Risk Management in a Project

Risk Management in a Project Introduction The concept of risk management is crucial in any project management. Risk management entails measures that are taken to ensure timely completion of a project without many complications.Advertising We will write a custom report sample on Risk Management in a Project specifically for you for only $16.05 $11/page Learn More Fertis, Baes and Là ¼thi (2012, p.663) define risk as a potential hazard that may emerge and cause difficulties and hence make it impossible to accomplish set objectives in a certain project. From this definition, it can be deduced that threats are uncertain events that have negative effects on a particular endeavor (Gray Larson 2010, p. 17). There are numerous internal and external factors within a project environment that may instigate risks. Hence, mitigation measures should be put in place in order to identify, analyze and manage such hazards (Fang Marie 2012, p. 635). It is against this background that this paper intends to analyze and discuss the benefits of managing risks, the evaluation process for effective risk management and recommendations on how risk management can be carried out. Importance of risk management in a project environment Risk management is a process that entails analysis of risks in order to devise appropriate management strategies, a factor that enhances success of a project. Additionally, there are myriads of benefits that occur when such perils are managed (Fang Marie 2012, p. 635). Nevertheless, there exit numerous misconceptions on risk management. In fact, some organizations often regard is as a costly and time wasting activity. To some extent, some organizations perceive that the costs of mitigating certain risks are higher than those of maintaining the resultant effects.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Consequently, they end up starting up projects that are never accomplished (Madadi Iranmanesh 2012, p.751). Notably, when risks are managed properly, it helps to minimize the operational costs. For instance, whenever a certain risk is identified it should be mitigated before it begins to affect the entire project. In this case, the organization does not have to incur extra cost of managing the risk and repairing the damages caused at the same time (Sorin Serghei 2012, p. 249). Another potential benefit is that it helps to proactively tackle project’s risk factors. In most cases, there are types of risks in projects that are often ignored yet they can adversely affect the progress of a project (Madadi Iranmanesh 2012, p.751). Therefore, management of risks provides a forum to decimate the major and minor risks. Additionally, risk management helps to motivate and boost the performance of workers and other stakeholders. From a careful review of literature, workers often get discouraged by the impending risks. Dorfman (200 7, p. 4) argues that nobody would sacrifice his or her effort on a project which is bound to fail. This implies that whenever risks are managed, it creates an assurance of success for the project. Consequently, workers and stakeholders get committed to the project. Fang and Marie (2012, p. 635) elucidate that risk management promotes a collective team identity and also boosts the morale and spirit of members while tackling difficult tasks. In line with the above benefits, Jebrin and Abu-Salma (2012, 289) highlight that risk management is one potential way of managing crisis that occurs and which may often results into failure of a project.Advertising We will write a custom report sample on Risk Management in a Project specifically for you for only $16.05 $11/page Learn More In other words, this practice improves the strategic planning and management of a business since it ensures that it will be able to withstand prevailing challenges. Sorin and Serghei (20 12, p. 251) note that managing risks in a project calls for teamwork. Besides, Dorfman (2007, p. 4) acknowledges that risk management in a project creates awareness on how to tackle possible errors in future. Fertis, Baes and Là ¼thi (2012, p.663) assert that some risks are concurrent and therefore, once the stakeholders note the trend of certain risks, they should create awareness to team members on how to respond to such risks. Besides, this practice also fosters effective use of resources. Empirical studies have shown that some of the risks that face projects occur due to inappropriate use of resources. In any project, there are numerous types of resources such as finances, labor and fixed assets (Madadi Iranmanesh 2012, p.751). Once these resources are mismanaged, the project cannot be successful due to shortages. Therefore, it requires team members to use available resources appropriately in order to overcome shortages that can lead to failure of accomplishing the set objecti ves. Studies have shown that management of risks call for the need to grasp new opportunities. For example, an investment might not be attractive in a given season while there may be an opportunity for investing elsewhere. In this case, the team members can partition some resources and invest them in separate projects. Whenever the main investment improves, it will be an added advantage since the project will have expanded. Abdullah and Verner (2012, p.1930) highlight that this enhances continuous improvement of the project especially when external investments boost the main project. By so doing, the project will experience minimal instabilities (Besner Hobbs 2012, p. 241). In a shift of focus, it is important to know that in risk management, no one is sure of what might come up. Therefore, this calls for a sensitive decision making process in order to increase the likelihood of project success.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Project evaluation It is important to note that evaluation of risks in a project helps one to determine the degree of success and possible failures (Vose 2000, p.5). A project should employ evaluation since it helps to measure the effects of possible risks. In this case, there are numerous ways through which evaluation is conducted during risk management process. One of the possible ways is to rank the risks in order from the most injurious to the least. In addition, the consequences of each hazard can also be considered as an evaluation criterion. Needless to say, Fertis, Baes and Là ¼thi (2012, p.663) observe that other than the consequences, one can use the probability criterion to conduct an evaluation. It is important to note that numerous organizations usually apply the two criteria in order to assess and manage risks facing their projects. That notwithstanding, one can use a business plan to evaluate the mode of risk management (Vose 2000, p.5). For instance, in a business p lan, there are various risks that are been considered. For example, one can refer to the risk map to evaluate the likelihood of a certain hazard