Risk management

INTRODUCTION:

Academic research into project management is fairly recent. This report addresses two specific areas that have been generating particular interest, debates as well as ample scope for further research in the field of project management – decision making and risk management.
Decision making in today’s industry is highly complex due to the number of stakeholders and other factor involved. A critical review of these factors has been undertaken in this essay
While the importance of managing risks has been identified as vital, the technique for doing so provides ample scope for academic research. This report begins by identifying what a risk is, some techniques to manage the same and common arguments against risk management techniques.

Risk Management

Risks in projects may be foreseeable or completely unpredictable. Risks could be caused by physical or natural occurrences or due to the macro economic environment (political, social, legal, etc.) in which the company operates. In several occasions, accidents, or unexpected discoveries, which may be of archaeological importance, or new legislations may disrupt projects (Lock, 2003). Issues raised by ethics and activist groups may also disrupt project activities. For instance: The controversial stem cell research has been supported and encouraged by several, notably, Christopher Reeves – Superman who was paralysed neck down after an accident – as it promises to cure a range of diseases affecting the heart, lungs, Alzheimer and Parkinson’s diseases and serious spinal cord injuries. On the other hand, ethical and moral issues surrounding the creation and the use of frozen human embryos for research, which for many protestors does not justify the benefits of such research (http://www.whitehouse.gov). The progress of this research project has been severely affected owing to strong protests by different ethical, religious and political groups in America and around the world and presents itself as a serious risk.
‘Risk'< may be defined as a problem that has not happened – yet (Cervone, 2006).
The effect of a risk may be trivial or damaging. Effective risk management seeks to identify foreseeable risks, assess the probability of their occurrences, and the impact they may have on the project and devising action plans to either reduce their impact or eliminate them.
Risk management activities start with the planning activities and include the proposed methodologies for managing risks, an estimated budget, and action plans for dealing with risks. Further, it is essential to note that risk management is a continuous process wherein constant updates can be made regarding new risks arising, effective elimination of certain risks, and others that are assuaged (Meredith & Mantel, 2003).
Sadly, in practice, risk management is not addressed in detail by project managers. It has been noted that while project managers do assess risk, the assessment is only superficial (Cervone, 2006).
It has been argued that risk management exercise often does not go beyond produces a long list of risks which are both hard to manage and understand (Hillson, 2003).
The key to effective project risk management lies in understanding the underlying factors that cause risk. Some of the most common factors across projects have been noted as:

1. of commitment from top management to the project;
2. Failure to gain user commitment;
3. Requirements maybe misunderstood;
4. Lack of adequate user involvement; and
5. Failure to manage the expectations of end users (Kiel, et al, 1999).

The information technology industry is rapidly booming. It is key to note that projects of this nature have some risk factors that are particular to the nature in which this industry is run. Jones (1994) lists some of them as:

1. Growing user requirements;
2. Excessive schedule pressure; lengthy projects with tight deadlines;
3. Undue pressure produces low quality work;
4. Cost overruns compared to budget; and
5. Inadequate configuration control.

McConnell (1996) has identified the four major categories that risk fall into: dependencies; requirements; lack of knowledge and management issues.
Dependencies: the most way to tackle this cause of risk is by ensuring that there is staff availability to complete the necessary tasks in time and ensuring that the delivery time is achievable.
Requirements: emphasises the need for strong and clear vision along with prioritising the actual requirements of the project. However, Hillson, 2003 argues that prioritising risks does not really provide any insight into the structure or nature of risks that might affect the project. McConnell (1996) add that steps to counter resistances to change process must be planned where applicable to reduce risks arising from this category.
Lack of knowledge: project staff should be adequately trained and have the relevant experience to carry out the tasks assigned in line with the user expectation.
Management issues: often reflects a convergence of the risks caused by dependencies and requirements. Inadequate overall planning and task identification and allocation pose as a major risk. Good communication and staff commitment is key for overcoming risks because of management issues. The project team members must have a clear vision of the end product and the means to achieving the same McConnell (1996).
Another significant technique for identifying possible risks is the Work Breakdown Structure (WBS). The biggest plus point of WBS is that it aids in identifying the scope and definition of the work involved and therefore forms the basis for many projects. The WBS has been defined as: ” A source-oriented grouping of project risks that organises and defines the total risk exposure of the project.Each descending level represents an increasingly detailed definition of sources of risk to the project.”(p. 1, Hillson, 2002).
A Risk Breakdown Management System (RBS) is an equally essential tool which is gaining importance owing to the advantages it offers, particularly in understanding large volumes of data. The RBS breaks down and organises and structures data relating to risks. This facilitates better understanding and communication thereby aiding better management.
WBS and RBS add immense value to any project risk management exercise. The former identifies the scope of work and defines the same, the latter aids in recognising risks associated with each stage of such project (Hillson, 2002).

