Risk is any factor that may potentially interfere with successful completion of the project. A risk is not a problem-a problem has already occurred; a risk is the recognition that a problem might occur. By recognizing potential problems, the project manager can attempt to avoid a problem through proper actions. Project Management is the skills, tools and management processes required to undertake a project successfully. Stakeholders are persons or organizations that are actively involved in the project, or whose interests may be positively or negatively affected by the project.
Organizations take risks to benefit from potential opportunities however; these opportunities involve an element of risk. Projects entail a level of uncertainty and therefore carry business risk. Every project has risks. Organizations that succeed are the ones that plan for those risks – anticipating, mitigating, and providing response and contingency plans for negative events that may or may not occur. Risk Analysis solutions provide the tools for doing just this, enabling companies to identify, assess and model risks – and, in the process, taking much of the uncertainty out of project and portfolio management. A project risk can be defined as an uncertain event or condition that, if it occurs, will have a positive or a negative effect on a project’s objectives. Identifying risk in the planning stage enables better project selection decisions and more accurate budgeting and scheduling, (Oracle white paper,2010).
Risk assessment is critical to understanding the impact of risk and uncertainty on project schedule and cost. Once risks are identified and assessed, the next step is to develop a response plan. Typical mitigation actions include adding time to the schedule, deploying more resources on the project, bringing in outside expertise, increasing the budget, just to mention a few. Uncertainty is an inevitable aspect of most projects, but even the most proficient managers have difficulty handling it. They use decision milestones to anticipate outcomes, risk management to prevent disasters and sequential iteration to make sure everyone is making the desired product, yet the project still ends up with an overrun schedule, overflowing budget and compromised specifications. Or it just dies. Unforeseen uncertainty makes contingency planning more difficult because the project team cannot anticipate everything. Because it is impossible to create a complete contingency plan, the plan must evolve as the project progresses. With unforeseeable uncertainty, a lot of time and effort must go into managing relationships with stakeholders and getting them to accept unplanned changes. Stakeholders often dig in, causing resistance and conflicts. Failing to address risk and uncertainty can lead to consequences that span the spectrum from mere inconvenience to grave danger, (www.ey.com).
The article went on to explain some of the effects that risk has on the mining and metals companies projects. Failure to deliver against agreed plans — Realized delivery risks will typically impact one or more of a project’s cost, schedule, scope and quality parameters. Where impacts represent a material variation from approved plans, a critical review of the project’s alignment to Business Case assumptions and rationale may be required. Late-stage Business Case modifications have the potential to undermine the project’s investment case and severely impair stakeholder buy-in and confidence. Loss of competitive advantage — For many mining and metals companies, the ability to efficiently and predictably operationalize assets and infrastructure forms a key source of competitive advantage. As commodity prices, commercial terms and the competitive landscape constantly change, the window for timely project delivery is finite. When risks result in project delays, cost overruns or quality defects, many companies will feel a direct impact on corporate performance and competitive advantage. Damage to reputation — Leading mining and metals companies recognize the essential disjointed role of corporate reputation in securing and maintaining a social licence to operate. The risk of health, safety, environment and community incidents is ever present, demanding high levels of delivery discipline and management vigilance. Where policy, process or control break-downs do occur, and an incident results, mining and metals companies must respond immediately to prevent long-lasting reputational damage.
The Impact of a risk may be to the project and its success criteria (eg budget and timeframes or the quality of the project output) or it could be to the business as a result of the way the project is carried out. At the same time,risk assessment increases profitability. Contracts can be selected and priced at the right level of risk, and the business can be managed with risk fully understood, (Oracle white paper,2009). Specific risks can be negotiated, it can be made clear who bears them, and they can be built in to contracts. After evaluating risks, one can choose a path of risk avoidance or risk mitigation and management. If one understands the risks in a project, one can decide which risks are acceptable and take action to mitigate or forestall those risks. If one’s project risk assessment determines that risks are excessive, one may want to consider restructuring the project to within acceptable levels of risk. Every project has risks and the way that these risks are identified, assessed and mitigated plays a critical role in the project outcome. Most firms would rather have projects without risk and uncertainty, to realize more profit and growth and also improve or maintain their good reputation. However, risk and uncertainty are not the only factors that may negatively affect a project thus hindering profitability, growth and good reputation for the organization. There are several other factors that aid a project to contribute to the well-being or downfall of the organization. A project fails when the plan is not met. (Oracle white paper, 2009) Failure means that a project exceeds the timeline, the project has to be founded upon realistic timescales, taking account of statutory lead times, and showing critical dependencies such that any delays can be handled. A schedule should include a satisfactory measurement system as a way of judging actual performance against budget and time allowances, Slevin D.P, Pinto J.K (1987) Failure also means that a project overspends the budget, or underperforms expectation, they need to have a clear project plan that covers the full period of the planned delivery and all business change required, and indicate the means of benefits realization. Lack of clear link between the project and the organization’s key strategic priorities, including agreed measures of success also affect projects. The organization needs to know how the priority of this project compares and aligns with other delivery and operational activities.
