Risk Management as a Key Component of Project Management - Coursework Example

PROJECT MANAGEMENT (RISK MANAGEMENT AS A KEY COMPONENT OF PROJECT MANAGEMENT, RISK ANAYSIS AND TECHNIQUES OF RISK MANAGEMENT) 22ND July, 2008 TABLE OF CONTENTS 1. Executive Summary………………………………………………………... 3.0 2. Introduction………………………………………………………… ……... 3.0 3. Significance of Project Risk Management ……………………………….... 4.0 4. Project Management is Risk Management………………………………… 5.0 5. Risk Management in Projects……………………………………………….6.0 4.1 Identification of risks……………………………………………… 6.0 4.2 Sources of risks……………………………………………………. 6.0 4.3 Risk Analysis methods and techniques……………………………. 7.0 6. Application and Analysis of Project Management, use of Models, methods and techniques in project management………………………………….… 9.0 7. Role of Project Board, Project Manager, Stakeholders in the execution of the project…………………………………….……………………………….. 11.0 8. Conclusion……………………………………………………..………….. 14.0 9. Bibliography…………………………………………………….……….. 15.0 EXECUTIVE SUMMARY Project Management involves a well knit execution of a preordained plan to achieve the preset goals and objectives of an errand. However, no single task is free from risk and menace of environment whether internal or external, for which apposite risk assessment procedure must be followed. This paper deals with the proper understanding of the concept of project management and its relation with its key component feature of risk management and analysis. A further evaluation of different kinds of risks faced in real life situation is also conducted. INTRODUCTION Project Management is the organization of resources and teams linked with a specific project or task so as to gain optimum utilization of resources and manpower, to achieve project goals at a pre determined time within the stipulated financial restraints of the project. Almost all of us at some time or the other have designed or planned projects including various information and data to schedule work but an important factor involving risk assessment needs to be thoroughly analyzed in order to mitigate the risk and manage uncertainty related to a future threat in any form. Project management is used as a tactical tool by the firm for the execution of project. They serve as an indispensable aid to respond to the dynamic business environment for the development of new products and services (Wessels, 2007). To co-ordinate the project and risk management together, various tools, techniques and models could be applied depending upon the situation and expertise imparted by the project board, manager and varied stakeholders. However, in a real life situation the main objective of applying risk management to any project is to reduce different risks such as environmental, technological, human, political, legal risks etc, in relation to a pre selected area of work. SIGNIFICANCE OF PROJECT RISK MANAGEMENT The success of a project to a very large extent depends on the accuracy of the estimation of risk factors and means of mitigation of uncertain events. The project risk is an unpredictable and uncertain condition which may result in a positive or negative consequence, on the other hand project risk management is a process which identifies analysis and retorts to the uncertain conditions, thereby maximizing the chances of positive outcome and reducing the range of negative or adverse occurrences and upshots in future. The project risk management is an imperative tool in enhancing the capability and efficiency of an organization, in application of the organization's absolute risk management processes and obtaining proficient results at times of scheduling events, cost effectiveness and tapping the potential opportunities. The internal proceeding of an organization involves activities in a project risk management process, right from the commencement at the initial phase of the project and continual improvements throughout the execution of the project. A proper coordination of the project risk management with other management functions such as planning, directing, staffing etc augments the entire process. All project stakeholders have their individual interests in the project which gives a new silhouette to the project (The basics of project risk management, 2004). Project risk management involves intricate planning, risk identification, quantitative and qualitative analysis, supervision and effective control system. Risk management helps in chalking out a contingency plan and methodology to track risk and evaluate the extent of the risk exposure, with a corresponding risk management framework. The integration of the risk management and the project management activities can be accomplished by realizing a systematic approach to management by establishing the objectives, identifying and analyzing the risks, conducting proper evaluation and establishing effective control system and thereby implementing an appropriate remedial action for treatment of deviations and discrepancies in the system and acknowledging the unidentified risk factors for future considerations. Flexibility and comprehensiveness in the project risk management approach must be inculcated in the process to structure the key elements at a latter stage mainly the unidentified risks which may hinder and