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Every project carries with it a factor of risk. The best-planned projects have at certain stages, qualms and unanticipated incidents can always crop up for instance project staff might reduce owing to illness, death or for personal reasons, the budget may be not effective. Risk management is possibly the most important consideration for a good project manager. A project is considered failed if it does not meet the stakeholder’s expectations and requirements.
Project success is attributed to various factors as: clearly defined goals, competent project manager, top management support, working technical tasks, competent project team members, sufficient resource allocation, adequate communication channels, good control mechanisms in place, enhanced feedback capabilities, responsiveness to client (clients are kept up to date on the project stages), proper client acceptance preparations, trouble-shooting (the team members work to their best to find errors and correct them) and client consultation (consulting all the users of the project outcome to find out if they needs are being met). Ensuring that there is a good risk management plan that is followed to the closing stages of the project is the best strategy for achieving this success. However, in many projects, there are no closing stages. Thus project risk management is a continuous task that possibly ends when there is a problem.
Why Are Projects Risky?
The uncertainties in most projects are as a result of failing to consider each project as being unique, project complexities, assumptions and constrain, unpredictable performance by the people and stakeholders and scope creep (David, 2009). These are the common characteristics of risky projects. More risks are introduced into the project in an effort to gain more reward for the project. The other factor that determines the project risk is the external environment (emergent requirements, market volatility, client organization, government policies and competitor actions among other factors).
These can be summarized into six factors namely depending on the type and cause and impacts. The first, achievable goals, consists of the risks that lead to the project not meeting its expectations. Secondly, activities type that the project system is purposed to achieve can be analyzed as a probability of success. Resource and commitment involves the available persons and their commitment and the tools used in the project. The fourth factor, organizational settings, that covers communication, policies and management among others. The fifth category, project participants looks into the project members. The last factor, the project age, views the projects uniqueness, that is, is it a new, current or old project.
Project Risk Management Process
The project risk management process involves six stages namely: risk management planning, identifying risk events, qualitative analysis, quantitative analysis, response planning and risk monitoring and control.
According to WSDOT Risk management planning is “Risk Management Planning is the systematic process of deciding how to approach, plan, and execute risk management activities throughout the life of a project.” (p. 17). These can be further divided into 4 stages (Turbit, 2009). These are risk Identification, quantification, response and monitoring and control. By a good plan, the sufficient resources required by a project are allocated and every project is started while considering a good time just enough for completion. A good project team will always fight to avoid the rush to complete a project due to poor scheduling. Planning also helps to realize the platforms for improvements.
Risk identification involves recognizing and naming the risk. The business and IT persons carry out workshops to through brainstorming and review of the possible risks to identify them. The activities are carried out while taking its impacts and the deadline into consideration. Each risk is unique and needs a unique approach.
Risk quantification involves the assessment of the risks in terms of the impacts to the project and the probabilities of occurrences. This can be represented into 1 to 4 scale matrixes as in the figure below:
Figure 1: A 1 to 4 scale matrix adapted from “Management Basics in the Project Perfect White Paper Project.”
Risk response involves the strategies and actions to curb the risks that have been identified and quantified. There are four strategies to responding to risks. The first strategy is avoiding risks (perhaps through evading the source and having a new solution). Secondly, risks can be transferred – someone else will be to blame for it. Thirdly, it can be mitigated, that is, taking appropriate actions to reduce the chance that risks occur and their impacts. And lastly, the risks can be accepted (this applies if the impacts are not enough to cause any serious problem).
Risk monitoring and control is the most involving part. The activities in this phase include monitoring the risks to finds out if they lead to certain issues. This is a done timely and includes the realization of new risks. In this stage, the project team is responsible for the above activity. The upper management team should work to inform and not to please the stakeholders. Each risk observed should be documented in such a way that it can be reviewed on requirements and analysis can be made from it. Risk and management activities should be specific and the right follow-up be made throughout the project to ensure that it’s well done.
Importance of Risk Management to Projects
Before gaining a deeper insight into what importance is risk management to project management, one need to know which project is considered successful and why and which one is failed. The knowledge of the impacts of project failure is very important in the realization of project success as it lets the concerned project manager work with his or her team to achieve the best.
A project is considered successful if the quality and scope of the project is met at the planned cost in a timely manner by the team. If the project does not meet the expectation of the stakeholders, then it is failed. Project failure is as a result of lack of change of management which can be solved by educating the stakeholder and making a follow up for every stage of the project. Secondly is poor communication, which can be curbed through finding out the needs of the stakeholders while documenting them, plan and finally following the plan. The inadequacy of resources (staff, equipment and commitment) poses as a big problem. This leads to the delays in the project. Sometimes the requirements are poorly defined while at other times the estimates are inaccurate. Poor definition of deliverables is dangerous. Other causes are over optimism, unattended project management and unskilled project management team. The last cause which is the main topic of discussion is poor risk management.
Poor risk management strategies result in delays and the product not meeting the stakeholders’ requirements. The importance of proper risk management is to reduce project fear and augment project opportunities. This leads to lesser project costs and supplementary revenues. It as well reduces the time taken by the project and the quality delivered to the market. So, we can conclude that risk management is lucrative.
Lacking a formal risk management, poor estimations, neglecting important information and working beyond the schedule introduce new risks to the project. Each of these items should be treated uniquely and nothing should be left out of the plan however trivial it may seem to be. However, when they occur, the risk should be prioritized using the high/medium/low probability and the high/medium/low impact criteria. The most effective risk should then be dealt with first.
It is necessary to have a well defined risk management plan. It’s equally important to follow and implement the plans to achieve the needs of the stakeholders.