Risk is an important aspect of project management

Project management has become an integral part of most business organisations today due to a number of reasons. As the nature of business becomes increasingly complex and more demanding it becomes pertinent for companies to innovate effective management methods. Modern organisations have to deal with an entirely new work environment as the traditional ‘divided and hierarchical’ system has been replaced by a technology-driven, fiercely competitive and skills-oriented workforce. This poses a challenge for most organisations and project management, a modern management technique that helps them make their tasks flexible, focused and efficient. Some key elements (also known as ‘knowledge areas’) of project management are:

  • Cost management.
  • Scope management.
  • Time management.
  • Stakeholder management.
  • Quality management.
  • And risk management (Haughey, 2013).

Management and mitigation of risks are one of the most vital aspects contributing to the success of a project. As it allows one to identify the key strengths, opportunities, threats and weaknesses; and preparing the execution plan accordingly. It helps the team members of a project to be proactive rather than reactive, thus controlling future events in the project.

Project risk management

There are many definitions for the term ‘risk management’. Today, one of them being “the process by which an organisation attempts to predict potential risks that it may face and then tries to come up with strategies to help it handle exposure at these risks” (Blokdijk, 2007). An organisation consists of many members therefore when it devises a risk management strategy, it is important that it keeps all the members informed about it, so that they are able to prepare themselves and adapt the strategy on their level. Members must then communicate with each other about the project goals and the organisational goals, so that they can reach a common ground regarding the project outcomes and work efficiently. Such is the importance of communication in project risk management. Today a separate term ‘risk communication’ has been coined to urge organisations to inculcate it as a primary requisite in its operations. Communication is an integral part of the risk management process because it allows the stakeholders to participate in decisions about management of risks involved in the project (ILGRA, n.d.). ‘Stakeholders’ refers to all individuals with vested interests in the project like the directors, vendors, employees, society, clients, customers, etc. Since a risk management strategy calls for significant changes in the operational process, it is vital that project managers maintain effective communication with stakeholders. Stakeholders must not feel imposed; rather their participation and commitment towards project outcome should be ensured. The organisation’s communication strategy must be framed to firstly identify these key stakeholders then creating an engagement plan by applying this information and then focus on maintaining a positive relationship with the stakeholders. This can be illustrated in the figure below:

Communication Strategy for effective Risk Management

Communication strategy for effective risk management

 

Understanding the importance of stake holder analysis in project management

However, not all stakeholders are equally important or equally involved in a project. For instance if a city administration decides to demolish one area of the city, then the most important stakeholders are the residents of the dwelling. Therefore the first step of an effective communication strategy for project risk management is to identify the primary stakeholders; categorize them according to their importance and influence; understand their interests; and finally develop the stakeholder strategy plan where their key roles and responsibilities are assigned. This 4-step process is called a stakeholder analysis and is a widely popular risk management tool among corporations today. All the steps of a project’s risk management strategy are important, but it is most to monitor these decisions for their outcome. The Stakeholder Analysis can be undertaken at any stage or phase of a project. In the define phase, the stakeholder analysis helps identify the key stakeholders and also in deciding their responsibilities. In the design phase, it can help frame strategic actions and inform risk analysis. In the implementation phase it can help understand which stakeholder should be involved at what level and time. And in the analyse or adapt phase, the stakeholder analysis serves as a reminder of the project goals and compares it to the realized outcomes (Golder & Gawler, 2005).

Project managers must maintain a record of the identified risks, their implications, actions to be taken, etc. in a log or a register, known as risk register (Edgerton, 2008). The risk register as a management tool helps them manage and mitigate risks efficiently. There is no specific format for a risk register but a general risk register contains details such as dates, description of the risks, risk type, likelihood of occurrence, severity of the effect, countermeasures, etc.

Further research

The business environment is becoming increasingly challenging due to a number of factors involved; such as:

  • Complex technology.
  • Changing customer demands.
  • Volatile economic conditions
  • And shortage of skilled manpower.

The business environment has also become unpredictable and ambiguous, particularly since the recent global recession of 2008. This has compelled the corporate world to devise innovative risk management mechanisms to deal with complexity and dynamism in the economic environment. Communication being an important aspect of risk management (as seen above), having a robust management tool to ensure the flow of information and involvement is critical to projects. Stakeholder analysis has been often cited as one of the most popular tools for this purpose. However there has been much disagreement regarding the phase and level at which the tool should be implemented. While some researchers argue that it is best to conduct a stakeholder analysis at the beginning of any project, others assert that it is useful at any phase for different reasons. Also, there is no consensus regarding the level at which it should be implemented. Should a project be divided into many sub-parts and the analysis be done in each sub-part independently or on the project as a whole. Thus a further detailed study is required with the following objectives:

  1. Establish the importance of the stakeholder analysis to projects and determine the level and phase at which the stakeholder analysis best conducted in any project.
  2. Understand which part of stakeholder analysis information should be entered into risk register.
  3. Understand the purpose for a project to make communication plan & strategy and how stakeholder related risks could be managed well by using communication plan & strategy.

References

Priya Chetty

Partner at Project Guru
Priya is a master in business administration with majors in marketing and finance. She is fluent with data modelling, time series analysis, various regression models, forecasting and interpretation of the data. She has assisted data scientists, corporates, scholars in the field of finance, banking, economics and marketing.

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Discussions

2 Comments.

  1. It was a wonderful article which talks about the risk associated with project management.We know risk is an important aspect because higher the risk yields higher return. Thank you for sharing your knowledge among us.
    Process management

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