construction of rental houses and trading buildings in Perth City. Contextual Information This project is designed and strategized to build several rental houses within Perth City, Australia. The main objective of the project is to find an amicable solution to the increasing population in the city. The project is scheduled to be completed in three years and the company in charge is Real Estate Organization Australia. I am working as the assistant manager foreseeing the successful completion of the project. The main features of the project include: The project must be completed within the scheduled period. High quality outcome and deliverables are expected. A lot of funds have been allocated to this project as compared to other real estate projects in the region. This is a milestone project for my company and successful completion will enhance the company’s reputation. 1. RISK IDENTIFICATION A. One risk event in the project is the lacking of enough finances to successfully complete the project within the scheduled period. B. The first cause of this risk is the increment of the costs of the materials that are used in the project. This is mainly referred to as the operational cost involved in the project. The second cause of the risk is poor management of funds allocated to various project activities. If the management do no plan the finances well there will be a high chance that financial issues will occur. 2. QUALITATIVE RISK ANALYSIS A. Create a 5-level Consequence table (insignificant, minor, moderate, major, catastrophic). The Objective Insignificant Minor Moderate Major Catastrophic Cost Negligible increase in costs Not more than $20,000 $20, 000 -$30,000 $30,000- $50,000 Excess of $75,000 Time Less than 20 days 20 to 30 days 30 to 40 days More than 1.5 months Unfinished Quality Highly contented 100% Rather contented 80% Fairly contented 50% Discontented 30% Highly discontented 0 Environmental impacts Somewhat Raises Concerns Some area is polluted Large area polluted The whole place is inhabitable due to pollution The whole city is polluted The Cost The risks affecting the project substantially impacts on the cost leading to changes in the project budget. The legal authorities in charge of Real estate projects have stipulated various policies that are aimed at ensuring that these projects are completed in a legally acceptable manner. The penalty that is indicated in that Real Estate project pay a penalty of not more than $150, 000. However, negotiating for these legal terms before the commencement of the project is vital. The other challenge that is expected in terms of finances is when the project is not completed within the stipulated time. a 30-day delay in the real estate project is expected to course up to $75, 000 Australian dollars’ deficit in the budget. 20 to 30 days’ delay is expected to cause an increase of up to a maximum of $20,000 which is considered as a minor consequence. Moderate consequence is expected if the project delays in about 30 to 40 days. If the project delays in more than 1.5hrs the situation is considered as major and will lead to a change of $50, 000 in the budgeted cost. On the other hand, if the project delays in less than 10 days then the consequence is regarded as negligible and will have insignificant impact on the project cost. Time The expected period for successful completion of the project is 24 months. On the contrary, there are some issues that can delay the project scheduled time. If the project delays by less than 20 days, the effect is considered as insignificant. Delay in 20 to 30 days will lead to minor implications especially on the completion of the project. 30 to 40 days’ delay will lead to moderate time loss. On the other hand, if the project delays in more than 1.5 months, this will lead to a major time loss and major implications. the catastrophic level of implication is realized if the project is unfinished. Quality There are several ways that can be used to measure the quality of the project. One of the most useful method is to conduct survey using developed questionnaires. The primary customers of this project are people looking for rental houses and business rooms within Perth City. the level of measuring and assessing the satisfaction of these customers is percentage. If the percentage is awarded as 100, then the level of satisfaction is considered as high. This means that the customers are highly satisfied with the rental house and the business units. This is a clear indication that the project quality is a negligible issue. If the percentage awarded is 80, it means that the customers are rather or somewhat contented with the project deliverables. This is an indication that the quality of the project has minor consequence. On the other hand, when the quality is awarded 50% it is an indication that the customers are fairly contented. As such, it shows that the quality of the rental and business units has moderate issues. If the quality of the project is awarded 30%, it means that the customers are discounted and this leads to major problems. Finally, if the quality measure is awarded 0, it shows that the customers are highly discontented and the problems associated are catastrophic. Environmental impacts As the construction of the rental houses and business units continues, there are several environmental impacts that are associated. One of the main implication is the pollution of the environment. The materials being used, the drilling, machines, and noise generated are all sources of pollution during the construction progress. A catastrophic impact is expected if the whole of Perth City is polluted. This means that the noise, soil, and water pollution in the region is excessive. It raises major concerns if the whole area under construction is inhabitable. On the other hand, the problems associated with the environment are considered as moderate if large area within the construction site is polluted. However, if the environmental impact resulting affect only some area it means that the problems are minor. The problems are insignificant if the environmental pollution only raise somewhat concerns. B. Qualitative Risk Analysis Likelihood table DESCRIPTOR CRITERIA / OBJECTIVE Almost Certain The event is expected to occur in most circumstances Likely The event will probably occur in most circumstances Possible The event should occur at some time Unlikely The event could occur at some time Rare The event will only occur in exceptional circumstances Likelihood-Consequence table RISK RATING Insignificant Minor Moderate Major Catastrophic Almost Certain Moderate Moderate High Extreme Extreme Likely Low Moderate High High Extreme Possible Low