Conceptualization of project risk management
In order to successfully complete a project and achieve the project goals, risk management requires to be centrally focused upon by project managers. Experiences in the past have demonstrated that risk management ought to be of critical concern to project managers, seeing that unmanaged or unmitigated risks are one of the main reasons for the failure of many projects today (Turner, 1999; Royer, 2000). These imply that risk management is one of the most fundamental activities in the management as well as in the success of a project. However, the real issue in this context is:
What are the major risks in managing a project and what risk management tools and techniques are obtainable for project managers.
Risk management process
The obtainable research literature relating to project management throws light on a comprehensive and extensively established risk management process. The risk management process consists primarily of four iterative phases:
- Risk identification.
- Risk estimation.
- Risk response planning.
- And execution (Miller and Lessard, 2001).
Hence, in order to have successful path of risk management in a project, the project managers are required to effectively manage all of these project management processes. Ignorance of any aspect within these phases would likely lead to the failure of the project. Hence, project managers ought to firstly identify the risk, estimate the risk, plan risk response and implement the risk management plan. However, as Chapman and Ward (2004) argue that managing risk in a project is not restricted to some risk management processes, but comprise much more, like a comprehensive perspective of the risk management system, tools and techniques, etc. Moreover, project risk management also concerns to the fact as how resources are allocated to managing the project; and further which techniques are applied, systematically implemented and controlled. From this perspective, project risk management becomes a more significant issue than it appears.
In the risk management process, the first stage is identification of risks. Project risks can be categorized as per their risks and control. From this perspective, project risk might be categorized into business risks, insurable risks, external risks, and internal risks (Turner, 1999). Most commonly, however, in the obtainable research literature project, risks are identified in the forms of pure risks, financial risks, business risks and legal risk. Pure risks are related to hazards and other natural disaster that are not under the project managers’ control. Financial risks are risks such as cash flow or credit risks. Business risks are those related to organizational operations of the project. Lastly, legal risk is a potential risk associated with a project (Chapman and Ward, 2002; Cohen and Palmer, 2004). Hence, project managers in a project must first identify the risks related to pure risks, financial risks, business risks and legal risks. However, the attention given to a particular risk ought to be decided according to its likely impact on the project and controlling. After completing the risk identification process, the project managers should plan for the effective and feasible risk management techniques and tools for managing and controlling the risks.
Risk management plan
In order to make certain that everyone linked with a project is sentient about the concept of ‘risk’, one general classification ought to be drawn up for the intention of this specific project. In this context, whilst quantifying acknowledged risks, Westland (2006) makes use of an instrument where probability of taking place risk is rated. A Risk management plan (which is usually drawn before the implementation stage of any project) is an instrument to track and manage formerly acknowledged risks (Westland, 2006). In this framework, Westland (2006) recognizes project phases where more focus should be directed towards risk management. In the opening phase of the project, a feasibility study is carried out, which is a meticulous analysis of a project plan.
In this phase, various solutions are recognized and evaluated and the investigation is carried out to identify the likely risks and the planned solutions. Moreover, in the planning phase, a risk plan is formulated where likely risks linked to project planning are acknowledged. In this framework, every stakeholder ought to participate in formulating this plan to make certain that each likely risk is recognized. Undertaking the risk identification step in the planning stage helps mitigate risks prior to the implementation phase. On the other hand, in the absence of risk management plan, it becomes very challenging and expensive if no deed is taken in advance. Hence, project risk management ought to be carried out in every phase of project management, where effective and feasible methods and tools require to be put into practice considering the requirement of the different phase.
- Turner, J. (1999). The Handbook of Project-Based Management: Improving the processes for achieving strategic objectives, 2nd edition, McGraw-Hill, London, 529p.
- Royer, P. (2000). Risk Management: The Undiscovered Dimension of Project Management, Project Management Journal, 2000, Vol.31, No.1, pp. 6-13.
- Miller, R., and Lessard, D. (2001). Understanding and managing risks in large engineering projects, International Journal of Project Management, 2001, Vol. 19, pp. 437-443.
- Chapman, C., and Ward, S. (2004). Why risk efficiency is a key aspect of best practice projects, International Journal of Project Management, 2004, Vol. 22, pp. 619-632.
- Cohen, M., and Palmer, G. (2004). Project Risk Identification and Management, AACE International Transactions, 2004.
- Westland, J. (2006). Project Management Life Cycle: A Complete Step-by-step Methodology for Initiating Planning Executing and Closing the Project. Kogan: Page Limited.