deter the overall performance of the project in future. Project delays give rise to numerous problems such as over costing and scheduling of project, to an extent where market scenario and circumstances based on which the project was initiated would have taken a complete downturn (Sterman D.J, 1992). Such situation needs to be cracked down by implementing a well panned risk assessment strategy. PROJECT MANAGEMENT IS RISK MANAGEMENT Risk management is considered to be a part of project management, as both of them utilize the same technique and tools to define the task, scheduling, budgeting etc However, it is stated by the researchers that not all projects need risk management as managerial skills and competencies can reduce the risk factors but to put the skills into practice an extensive study of risk analysis is obligatory. Hence instead of taking the two terms separately; they both could be conjoined because any project needs risk assessment as a basic feature to stumble on its feasibility and practicality in the market. In other words, project management is risk management as well; no stage of the project can surpass the peril of internal and external environment. RISK MANAGEMENT IN PROJECTS Risks are borne by all projects, whether low or high. An experienced and routine kind of project would entail lesser amount of risk in comparison to a completely unique and fresh team. Though the risk factor cannot be absolutely eliminated from the projects but can certainly be reduced. IDENTIFICATION OF RISKS Any kind of project starts with the identification of risks and their impacts on the success of the project. The risk tolerance level of the project stakeholders and the project board including the manager decides the acceptability and the feasibility of taking chances of such risks. However an early identification of risks in the project can only save the future disasters. SOURCES OF RISKS Risks could creep up from all ends, mainly the internal links and the external. Internal risks are somewhat controllable and can be successfully handles such as the market and the technical risks while external risks such as competitor’s strategy, government rules and regulations, international market fluctuations are uncontrollable factors stemming outside the project. For such risks, it becomes quintessential to keep the project layout flexible and supple for adaptations and changes as per the market conditions (Nicholas M J, P, 2002). RISK ANALYSIS METHODS AND TECHNIQUES In a real life, everybody needs to combat threat in various forms, a single task or a project also needs some specialized tools and methods for smooth running of the operation, different stages of the project need specific analytical devices for instance, while at the risk management planning stage, meetings and analysis by the entire crew, stakeholders, team members can prove to be beneficial in setting up the initial step. When the risks are been identified by the members then a detailed Delphi, Brainstorming, SWOT analysis could be conducted to identify the most crucial ones. Apart from this ‘Assumption analysis’ which explores the validity of each assumption made could be justified. Ishikawa and flow charts are useful for identifying the causes of risks. Qualitative and Quantitative Risk Analysis include tools and techniques such as risk categorization, risk urgency assessment, for gathering of information interviewing; expert judgments and probability distributions may be used for representing the uncertainty and biasness in values such as cost and time factors. In a real life ‘Sensitivity Analysis’ which helps in finding out the potential impact on the project is a beneficial analytical technique. Expected monetary value analysis is an imperative tool in calculating the average output of events which may not even take place in future. Expected value = ∑ [ ( Outcomes) * ( Likelihoods)] Easiest methods for describing a situation under deep consideration may be the application of a decision tree analysis which can be used to assess, which risk responses result in the best expected corollary. Simulation using a model built on a deliberate thought on the project objectives is a wise tool for risk evaluation, could be used to estimate the likelihood of failure of a project. Strategies for risk response planning can be Avoidance for complete elimination of the risk, Mitigation for the reduction of the risk or Transference of the risk to a third party. For exploiting the positive risks, sharing enhancing of risk strategies may be applied. For controlling and supervising the risk, the tools such as, risk assessment and trend analysis could be performed. Recommended corrective and preventive actions may also be enforced for fruitful results. PERT AND CPM The PERT, Program Evaluation and Review Technique is a tool to incorporate uncertainty factor into the project schedules. Project duration has always been a matter of concern in the completion of the project due to the unexpected new developments during the executional phase. Application of PERT categorizes the times estimates into three fields – optimistic, most likely and pessimistic that is the minimum, maximum and moderate time limits within which a project can be completed. Such segregation throws a clear