Risk

By Shakila Khan Malik s173780

Abstract

Risk is associated with everything, even when we talk about projects, programs and portfolios. It is important to keep risk in mind when working on a project, program and portfolio and identify them, as risk can lead to large costs, losses and project failures. The purpose of the article is to identify potential risks and put them into perspectives using risk management tools.

In order to identify and prevent risks in a project, it is necessary to have risk management. Risk management is a process for identifying risks in a project. Multiple tools can be used to reduce and prevent risks and uncertainties during a process or project. The aim is to ensure successful projects without major risks and unexpected events leading to high costs.

One of the risk management tools is “Failure mode and effects analysis” (FMEA). The FMEA is a process that identifies how and where the project might fail and assesses the different failures to identify which parts are most in need of change . In addition, another management tool, the “fishbone diagram” can be used to track the causes of deficiencies or failures in the project. Some other risk management tools are “Post-project review” (PPR) and “Potential problem analysis” (PPA). The PPR analysis identifies potential failures and successes in a project, where the PPA determines what may go wrong in a process or development phase.

Risk

What is risk?

The definition of risk is possibility of a negative result/outcome, injury, loss or danger. It is always important to try to protect and prevent a risk from occurring, or at least be aware and prepare for the risk as well as the outcome. This also applies in organizations and companies where risk is associated in project, program and portfolio management. Uncertainty also plays a role here as risk is uncertain. No one knows what risk entails and when and how it unfolds. Uncertainty is lack of certainty, security and knowledge of something or a particular topic. Uncertainty is associated with projects, programs and portfolios as uncertainty and risk are connected, the more risks one can identify the more uncertainty is indicated.

Opportunities are risks that have a positive effect and it is possible to identify successes in projects, programs and portfolios. While threats are risks that have a negative effect in a project, program and portfolio. In this approach, risk management must be involved in order to identify risks, analyze risks, assess the likelihood of risk and impact and implement a solution if the various risks arise.

Risk Management

Risk, uncertainty and complexity are associated with any project. Some projects have greater and more risks while others have less and fewer. The Risk Management Life Cycle Framework is a tool that can be used by all project managers to help them identify risks and how they carry risks in a project, program or portfolio.

The Risk Management Life Cycle Framework contains of following steps:

• Plan Risk Management
• Identify Risks
• Perfom Qualitative Risk Analysis
• Perform Quantitative Risk Analysis
• Plan Risk Responses
• Implement Risk Responses
• Monitor Risks

The purpose of plan risk management is to create a plan that defines how the risk management processes are to be supported. It later helps identify risk. It is not possible to identify all the risks associated with a project or process in the beginning, as no one knows what may happen in the future and everything may change. Therefore, it is necessary to perform a qualitative risk analysis to prioritize the risks. The qualitative analysis is used to gain a better insight and an overview of various risks associated with a project or a process. The analysis focuses on the probability of occurrences. In addition, a quantitative risk analysis is performed to estimate the effect of the risk and find coherence between different risks. A plan risk response is necessary to control the effective respond actions for the overall risks. In the Implement Risk Responses phase, it is therefore possible for the project managers to see if the risks have been identified and treated. The last phase is monitoring risks, project, program and portfolio management teams assess the identified risks and control the risk management processes.

The risk management strategy is connected and linked to portfolios, programs and projects. Strategy identifies risks including threats and opportunities and translates risk management strategy into actions, portfolios translate strategic goals into organizational value and abilities, programs define benefits and causes and lastly increase projects to higher levels when needed.

Tools

As mentioned earlier, this wiki article contains several risk management tools, that can be used to manage a project. These tools can be adopted by the managers in any organization as the tools are guidance how to tackle and prevent risks and uncertainties in a project, program and portfolio management. It is important to use some risk management tools to identify risk and manage risk. Risk is not easy to identify and nor is it easy to manage risk in a project, program and portfolio. By using the different risk management tools such as failure mode and effects analysis, potential problem analysis and post-project review large and small risks are identified and managed easily.

Failure mode and effects analysis (FMEA) is a nice tool to identify how and where the project might fail and assesses the different failures to identify which parts are most in need of change. The Post-project review (PPR) is a tool that identifies potential failures and successes in a project. The potential problem analysis (PPA) is a tool that determines what may go wrong in a process or development phase.

Failure Mode and Effects analysis (FMEA)

The FMEA was developed in 1940s when the U.S. military systems became too complex. The FMEA tool identifies where the project might fail, and which parts are most in need of change to prevent risks and uncertainties. The FMEA tool can solve several risks in a manageable way. The failures are prioritized by their consequences and frequency, starting with the highest priorities .