There is need to have defined the critical success factors (CSFs) for the project. Project success or contribution on profitability, growth and reputation for the organization also dwells on clear senior management and Ministerial ownership and leadership. As noted by Schultz and Slevin (1975), management support for projects, or indeed for any implementation, has long been considered of great importance in distinguishing between their ultimate success or failure. Without an experienced project manager, projects can quickly spiral out of control. The project management team must have a clear view of the interdependencies between projects, the benefits, and the criteria against which success will be judged. Decisions need to be taken early, decisively, and adhered to, in order to facilitate successful delivery. Another great effect to projects contribution on the organization is effective engagement with stakeholders. It is crucial for the firm to identify the right stakeholders and secure a common understanding and agreement of stakeholder requirements. The project needs to take sufficient account of the subsisting organizational culture whilst ensuring that there is clear accountability and how to resolve and conflicting priorities. The need for client consultation has been found to be increasingly important in attempting to successfully implement a project. Indeed, Manley(1975) found that the degree to which clients are personally involved in the implementation process will cause great variation in their support for that project. If you are managing an internal project, it might not be wise to upset stakeholders that you might need to deal with at a later date. The need for diplomacy is important, and the political landscape can have a large impact on how easy or difficult it will be to deliver the project,(Bauer M). The extent of stakeholder involvement also affects the reputation of the organization and consequently the profits and growth potential. Lack of skills and proven approach to project management and risk management can affect the project and consequently the organization. . Lack of experience breeds excessive conservatism (K. Humphreys). Not having the right people for a particular project may compromise the job. “The key to a successful project is to include the right people with the right skill-sets,” says Joel Koppelman. He also quotes, “All the planning in the world will not compensate a lack of talent.”
Risk and uncertainty actually help the project team and management to stay alert and prepare in advance for possible attacks to the project. Decision-making under conditions of risk where there are assigned estimated probabilities and predicted impacts for each identified risk, enables management strategies to be developed as a response including monitoring and controlling the risk mitigation to reduce these risks to the desired level. Despite risk and uncertainty, there exist other factors that can greatly affect the outcome of the project on profit, growth and reputation. It can then be concluded that risk and uncertainty are not the only factors that hinder projects from contributing to the profitability, growth and the reputation of the organization. Lack of skills and proven approach to project management and risk management, lack of effective engagement with stakeholders, and clear senior management and Ministerial ownership and leaders affect the outcome of a project. Although risk and uncertainty have dire consequences for the firm, eliminating them will not guarantee projects contributing to profitability, growth and reputation of the organization. The other factors mentioned above are equally liable to project success.
Oracle white paper, A Standardized Approach to Risk Management Improves Project Outcomes and Profitability, April 2010 Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA 94065 U.S.A.
Dennis P. Slevin and Jeffrey K. Pinto, Balancing Strategy and Tactics in Project Implementation’, Sloan Management Review, Fall, 1987, pp. 33-41,
Kenneth K. Humphreys, Project Risk Management – Advantages and Pitfalls Pe Cce Dif, n/d.
Schultz, R. L. and Slevin, D. P. “Implementation and Management Innovation,” in Implementing Operations Research and Management Science, ed. Schultz, R. L. and Slevin, D. P. (Elsevier. New York, 1975), pp. 3-22.
Manley. J. H. “Implementation Attitudes: A Model and a Measurement Methodology.” in Implementing Operating Research and Management Science, ed. Schultz. R. L. and Slevin, D. P. (Elsevier. New York, 1973), pp. 183-202.
Oracle White Paper, The Benefits of Risk Assessment for Projects, Portfolios, and Businesses,June 2009. Oracle Corporation World Headquarters 500 Oracle
Parkway Redwood Shores, CA 94065 U.S.A.
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Ernst & Young Global Limited, Effective mining and metals capital project execution,The consequences of risk. U.K Retrieved from www.ey.com on 19 March 2014.