Moderate Moderate High High Unlikely Low Low Moderate Moderate Moderate Rare Low Low Low Moderate Moderate Risk rating for chosen risk table Risk Risk rating Level of probability Level of consequence Lack of enough finances (Mismanagement) Moderate Unlikely Moderate Level of probability The level of probability of this risk to happen has been allotted as unlikely. This means that there are high chances that it may not happen. It is imperative to note that this probability of occurrence of the risk event is dependent on two factors. Firstly, the unlikely level of probability is the dependent on the causes of the risk event. Secondly, the probability is determined the level of probability of occurrence of these causes. The main cause of insufficiency of funds to run the real estate project was identified as increase in the prices of commodities and mismanagement of the budgeted funds. One of the causes of funds mismanagement is the satisfaction of the project managers. The employees concerned with ensuring that the finances are utilized well may want more money to top up on their salaries. On the contrary, the company has policies that clearly stipulate the amount of compensation in terms of salaries and wages for all the employees at each rank. This means that changing such a policy in favor of the top project management might prove difficult since all the salary policies are discussed at the commencement of the project. The other contributing factor to the insufficiency of funds to ensure that the project is completed as stipulated is the changes in the prices of commodities used in the project. It is imperative to note that the project is categorized into various sections or phases. The initial phases might run according to the projected budget. However, the worry that we face as the project managers is the future risks at the later stages of the project. For instance, it will reach a phase whereby electrical installation must be done as the project nears completion. At this point, the economic changes might affect the prices of the materials being used which possess a great risk to the success of the project. For the mismanagement of funds and the changes in the cost of materials, the level of probability to happen is unlikely. This is a clear indication that we have strong faith that the top management will initiate all the necessary strategies and policies to ensure that the real estate project is completed successfully. One way of enhancing successful completion is to ensure that all the key team members are satisfied with their compensation. Any issue that can arise and compromise the quality of the project and its completion in line with the time, cost, and environmental concerns should be amicably solved with immediacy. Level of consequence The consequence of mismanagement of funds allocated to various project phases may lead to delay of the project. In addition to the above, this delay will lead to increase in the budget and the project may end up being unfinished and this is a catastrophic consequence. In terms of the environmental impacts, the consequence is almost negligible. This is a clear indication that the surrounding environment and the employees are not likely to be affected by the low pollution caused during the construction of the project. If the cost of materials changes by an amount such as not more than $20,000, the consequence level on the project is minor. This is a clear indication that the project has high chances of being completed without any serious challenges. Mismanagement of the project funds may lead to the firing of the involved team members according to the real estate project policies and regulations. This means that the project will slightly stop for the recruitment of new team members foreseeing successful execution and management of the budget. The recruitment process is expected to take less that 20days and the consequence is negligible to the project. One effect of such loss of team members mainly affect the overall success of the project in terms of quality and cost. In conclusion, all these effects are considered as of moderate level. 3. RISK TREATMENT Risk treatment 1: Enhance organizational culture Organizational culture is concerned with how all the company employees regardless of the ranks and positions are expected to carry out their roles and responsibilities. An effective organizational culture emphasizes the need for teamwork, integrity, honesty, punctuality, problem solving, and accountability. Thus, all the employees must carry out in accordance with the policies and regulations of the company entwined in the organization’s culture. However, there is a substantial need to enhance it with the main objective of preventing further occurrence of issues such as mismanagement of funds. One of the most practical strategies of enhancing organizational culture is to use incentive and rewards. The employees who carry out their roles and responsibilities as expected or extraordinarily should be rewarded with salary increment, promotions, and other related incentives. On the other hand, regular reviews on salaries and employee needs need to be conducted with the objective of tackling issues of concern. Risk treatment 2: Link performance to compensation The main risk event identified in the future of this real estate project is inadequacy of funds to successfully complete the project. Employees in charge of the budget are the primary people involved with ensuring that the budgeted funds are smoothly executed. In case of any need for adjustment, the same should be conducted professionally and the management must be involved when making such modifications. This will ensure that the issue is well discussed and analyzed for integrity and accountability issues. To achieve this, there is a substantial need to link performance to compensation. The strategy will ensure that those employees who are performers and work to ensure that the goals of the project are achieved are compensated well. On the contrary, the non-performers who are involved with issues such as mismanagement of funds and dragging down performance are treated right. Their bonuses and salaries can be reduced to a point that they decide to enhance their performance. However, if they are considered to still lack behind in performance policies that ensures that such employees are fired needs to be developed and implemented. Risk treatment 3: Setting up strict policies governing the employees conduct The organization culture emphasizes the employees to behave and carry themselves in some uniform manner. Some of the key issues emphasized include accountability, transparency, integrity, teamwork, and