Risk and Opportunities Management
In project management, uncertainty is a common parameter, given that projects are unpredictable and only an estimate of a future situation. In order to prevent uncertainties, project risks are identified, managed and addressed throughout the project life cycle. Risk management is a central concept and plays an important role in maintaining projects stability and success throughout the project. Risk management identifies potential obstacles that may arise and hinder the project team from achieving expected goals. Identifying risks is a repeatable process since new risks become known and others become unknown. Noteworthy risks are not only downsides, referred to as threats, but also upsides, referred to as opportunities. Opportunities may arise as a result of unexpected turns and have a positive impact on the project. Risk management is highly relevant and therefore present in all projects.
By using qualitative and quantitative risk management approaches, uncertainties are identified, assessed and mitigated in a structured way that helps projects stay on track. This article focuses on Rumsfeld’s unknown unknowns and the risk management process, including the probability impact matrix.
The risk management process may be divided into seven process steps: communication and consultation, establishing the context, risk identification, risk analysis, risk evaluation, risk treatment and monitoring and review. This process aims to ensure that risk is managed effectively, efficiently and coherently across an organization [1]. At last, this article will outline and discuss the risk management process' limitations and advantages in a project management aspect.
Contents |
Introduction
Defining Risks
In all projects there is indistinctness, which leads to assumptions being made. These assumptions are uncertain and can affect the project’s cost, scope, time or resources [2]. Risks can be defined as “an uncertain event or condition that, if it occurs, has a positive or negative impact on one or more project objectives such as scope, schedule, cost or quality” (PMI 5th edition of PMBOK) Due to the negative consequences of uncertainties, risks are highly relevant and should be managed carefully.
Risk management is a beneficial concept applicable in every project. The concept aims to improve decision-making processes by identifying, assessing and mitigating relevant uncertainties in a structured way [3].
Donald Rumfeld's Unknown Unknowns
The American politician and businessman, Donald Rumfeld, distinguishes between four categories of risk. The first category is identified as known knowns describing the things we know we know. Examples could be a project’s location, the type of project etc. The second category is defined, as known unknowns describing the things we know are uncertain. Examples could be how many workers are needed to complete a particular task or unpredictable weather conditions. The third category is defined as the unknown unknowns. This category describes uncertainties that we could not have known in advance and let alone foresee their consequences, e.g. natural and manmade cataclysms. The last category is defined as unknown knowns describing risks that cannot be identified precisely due to multiplicity, but whose total negative impact on the project appears certain. An example of this risk category could be the Russian Winter Olympic Games in Sochi in 2014. The games in Sochi experienced significant cost overruns at 289% [4]. Another example in connection to Russia is the widespread corruption of local officials. The risk is known to everyone in Russia but not officially recognised and can therefore be perceived as an unknown known.
Risk Perception
The practice of risk management is to minimize negative impacts or threats to the project and maximize the upside impact of opportunities. To be a successful project manager it is therefore essential to understand what could possibly go wrong, assess risks’ probability and impact and thereby plan how to mitigate risks optimally.
Risk management involves planning and prioritising risks before they occur, handling emerged risks and control and monitor risks, by using quantitative or qualitative approaches. By using quantitative approaches including mathematical models, it is possible to calculate and estimate potential negative and positive outcomes. However risk management activities are primarily based on qualitative data (ref: Harvey Maylor). Qualitative data include subjective perceptions since people value risks differently and therefore also value potential consequences differently. Gathering different viewpoints could be challenging when representing different project stakeholders. Obtaining viewpoints and ratings for each risk is a matter of unifying opinions. A method used for assessing low-high risks is the so-called probability impact matrix. FigureXX shows the positioning of identified risks. It is important to remember, that FigureX is an example of a potential matrix and therefore the matrix can change dependent on different projects.
Risks placed within the red boxes hold extreme or high risks and need to be managed and avoided since they have the potential to greatly impact project quality, time or cost performance. Risks placed within the orange boxes hold moderate risks and can be mitigated or reduced. This category has the potential to slightly impact cost, quality and time performance. Risks placed within the green boxes hold low risks and can be ignored or accepted since they have a relatively little impact on cost, quality and time performance.
From Figure XX it has been identified that not all risks can be eliminated, but mitigation and plans can be developed to lessen their potential impact (ref CDC). The risk management process focuses on identifying, analyzing and evaluating risks. This process is an iterative process that begins in the early project phases and is conducted throughout the project’s development. The practice of risk management process is systematically thinking about all possible outcomes even before they occur and outline procedures to accept, mitigate and avoid the impact of emerged risks.
Risk Management Process
Communication and Consultation
Establishing the Context
Risk Identification
Risk Analysis
Risk Evaluation
Risk Treatment
Monitoring and Review
Limitations
Give examples!
Conclusion
Bibliography
- ↑ Geraldi, Joana, Thuesen, Christian, Oehmen, Josef. How to Do Projects, 29. January 2016.
- ↑ Ottosson, Hans. Practical Project Management - For Building and Construction, 23. July 2012.
- ↑ ' Dansk Standard. ISO 21500 - Guidance on Project Management, 27. September 2009.
- ↑ ' Flyvbjerg, Bent, Stewart, Allison, Budzier, Alexander. The Oxford Olympics Study 2016 - Cost and Overrun at the Games, 20. July 2016.