Decision Making in Project Management

In the view of Kumaraswamy et al (2004) the increasing complexity of infrastructure project management in today’s complex business environment, arises from

These diverse and often divergent objectives being both within and also across these groupings, usually leads to a series of complex scenarios. Hence, critical front-end decisions are required to be taken on procurement strategies, which are then followed by crucial strategic and conceptual design choices, selection of suppliers, contractors and service providers. These are then followed by decisions that need to be taken on programming, construction methods and resource deployment. Therefore the scope of the overall project administration and delivery from a client’s team point of view needs to be taken care of. It is this latter viewpoint that the research needs to be concentrated on, in particular to address the decision support needs, particularly for large clients with multi-project portfolios, for example governmental clients who are charged with providing public infrastructure and also large private developers including franchisee partners in public-private partnerships and property developers (Kumaraswamy et al, 2004).
In the past approaches to these decisions have often been driven towards creating sufficiently satisfactory solutions, mainly due to the given usual shortfalls in terms of information, time and tools in order to formulate anything better. This scenario is now changing and rapid developments are being made in information and communication technology (ICT) tools and also artificial intelligence (AI) aids which have helped to dramatically expand the scope and also the options for dealing with the decision making for complex project scenarios(Kumaraswamy et al, 2004).
Project management processes and concepts are starting to be utilised increasingly in the proactive planning of operation and service processes. These particular techniques involves reengineering the processes with new and most importantly innovative ideas and therefore, make them much more effective, productive and efficient way of doing business (Doloi & Jaafari, 2002). In order to achieve these overall goals of the business with regards to the specific project, the management not only needs to adapt to the market dynamics but also the operability and functionality related to the project facilities and most importantly total quality management of the end products and customer satisfaction (Morris, 2000). Artto (1994) emphasises the importance of focus on the investment product life cycle which needs to be looked at from the final customer’s perspective. Economic analysis that reflects the final customer’s or investor’s life cycle costs associated with the particular project deliverables are extremely important while undertaking decision making in the early phases of projects (Jordanger, 1998). This is an importance factor as these solutions which are devised and the commitments that are made at the early phase tend to be a major part of the project cost. For example, Westinghouse Corporate Services Council estimated that almost 85 percent of the product’s life cycle cost is usually determined before the manufacturing department even becomes involved with a new product development. Hence every additional dollar that is spent before manufacturing starts can save on an average $8-$10 on manufacturing and post-manufacturing activities (Artto, 1994).
Aside from the usual selection and construction of suitable decision – making frameworks, the new critical and key challenges for decision-making include

1. apposite balancing of conflicting goals and objectives,
2. choice of the appropriate evaluation criteria,
3. establishment of strategies for much more objective evaluation of alternatives, scoring and ranking, and
4. Verifying the best value from the final decision i.e. from amongst the various other possible solutions by various measures such as sensitivity analysis and trade-off analysis.

A fundamental and very important challenge in decision-making which managing project is, the question of how to effectively synthesize the various individual assessment criteria into a group judgment. In most of the circumstances, decisions are usually reached by a group of people with diversified expertise, functional priorities and most of the times political significance (Kumaraswamy et al, 2004). Usually in the industry, such collaboratively undertaken group decisions are reached either by synthesizing the various individual assessments of the situation by use of some explicit preset formulae or by “democratising” the group decisions via some measures which could include opinion polls, group discussions, consensus building and usually common agreements. Technical advancement and developments in ICT such as internet-based systems and multi-agent systems (MAS) can help support this fusion of more rational and unbiased decisions by way of flexible and convenient facilities such as dynamic and remote access, e.g. individual opinions could be filtered in order to hide these source details and can be still considered according with due regard to the established hierarchy and also significance for making final decisions (Kumaraswamy et al, 2004).
There are numerous examples which provide evidence of how organisations can easily save millions of dollars and while at the same time avoid major risks by using process simulation l (Doloi & Jaafari, 2002). For example, in early 1993 the IBM PC Company based in Europe had faced a number of challenges that were causing an erosion of its market share. These were frequent price cuts, rapidly decreasing customer order response times, and a steady arrival of new products by much more aggressive competitors. The IBM management efficiently reacted to these record corporate losses by not only emphasising the necessity of reducing operational costs, but also the inventory throughout the company. This was possible due to the process simulation techniques that were used to evaluate the different manufacturing execution strategies and also in order to identify the distribution policies with lower costs (Chen, 1997).

CONCLUSION

To conclude, while academic debates have been on about the best techniques of risk management, their effectiveness in practice is to be established. There is further scope for research particularly within techniques for identifying and managing risks. Decision making in project management is no longer a hit and miss game and company’s need to make use of all available tools such as ICT to get it right the first time.