reflection on the risk assessment planning of the project. (Nicholas M J, P, 2002). CPM is the critical path method which performs the same function as of PERT but excludes the cost factor from the scheduling. The focus of the tool is on applying additional resources to perform any project activity at a normal time schedule. (Meredith R J, Mantel J S, Jr, 2007) APPLICATION AND ANALYSIS OF PROJECT MANAGEMENT Project Management was initiated in the late 1960's in the construction works of Pyramids, Great Wall of China etc. It is a systematic approach in steering a project from its conception stage to closure. It considers the project as a system of interrelated errand in a changing environment with minimum tradeoffs, and manifold objectives of a project. Every project is unique in its own way because each of it has a distinct set of target to be achieved. The project life cycle begins from the initiating phase and moves ahead to the planning, executing, controlling and closure stage. All sorts of project have three main elements and components to be engrossed firmly in the designing structure of the project, the tasks, resources and time. All these factors are co-related with one another and any kind of change in any one of these perspective have a corresponding affect on other variables. The two important tools for the completion of the initial stages of the project are the preparation of the Statement of Scope (SOS) and Work Breakdown Structure (WBS). SOS indicates the revelation of the vision framed by the project manager, stakeholders, and team members, whereas WBS schedules the step by step procedure of the vision entailed in the SOS statement. For planning use of Gantt Charts is extremely useful for complicated and complex projects, his chart helps in analyzing and planning multifarious projects, developing a proper schedule for the accomplishment of the project tasks and allocating the scarce resource as per their optimum utilization within the restricted time frame. The Gantt charts assist in the preparation of the critical path methods for time scheduling. It also helps in tracking and preparing a remedial action plan for the deviations and discrepancies transpiring in the due course of the project execution. Project Management Software is another tool which helps in the development of the teams and the individual by creating Gantt charts and asserting proper timing with each step. Microsoft Project and Dot Project are examples of the management software. For managing projects few of the models can be used such as System Dynamic Modeling can be applied in business strategizing and policy assessment. A mental model incorporates a wide range of information and data and espouses a flexible approach to adapt to new and changing environment of the market. Network diagrams depict the sequences of activities and events using the AON method, the Activity-on-Node diagram. GERT technique (graphical evaluation and review technique) allows looping back of activities, hence iteration is possible. This technique overcomes the limitations of both the PERT and the CPM techniques. Several approaches are undertaken in the implementation of the project such as the agile, interactive, incremental and phased approach. Even the bottom up approach could be applied which understands the capacity of the project teams. Project Management objectives are formulated as SMART which involves features such as specific goals, measurable variables, achievable targets, relevant objects and time bound targets. Inspite of the use of the above methods, if the project fails then few causes for such failure must be considered such as inappropriate project management approach, incompetent managerial skills applied by the manager, inappropriate application of management techniques, distorted communication, improper planning, over or under estimation of cost, schedule or time, weak control and tracking or poorly planned termination and closure techniques. It can very well analyzed by applying the various tools and techniques of project management that the real experience gained by the PM is better and efficient control and healthy customer relations which in turn enhance the project’s rate of return on the investment put into the project. Astute orientation towards positive results, strong inter-departmental and inter-functional coordination’s, boosts up the confidence and spirits of the workforce. It is generally seen that the use of project management is more in times of crisis and difficult situations rather than when things go smooth without any problem or hindrance. The risk level or the stake in adopting a project management approach may be high but the results are many times better in comparison to any other form of management. In the 21st century, project management is recognized as the ‘career path’ in growth and prosperity for numerous firms, especially the new and the recently established firms. ROLE OF PROJECT BOARD, PROJECT MANAGER, STAKEHOLDERS IN THE EXECUTION OF THE PROJECT Project Stakeholders are individual identities, who have some interest in the execution and conduction of the project plan. Their needs, aspirations and expectations influence the overall project objectives and targets which in turn aggravate the risk factors. The