Risk Assessment, Categorizing Risks, Risk Management Strategies - Term Paper Example

Running Header: Project risk management Student’s Name: Instructor’s Name: Course Code: Date of Submission: 1.0 Abstract Project management is an art that tries to see to it that all aspects relating to the project run ultimately in accordance to a well laid plan. Such a plan should incorporate strategies that minimize risks and/or curb any associated risks that may arise in relation to the nature of the project. Risk management strategies should provide detailed risk assessment plans and consequently how to effectively manage these risks. The paper will consider the process of risk assessment and will consequently describe the importance of this process. This paper tries to analyze the strategies that should the project management team should put in place in the management plan so as to effectively manage any risks which may arise in the course of the project implementation. The paper will also categorize the risks which may arise during the project process. It’s important to understand that there are many ways of classifying risks but this paper will only consider classification that is based on the degree or intensity of the effect of the threat involved will have on project implementation. It’s also inclusive in this paper the effect that risk management will have on the project and in this perspective it will also focus on the means in which the risks involved can be mitigated. 2.0 Table of Contents 1.0 Abstract 2 2.0 Table of Contents 3 3.0 Introduction 4 3.1 Aims and Objectives 4 4.0 Findings 5 4.1 Risk assessment 5 4.2 Categorizing risks 6 4.3 What include in the risk of the project? 7 4.4 Risk management strategies 9 4.5 How can risks be reduced? 11 4.6 effect of reducing risk to project management 12 5.0 Conclusion 13 3.0 Introduction Project risk management is an essential part as the project undertaking project itself. The success of any project implementation is realized when risk occurrence is effectively managed and prevented. Practically risks are bound to arise from any project process and it’s therefore inevitable to understand this fact and laying down plans on how to resolve them in case they occur. Risks may arise in situations where inaccurate scopes are taken for granted and failure to manage these scopes may result to high risk experiences in project. Unforeseen circumstances and ineffective stakeholder participation may lead to risk occurrence during project implementation. From this perspective it should be realized that proper risk management is a fundamental consideration that has to be made if project success is anything to go by (Rounds & Robert, 2011, p. 87). 3.1 Aims and Objectives The main aims and objectives of this paper is to actively identify categorically the different types of risks that are involved in a construction project. The paper will focus on assessing the various risks involved and will try to come up with solutions that the risk management teams should put into consideration when laying out plans of project execution. It will also focus on the recommended ways in which the risks identified can be mitigated or eliminated. 4.0 Findings 4.1 Risk assessment Risk assessment refers to that procedure through which one examines and identifies possible sources of hazards and their relative probabilities to occur in any project process (Robert 1993, p. 102). Risk assessment is important particularly because they help the management team and stakeholders to priories on the major risk factors that matters most. For instance, before starting o construction project where one may require casual workers to move materials on their backs and therefore there is a risk of them damaging their backs or even tripping and falling (Danton 1998, p. 123). In such a case, the management team should realize this as a risk and should put down precautions to avoid injury on the employees. Effective risk assessment should take into consideration several factors: Identify and describe the risks and hazards that may occur. Identify the risk factors including who might be affected and how they are to be affected. Assess risks and the precautions to be put in place. Make a recording of risks identified and their relative precautions and description of how to implement the precautions. Consider reviewing of the assessment strategies and its necessary to consider updating the assessment process if necessary (Davies, 1996). 4.2 Categorizing risks There are many ways in which project risks can be categorized depending on various consideration factors of consideration. However, this paper will only focus on the simplest categorization and will consider risk categories as follows: Extreme High Medium Low Minimal This categorization procedure takes into account the nature of a risk depending on the probability of the rate of the risk occurring and the magnitude of the impact the risk will impact on the project (Morgan, Dekay & Fischbeck 1999, p. 231) Table 1.0: risk categorization relative to probability and intensity of impact in a construction project Risk Categorization degree Description of risk Fire extreme Fire outbreak may consume the whole project including materials, machines and may result to even death of the employees