to occur. From a careful review of literature, there are several tools that can be used in an evaluation process. For instance, there are maps that are constructed to indicate the likelihood of a risk to occur. As such, the risks are ranked depending on their significance to the project (Madadi Iranmanesh 2012, p.751). Furthermore, other tools that can be applied include SWOT and scenario analysis. The latter may help to explore diverse encounters of a business in future (Besner Hobbs 2012, p. 243). Additionally, projects can also employ evaluation process to devise strategies that can possibly neutralize or even predict possible hazards. An evaluation can also be employed to determine whether to move on or terminate a given project (Gray Larson 2010, p. 57). This is due to the fact that some of the risks can cause more harm while they a re inevitable. For instance, during the current economic recession, some of the investment strategies were heavily affected by the crises. In this case, conducting an evaluation would help one to foresee the inevitable dangers and determine whether to progress with the investment or not (Fang Marie 2012, p. 635). Other than neutralizing and anticipating risks, evaluation process can be employed to estimate risks. In most cases, team members in a project are quick to identify risks yet they are not able to estimate their impacts. Project managers can also use evaluation process to determine the possible changes within the project’s environment. This entails planning on how to cope with competitors, market changes and diverse government policies (Madadi Iranmanesh 2012, p.751). It is imperative to note that failure to conduct an evaluation might destabilize a project especially if it is not able to withstand government policies and other factors in the immediate environment. Therefore, evaluation can be employed to identify abstract threats (Besner Hobbs 2012, p. 245). Recommendations It is important to note that the benefits of managing risks in a project are numerous. Therefore, there are several recommendations that can be implemented in order to ensure an effective and workable risk management plan in any given project. 1.It is recommended that stakeholders should make risk management process to be part of the project and that they should not be ignorant of anticipated risks (Jebrin Abu-Salma 2012, 289). This will enable the team to derive full benefits. For instance, depending on the nature of the project, some members in a team may fall ill, get injured, die or even lose their individual properties. Such threats are often ignored yet they are inevitable. Reviewing the risk analysis record is crucial since it acts as a leeway to risk management. This cannot be possible without an efficient evaluation procedure. 2. Basically, team members should i dentify the possible risks early enough in order to develop a clear mindset to face them. This will help to identify available opportunities that can be utilized to decimate the discovered risks. Fertis, Baes and Là ¼thi (2012, p.663) note that diverse risk identification methods should be employed in order to cover a wide range of unexpected risks. This implies that correlating the probability of the event with the cost incurred is vital. Therefore, whenever an evaluation is done, it is important to come up with a risk impact versus probability chart that gives the project a fine focus (Vose 2000, p.5). 3. Abdullah and Verner (2012, p.1930) recommend that it is vital to provide information on the risks facing a project. In most cases, managers may identify a risk but fail to include the workforce. Risk communication enhances team building and hence individuals pull their efforts collectively in one direction (Madadi Iranmanesh 2012, p.751). Notably, communication helps to expose bigger risks that can easily go unnoticed. As a matter of fact, risks that cannot be noticed easily may often pose the worst threats to an organization before they are eventually identified. This explains why a smooth flow of information and communication should be enhanced whenever any project is being undertaken. 4. Fertis, Baes and Là ¼thi (2012, p.663) are quite unanimous that projects should not merely consider the threats. Opportunities should also be put in mind when undertaking projects. In any case, not all risks may lead to failure of a project. For example, it is worth noting that some risks have positive effects in the sense that they can be turned into viable opportunities towards the successful completion of a given project. For instance, Abdullah and Verner (2012, p.1930) assert that risks create dynamism especially in cases whereby stakeholders struggle to utilize every opportunity to accomplish a project. This kind of dynamism is indeed crucial if a project is to r ecord any significant level of success. 5. Risks facing a project should be prioritized since some have adverse effects than others. Needless to say, those that are more perilous to the project should be ranked top and addressed first while the least should be given the last priority. Nevertheless, prioritizing risks does not imply that the less risky ones should be ignored. Additionally, Fertis, Baes and Là ¼thi (2012, p.663) recommend that risks should be evaluated in order to set preconditions for valuable responses. Evaluation of risks should be conducted in different level and the outcomes should be reviewed in order to foster effective risk management strategies. References Abdullah, L Verner, J 2012, â€Å"Analysis and application of an outsourcing risk framework.† The Journal of Systems and Software, vol. 85 no.8, pp.19-30. Besner, C Hobbs, B 2012, â€Å"The paradox of risk management; a project management practice perspective.† International Journal of Mana ging Projects in Business, vol.5 no.2, pp.230-247. Dorfman, S 2007, Introduction to Risk Management and Insurance, Prentice Hall Press, New Jersey. Fang, C Marie, F 2012, â€Å"A simulation-based risk network model for decision support in project risk management.† Decision Support Systems vol. 52 no.3, pp.635-637. Fertis, A, Baes, M Là ¼thi, H 2012, â€Å"Robust risk management.† European Journal of Operational Research vol. 222, no.3, pp. 663-665. Gray, C Larson, E 2010, Project Management: The Managerial Process, 5th International, McGraw-Hill, London. Jebrin, A. Abu-Salma, A 2012, â€Å"Conceptual Knowledge Approach to Operational Risk Management (A Case Study).† International Journal of Business and Management vol. 7 no.2, pp.289-302. Madadi, M Iranmanesh, H 2012, â€Å"A management-oriented approach to reduce a project duration and its risk (variability). European Journal of Operational Research vol. 219 no.3, pp. 751-755. Sorin, P Serghei, F 2012, â€Å"A typology of unexpected events in complex projects.† International Journal of Managing Projects in Business vol. 5, no.2, pp.248-265. Vose, D 2000, Risk Analysis: A Quantitative Guide, John Wiley Sons, New York.