uncertain and varying levels of market changes, controlled and regulated by the stakeholder authorities affect the course of the project life cycle; their terms and directions compel the project management system to be well directed and planned in order to manage the future risk associated with the project. Project managers, who overlook the importance of stakeholders and fail to identify the key people, increase the level of risk to a greater extent which may be a positive or a negative influence on a project; however the interest served by the negative stakeholders is an impediment to the progress and success of the project initiated. The key stakeholders who maneuver the proceedings of each project include: the managing authority of the project called as the ‘Project Manager’, the ultimate consumers of the project, the workforce, team members, the managing board, the financial sponsor and the direct and indirect influencers of the project such as the government, institutions etc. Based on these stakeholders’ expectations, the risk graph either rises up or points down to the surface, hence proper risk management strategy could indicate a clear image revealing the success or the failure of the project undertaken. PROJECT MANAGER Project manager is the leader responsible for the achievement of the project goals and objectives. He is the sole person accountable for the project, right from the conception to the completion phase of the project. The specialized leadership role of the project manager facilitates the entire team of the project. The manager’s role can be summarized as fulfillment of: Task needs + Team needs + Individual needs (Bista B, 2006), within the predefined quality, cost and time. Project manager has a high end liability towards meeting the expectations of the stakeholders. The manager is regarded as the central figure, whose utmost aim is to integrate all components and elements of the project for the accomplishment of the goals. He is the project communication hub who disseminates the commands, directions and information about the policies, strategies, schedules, budgets, modifications and other timely changes essential for the project. Role of an entrepreneur, liaison, negotiator, spokesperson well define the traits expected in a project manager Uncertainty and risk come as part and parcel along with the project, the manager is required to anticipate the future losses in all forms and plan appropriately to avoid crises. They have a discrete cost responsibility towards the project due to which application of effective tools and techniques need to be enforced to curtail the cost as well as the risk. The project manager has to have a clear demarcation of the success and failure criteria’s and the methods of determination and measurement such criteria’s while applying trade-offs in meeting goals and deadlines. His perceptions ultimately get the project moving. PROJECT BOARD The project board is responsible for providing the generalized directions and setting up of the management goals and expectancies. The board is on the whole responsible and accountable for the success of the project because the organizational aims are conveyed and framed by them, if the directions imparted are vague and ambiguous; the entire project goes hay via. The balancing act is a key feature performed by the board members, where the different and varied interests of all the stakeholders have to be kept intact. Tracking the course of the project, re-evaluating project at every stage, decision making on critical issues especially on reports which are beyond the control of the project manager is a key factor in fulfilling the project assurance role by the board members. A well framed project plan and documentation which includes project briefing, risks and issues comes under the domain of the project board which is crucial in stating the destiny of the project. CONCLUSION The success of the project depends upon the integration of the project and the risk management. The overall criterion for the success of the project is the satisfaction attained by the parties involved in the project, customers, manager and other stakeholders. If the client, developer and all entities of the project feel that their expectations and desires have been fulfilled and project goals have been realized, then the project must be taken as a success. BIBILIOGRAPHY 1. Sterman D. J, 1992, System Dynamic Modeling for Project Management, viewed on 22nd July, 2008, http://web.mit.edu/jsterman/www/SDG.project.pdf 2. Wessels. D. J, February 2007 The Strategic Role of Project Management, Published in PM World Today Vol. IX, Issue , http://www.pmtorum.org/library/papers/2007/PDF’s/Wessels-2-07.pdf 3. Nicholas M J, P, 2002. Project Management for Business and Technology, Principles and Practice: Managing Risks in Projects, New Delhi, Pearson Education Pte. Ltd, 2nd Edition, p307:327 4. Meredith R J, Mantel J S, Jr, 2007, Project Management, A Managerial Approach: Projects in Contemporary Organization, New Delhi, John Wiley & Sons, INC, 5th Edition, p 445 5. Part I, The basics of project risk management, September 8, 2004, 0470_022817_03_chap01.fm Page 11, viewed on 22nd July, 2008, http://media.wiley.com/product_data/excerpt/17/04700228/0470022817.pdf Read More