respect. However, organizational culture alone is not sufficient in ensuring the budget is executed transparently. The company need to develop and implement strict policies with the objective of overcoming issues such as mismanagement of the project funds. Such policies and regulations should clearly stipulate the consequences of being found guilty of violating these laws. For instance, the policies should state that any project manager who misuse the project funds will be fired and legal action will be taken against them. As a result, this policies and regulations will be essential in ensuring that employees carry their roles and responsibilities as expected. Treatment selection For this real estate project, risk treatment 1 will be selected and implemented. The enhancement of organizational culture will be vital in enhancing the employee’s inspiration to perform as expected. This will encourage them to carry out their responsibilities and duties with transparency, integrity, accountability, and enhance teamwork. For risk treatment 2, employee performance will be increased. This is because each employee works to be compensated. In addition to the above, the quality of the project will also be enhanced. However, some employees may feel that they are being forced to perform and as such linking performance to compensation is not the best strategy. For risk treatment 3, the company will spend a lot of time and money formulating and developing policies and regulations to govern the code of conduct. As well, taking legal actions against guilty employee might prove expensive since lawyers have to be involved. Residual risk Risk Risk rating Level of probability Level of consequence Residual risk Little Occasional Minor After considering to enhance organizational culture as the best treatment strategy, the risk rating adjusts from moderate to little. This is mainly due to the reduction of the level of probability from unlikely to occasional and the level of consequence from moderate to minor. The contributing factors to this adjustment is the increased performance, transparency, accountability, and teamwork. To reduce this risk to zero level, the company needs to enhance the employee compensation to avoid issues such as mismanagement of funds. Secondary risk Secondary risk Risk rating Level of probability Level of consequence Failure of the workers to familiarize to new organizational culture Little Occasional Minor Description of secondary risk Taking the strategy to enhance organizational culture is the best strategies to reduce issues with the insufficiency of funds due to mismanagement of claims of changes in prices of commodities. On the contrary, this can lead to difficulties for the employees to familiarize themselves with the culture of teamwork, accountability, transparency, and integrity. This may be crucial and can lead to poor performance compromising the quality of the project deliverables. Level of probability and level of consequence The level of probability has been defined as occasional and this indicates that its occurrence is rare. New employees are the primary people who might find it hard to cope with such an organizational culture. The level of consequence is allotted as minor, since it might slightly affect the productivity and performance. Treatment 1: Train the employees on the new and enhanced organizational culture. This will be vital in improving their adaptation rate. Treatment 2: Employ new project managers to foresee successful utilization of the organizational culture. These new managers will ensure that those or are not adapting to the new way of behavior are not compromised. RISK REGISTER No Risk Probability Consequence Rating Treatment Residual probability Residual consequence Residual rating who when $ Status 1 Mismanagement of funds Unlikely moderate Moderate Enhance organizational culture Occasional Moderate Little Project manager Before start 15000 Pending 2 Mismanagement of funds Unlikely moderate Moderate Link performance to compensation Unlikely Minor Little Project manager During project 20000 Pending 3 Mismanagement of funds Unlikely Moderate Moderate Setting up policies and regulations Occasional Moderate Little Project manager Before start 30000 Pending 5. CRITICAL ANALYSIS – Reflection The real estate company is in the process of constructing high class rental houses and business units in Perth City. The project involves use of various expensive building and construction materials. As well, there are several employees hired to take on various roles and responsibilities. One of the major risk events that can occur is insufficiency of funds. The main cause of this risk event is mismanagement of the funds allocated to various phases in the project. The main concern is the future phases or the final phases of the project such as installation of electricity and doing finishing. The other crucial cause of the risk event is changes in the prices of the commodities. The project budget was developed at the commencement of the project and the economic changes have high chances of affecting the prices of various commodities. However, there are various treatment strategies that have been formulated to cover up these risks. One of the major strategy is to enhance the organizational culture to emphasize on key issues such as transparency, integrity, and accountability. This strategy will compel all the employees involved in the project to work in accordance with the culture. As a result, anyone that involves themselves in activities such as mismanagement of funds will be violating the culture and this is punishable. In addition to the above, the main objective of utilizing this risk treatment strategy is to enhance productivity and the quality of the project. In conclusion, this treatment strategy will be crucial in minimizing the risk rate from high to low. This is mainly because the probability level will be reduced to unlikely while the consequence is reduced to minor. As such, this is a clear indication that the risk treatment strategy is effective and efficient for the successful completion of the project. In connection to this, training of employee and hiring of new project managers will be essential in ensuring the maximum success of the strategy. References Teaching Notes (2016). Topic 2: Project Risk Management: Risks Components and Classification. Curtin. Teaching Notes (2016). Topic 3: Project Risk Management Paper 3: Project Risk Management Introduction, Context, Identification. Teaching Notes (2016). Topic 4: Project Risk Management Paper 4: Qualitative Risk Analysis. Teaching Notes (2016). Topic 5: Project Risk Management Paper 5: Risk Treatment. Read More