Project 4

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Risk

Risk is not just a board game. Risk to the inexperienced project manager often creates fear throughout the team. Risk is a natural part of the project management process. How the project manager, the organization, and the team view risk is a strong indicator as to the success of the project.

In the previous lecture we started to talk about risk assessment. It was stated that risk and evaluation need to begin in the proposal stage and continue through to the completion of the project and beyond. There are three primary processes for addressing risk: avoidance, elimination, and acceptance. This is where are we will focus the majority of this lecture.

Risk is part of moving the project forward. Risk is required for innovation and creativity—if we are fearful of risk, then risk will control us. If we do not take risks, we can quickly become obsolete. A project is not usually taken on to maintain the status quo but to advance some part of the operation or organization. Addressing risk is a critical part of effective project management. The PMBOK addresses an entire section on risk including assessment and management. This is highly recommended reading for this class and in the field. The process the project manager and their team use to address risk can have a significant impact on results throughout the project including the final product.

Risk avoidance: this might seem like the most logical approach to addressing risk on any project. As was stated earlier, risk assessment should begin in the proposal stage and continued throughout the life of the project and beyond. There are many learning opportunities that present themselves throughout the life of a project. A proactive approach and assessing potential risks throughout the project is an excellent way to identify and address risk in a manner that planning will offer over a reactive approach. If a project manager identifies a risk such as a critical component that is being manufactured by a vendor overseas that must be delivered by certain point in the project, there are steps that can be taken to minimize this risk. Risk avoidance should include a discussion about the use of a foreign manufacturer or developing other resources. Risk mitigation strategies should be used that would lower the potential threat to the project. An overseas vendor could encounter political unrest, labor issues, or logistical challenges such as severe storms that prevents the product from being delivered on time.

Risk avoidance as a result of effective risk management includes rating the severity of the threat to the project and organization. By identifying the threat and assessing its potential, the project manager in their team can develop alternatives that are more viable than the proposed threat. A measured approach can determine if the return on accepting the risk is greater than the risk itself.

Risk elimination: the term means what it says. Can the risk be eliminated altogether? Microsoft prides itself on creating at least three ways to do any task regarding any Office software application. This is an excellent strategy as different personalities are using different tools for different reasons. If there are multiple approaches for completing the same task, the risk of failure and the risk of success are greatly altered. The same is true in assessing risk for potential elimination while determining if there are other reasonable alternatives that involve a less risk for a similar return. If the risk can be eliminated altogether and still produce a high rate of success, then this process is likely the best route. Thorough and comprehensive assessment can greatly diminish the potential threat to the project.

Several years ago the Toyota Motor Company experienced a major challenge when one of its vendors could not provide a key component to a seat belt mechanism that was used on several models. At the time Toyota had one vendor that developed these mechanisms. As a result of this failure several production lines were shutdown which caused Toyota and several other vendors to lose revenue, large amounts of revenue. Toyota looked at this process and determined that a change was necessary. The company has since cross trained multiple vendors to produce different components, thereby eliminating future risk by having only one producer of a product. This also resulted in driving down the cost of different components as vendors can compete for the majority contract.

Eliminating all risk is not usually an acceptable option. An organization and the project manager must be willing to acknowledge risk as a key part of a project. Managing risk is a big part of effective project management. Developing the tools to assess and address risk is a critical part of the process. Those that assess the risk but never address the risk by developing resources and alternatives have lost the value of risk assessment. Organizations that have a set process for all projects must create the value for this process or be willing to accept the consequences. The rationale that: “we’ve always had done it this way” is no longer valid. A project manager must be willing to innovate and develop creative solutions in order to minimize potential risk and threats to the project and thereby the organization.

Risk acceptance is not going along with the flow. A comprehensive assessment is necessary for all potential risks. New risks will present themselves throughout the life of a project. A project manager will not be able to determine all risks from project startup. The process must be on going. As such, there must be a process for continuous assessment and impact on the project and the organization. A risk management team is extremely beneficial to ascertain the risk of a project and to determine whether the risk is worth the potential return.

A project manager that has successfully led a project will be willing to accept a certain amount of risk. If the project manager and the risk management team have deemed that the process they wish to follow requires a component be available, they have chosen to accept the risk that is associated with this decision. An effective project manager will still develop alternative options if this component does not pan out. Risk acceptance does not mean failure to plan alternatives. Risk acceptance establishes that the risk is been acknowledged and the decision has been made to move forward with full comprehension of potential consequences and returns.

What we have addressed in this lecture is not an exhaustive discussion of how risk impacts a project but is more of an overview. It is important to be able to thoroughly assess risk throughout the life of the project. If the assessment tools are not used in the feedback followed upon this provides an even increased risk to the project and the overall organization. Risk should not be taken on due to ignorance or negligence. A calculated and measured approach to addressing risks is essential to becoming an effective and a successful project manager.