Resigning of employees medium The risk can pull back the project and my even bring the project to a halt stand. On the other hand, the employees can be replaced and therefore the risk is categorically described as medium. earthquake high The effect of an earthquake in a construction project is high but considering the probability of occurrence which in this case is lower than that of a fire outbreak; it is categorized as a high risk rather than extreme. Sickness of an employee minimal Given that in this case the consideration is a single employee falls sick, the input may be efficiently be replaced by the employee’s co-workers and therefore the risk has minimal effect. Breakdown of a machine medium Machines can be replaced almost immediately if not repairing it so the impact may not be much relative to the time it takes to replace it or repair it. 4.3 What include in the risk of the project? Considering a construction project, there are many risks that may be involved including socioeconomic factors, organizational relationships and technological problems. Some of the socioeconomic risks involved include environmental protection laws which contribute greatly to uncertainty regarding the implementation of the project plans. This is so because the management team may not know the particular requirements that the environmental regulatory agencies may require to approve the initiation of the project (Ovidui, Robert & Terry 2011, p.76). Regulations governing public safety pose a similar risk which may create changing plans concerning engineers and constructors and these changing plans creates a new dimension of uncertainty regarding the budget estimates since the project may be forced to incur extra costs in restructuring the project plan. Other socioeconomic risks include inflation, changing exchange rates and instability in economy. High inflation rates may alter the costs estimates and consequently the project may incur extra costs to purchase construction material and payment of labour. Economic instability and fluctuations in exchange rates have similar effects to the project implementation (Flanagan, 2011). Organizational relationship risks may be underestimated but it’s evident that these risks may impact heavily on the project failure. Deformed relationships which may persist among different organizations involved in the project and the question of responsibilities is always a bone of contention when such deteriorating relationship occurs. Questionable attitude can also be very detrimental particularly if they are not properly dealt with. Communication barrier may also impact on the progress of the project heavily and may even retard the implementation process. (Jenni, 1997) The design and construction are well versed with the technical approach the question of technical risks management should be assigned to the technical teams of individual design and construction assignees. Some of these technical risks the project management should consider include design assumptions, site conditions and construction procedures during the construction and occupational safety (Cvitanic, Jouini & Musiela 2001, p. 56). Due to elevated levels of advancement in design a construction procedures, the risk management team should consider and ensure that the designers and constructors are updated on the construction project requirements. Uncertainty about the construction site is also an important risk factor that may hinder project implementation. The fact that the subsurface characteristic of the surface many not be known, the construction process may not be ultimately configured and the process of construction and design may require some modification relative to the nature of the subsurface construction site. (Jenni, 1997) 4.4 Risk management strategies Any risk management strategy must acknowledge the probability of potential threats to that can hinder the successful completion of a project. The strategies should entail ways and means in which the risk factors can be extenuated or eliminated. A first line risk management strategy takes into consideration an effective means of communicating the risk information (Rick 1999, p. 109). A simple mechanism referred to as ‘Summary Risk Profile’ (SRP) has been put in place and have been accorded high recommendation as it increases the visibility of a risk. An SRP is a graphical representation of data or information that if recorded in the risk register. Often SRP has been said to be a probability/ matrix index. The position of a risk tolerance is indicative of the relative impact the risk may have on the project (Flanagan, 2011, p. 154). Summary risk profile (SRP) probability Very high * * high ** * ** medium * low ** ** Very low * Impact Very low low Medium high Very high Key: Areas of risks that impact heavily on the project * - risk. Each risk on the register indicated by a star (*) on the table usually a number or other representation figure accompanied by a description of the nature of the risk. When the project implementation involves different parties, it’s considered very important to have risk information understood very well by individual parties. It would also be relevant to have a mutual agreement on how to manage these risks in case they arise. Risk management strategy should involve