Figure 1: The seven steps in FMEA (own figure)

The FMEA consists of 7 steps:

• The first step identifies the failures that might fail in the project.
• The second step identifies the root causes of the failures in the project.
• The third step identifies the effects of the failures.
• The fourth step critically identifies and prioritizes the failures, starting with the highest priority.
• The fifth step mitigate the failures and limits the failure modes.
• The sixth step is optimization and develops actions to prevent risks and uncertainties.
• The seventh step is the result, where the results of the FMEA are documented.

The management team must define the scope of the project and identify the failures that may fail in the project or program. Then, all processes are divided into subsequent steps to identify and find the root causes of the failures in the project. Each failure is analyzed separately to identify the major failures and the effects of the failures. Hereafter, the failures are identified and prioritized in order to start with the highest and largest failure. The failures have been mitigated and limited. Thus, it is possible to optimize and develop actions to prevent risks and uncertainties. The actions reduce the likelihood of failures and improve processes, products and services. Finally, the results of the FMEA are documented.

When and why should the tool be used

The FMEA tool is often used through a product, process and service design phase as it is possible to identify failure in the earlier stages. Moreover, the tool is also used before modifying an existing process in a different way and generally to analyse the failures of a project.

The benefits of using the tool are that the failures are identified at an early stage and prevent risks and uncertainties. Furthermore, the FMEA allows to a greater extent changes in the processes, products and services as it is possible to mitigate the risks. This makes it possible to come up with innovative ideas, changes in a project, program and portfolio along the way and listen to the customers’ wishes or requirements for a product or service. In addition, the use of the tool leads to cheaper solutions, as risks are identified and managed before the outcome.

The table below shows how to possibly use the tool. The table contains 7 columns respectively stages, failures, consequences, severity, causes, occurrences and control where each column refers to each step described above.

The first column is stages, all stages in the project have to be defined and written in the column. The second column describes the failures, and the third column writes down the consequences of the failures. The fourth column contains the severity of the failures, where a number between 1-10 is given to describe the severity of the failures. The highest number is indicated for the largest failure that has the largest loss. The fifth column finds and describes potential causes. The sixth column describes the events of the failures as well as how often the failures occur. A number is given between 1-10, where the highest number is given for the failure that occurs frequently. Finally, the seventh column contains and describes the process control.

Potential problem analysis (PPA)

Another risk management tool is “Potential Problem Analysis”. The PPA implement innovation and focus on what might happened during the developing phase and how to deal with it. The tool determines what could go wrong in a project or process. The causes are assessed as the probability of occurrence and the difficulty of the consequences.

The PPA tool consists of 7 steps

• The first step is to identify the objectives by producing a flowchart.
• The second step is to list the potential problems by making a brainstorm with the problems.
• The third step is to rate the potential problems in terms of likelihood.
• The fourth step is to determine the risk number of the problems by multiplying the two numbers.
• The fifth step is to search for possible causes of the problems using a fishbone diagram.
• The sixth step is to estimate the probability of occurrence and try to prevent them.
• The seventh step is to develop actions to prevent causes or minimizing their effects.

Figure 3: Example of the PPA (own figure)

The tool is primary used when working on a large and complex project. Moreover, to meet deadlines without investing a lot of time and money on risk and changes, solving future problems and prevent uncertainties. The tool prioritizes which problems need to be addressed immediately, however is it hard to rate risks.

Post-project review (PPR)

Figure 4: Example of PPR (own figure)

Post-project review is a management tool that gives the opportunity to learn from previous projects. The purpose of the tool PPR is to analyze potential failures and successes of a project or process. It simplifies what went well and what could be better in a project. It minimizes risks and uncertainties as it is possible to learn from previous experiences and failures to improve future projects. First and foremost, the scope of the project must be defined. Then it must be examined whether a similar project has been carried out. If this has been the case, the knowledge and experiences from the previous project must be used, investigated and implemented in the project. However, if a similar project has not been performed before, then prework must be done. The project can then be implemented. Lastly, it is important to share the experiences and knowledge of the system, what went well and what didn’t and why. Otherwise, future projects may not benefit from the PPR tool and therefore are no reason to use the tool.

Proc and Cons

There are both proc and cons associated with this tool. For structured frameworks, the tool is fantastic as it is possible to use it slavishly and thus save time as well as duplications. Furthermore, it can be seen what went well and what could be improved. On the other hand, some of the cons are that the previous projects are followed too much that the managers don’t think about improvements, changes or innovation. Another con is that project managers are often not prepared for unseen events in the project.

When to use the tool

The PPR tool is useful for large projects especially within IT as IT companies usually need formalized innovation strategy. The tool avoids uncertainties and duplications as using the tool lead to decreasing in prework. Furthermore, it makes sure that failures from previous projects don’t appear again in future projects.