The Importance of Managing Project Risks
A finding from the book I recently read surprised me. According to "Effective PM and BA Role Collaboration: Delivering Business Value Through Projects and Programs Successfully" by Ori Schibi and Cheryl Lee, project managers are relatively good in "firefighting" risks that occur in projects. However, the projects would be much more successful if these risks never happened in the first place. Negating the risk identification process at the onset of a project can be attributed to the project manager's perception. Some project managers might think that if we don't know what will happen, how can we address it? Others might say that putting resources into identifying and planning for something that may not occur is a waste of time. For these reasons, risk identification and planning are often overlooked. We are inevitably bound to invest extra time, costs, and valuable employee hours later in a project; when we fail to identify potential risks and plan a response. Realizing that risk management is so vital to project success, I asked myself: how can I be most effective in managing project risks? Let's see what PMBOK Guide says about it.
According to PMBOK Guide, risks are identified and managed, starting in project Initiating. These identified risks, while the project is underway, are kept up-to-date. High-level risks are part of a Project Charter, and a project sponsor is often the one helping in identifying them. A significant portion of risk identification and management, however, is done in project planning. To do that, a project manager needs to organize discussions with various stakeholders. Risk identification is only the first step of the risk management process, followed by the qualitative and quantitative analysis of risks and developing risk responses. It might sound overwhelming. To help us keep risks under control, we have a risk register document. The risk register document is an effective way to keep all risk management information in one place and well organized. At the beginning of a project, a risk register will include risks and potential risk responses, while a final version of it will consist of planned risk responses (contingency plans), residual risks, and reserves (contingency for both time and cost).
Through the risk management process, you work to increase the probability and impact of opportunities on the project (positive events), while decreasing the likelihood and impact of threats (adverse events). That is why a proper name for this document is the threat and opportunity risk register. An example of a risk that can be either positive or negative is the market price of a commodity. Gold mines deal with the uncertainty of the market gold price continuously throughout the project. In this example, the outcome is crucial to project success, and it starts in project Initiating through the discussion with a project sponsor. Here we have a high-level risk included in the project charter. If it's known that we are dealing, for example, with a negative gold price trend, to a certain extent, it is not a risk. If it's a known fact, we need to account for it accordingly. However, there is always uncertainty that the market price will deviate from the expected price. Lower than predicted price is an adverse event. It is a threat that may jeopardize the project or shorten the life of a mine if no contingency were in place. Higher than expected price is a positive event and will lead towards an opportunity: it may generate extra revenue and even extend the life of a mine. Although it's a positive event, it is essential to plan for it as well as a mine life extension depends on several factors. For me to be effective in managing project risks, I know that I'm not starting my next project without early risk identification and the threat and opportunity risk register. These steps will bring my project closer to its success.
—By Olga Minikh
0 Comments