analysis of risk and risk management plan. Risk analysis involves identification of the risk and the underlying causes of the risk and also the evaluation of the magnitude of the effect of the risk. Analysis also tries to identify possible course of action that will be relevant to mitigate the risk (Martin & Thomas 2003, p. 78). Risk management on the other hand takes into account the activities in monitoring and control procedures that will cater for risks and threats identified in an effort to realize the project goals. These two phases of risk management strategies should be treated individually so as to come up with relevant course of actions relative to the information at hand. However the two should be integrated in a manner that will ensure the realization of the project objectives with minimal deviations from the outlined plans (Cretu, 2011, p. 98). 4.5 How can risks be reduced? Many risk management strategies operate differently depending on the nature of the project. In a construction project, risks reduction can be achieved through taking care of individual component within the project process. For instance, if the project depends on a supplier to provide or supply construction materials, the risk management team should ensure that the supplier is always aware of the requirement schedule and at exactly what time the material should be delivered so as to minimize excuses. The team should also ensure that the supplier understands the consequences of failing to deliver the materials within the specified time. Excuses can also be minimized by availing the risk visibility to these suppliers so that they can actually realize the intensity of failing to deliver an item in time (Cretu 2011, p. 99). Demand visibility can help mitigate risks when the project depends on delivery of equipment. The risk management team should understand any protocols that have to be followed and the relative time in which the whole process may consume before the equipment gets into use in the project. They should ensure that they give time considerations so that the project may not get to a stop while awaiting such equipments (Rounds & Robert 2011, 98). Effective communication processes that will help people to communicate efficiently will increase the eligibility of passing useful information across the concerned parties throughout the project undertaking. This minimizes delays and therefore its significance in reducing risks cannot be overemphasized (Barry, Marylin, & Robert, 2004, p. 78). Planning fallbacks or what is commonly known as ‘plan B’ is an important part of risk management strategy. The risk management team should offer effective and immediate fallback plans whenever an initial plan fails or suffers hindrances that may result to delays. They should bear in mind hat any delays will cost the project extra financial and time costs. The fallback plan must be capable of immediate application or future application and they must not incur any extra costs that had not been budgeted for (Flanagan 2011, p. 45). 4.6 effect of reducing risk to project management Risk reduction is an integral part of the project management and it helps in shielding the project against extra unbudgeted costs. It also prevents delay and therefore the project is successfully completed within time limits. 5.0 Conclusion Project risk management is a part and parcel of the project undertaking itself. It should be realized that the successful delivery of any project has every thing to do with effective risk management strategies. A well laid plan to minimize risks throughout the project undertaking can effectively cut down on unbudgeted costs and sees to it that the project is delivered within the required time limits. It’s important to consider effective communication channels in any project undertaking and to view these channels as part and parcel of risk management plans. Many times, project manager ignore communication barrier and they do not take heed to correct it. This could be risky as it poses some uncertainty of information misinterpretation. Such misinterpretation of data or even instructions may incur extra costs to the project or worse still it may see the crumbling down of nearly a whole project. References Barry, G., Marylin F., Robert E. (2004). The Practice of Construction Management. Wiley- Blackwell. Cvitanic, E. Jouini & M. Musiela. (2001). Finance: Option Pricing, Interest Rates and Risk Management. Cambridge University Press. Davies, JC. (1996). Comparing Environmental Risks. Washington DC. Resource for the Future. Danton, J. (1998). Project Risk Management in Constructions. London. Jerald, R, & Robert, Segner. (2011). Construction Supervision. Washington: Wiley. Jenni, K.E. (1997). Attributes for Risk Evaluation. Pittsburgh: Carnegie Mellon University. Morgan, K., Dekay, M.L. & Fischbeck, PS. (1999). Methods for Ranking Risks by Individuals and Groups. Pittsburgh: Carnegie Mellon University Martin, L. & Thomas E. Ulher. (2003). Essentials of Construction Project Management. New York: UNSW Press Ovidui, C., Robert, B. & Terry, B. (2011). Risk Management for Design and Construction. Washington. Wiley Robert, F. (1993). Risk management and Construction. Washington. Wiley-Blackwell. Rick, G. (1999). Building in Value. Butterwort- Heinemann. Read More