Strategic risks — thinking about them differently Essay
Strategic risks — thinking about them differently
One of the most important aspects to put into consideration when taking up a project is project risk management. A project risk is an event / condition, which is uncertain that, upon it occurrence brings either a positive or a negative impact on the project. A positive manager should consider this as one of the ten knowledge areas where competence is highly regarded. Risk management is critical, especially to organizations working in multi-project environments and the maturity for risk is high (Loftus, 1999). A wide range of risks is apparent when working in projects involving construction among other engineering work. These risks are mostly attributed to government policy, diversity in stakeholders’ aspirations and the challenges of adding multiple projects. For a good risk management process, there must be a clear statement and understanding of roles and responsibilities, proper skills on technical analysis and the prevailing organizational factors should support the project. Project risk management involves identifying, assessing and prioritizing of risks: and thereafter putting resources to use in order to reduce, monitor and control those risks that could affect the project negatively and increase realizing of opportunities (Jaafari, 2001). This report seeks to outline the knowledge acquired on management of risk in projects among other basic knowledge gathered on management of projects.
All organizations exist for their own different purposes, and that of public engineering organizations in the construction business, the purpose is to deliver a service, which brings a beneficial result in the public/ stakeholders interest (Harrison, 2004). Decisions to pump resources into investments on capital infrastructure are prompted by needs that are meant to enhance the achievement of the major purpose. According to Flanagan and Norman (1993), the benefits of efficient risk management are evident especially in projects involving capital infrastructure because they are dynamic in nature and bring positive cost implications from the construction related decisions. Risk management should be taken as an intrinsic part of capital infrastructure investment decisions mainly because, as project, ventures get more elaborate, the role of risk management is exemplified (Kutsch & Hall, 2010). Regarding this realization, some countries have enacted government policies on constructors emphasizing on the need to incorporate risk management in capital infrastructure schemes (Uher & Loosemore, 2004). Risk is therefore, in many occasions, viewed as a condition or event whose occurrence will have adverse effects on the project and may hinder the attainment of set objectives. Hence, risk management relates decisions to such probable harmful effects (Chapman et al, 2012).
This philosophical approach to risk management enables the process to be broken down into four fundamental sub-processes (Culp, 2001). These involve identification, analysis, response and monitoring. The former step of identification is the most critical step because it has the biggest effect on decisions emanating from the process of risk management. Reviewing risk management, in his article, Williams (1995), notes that there is little structured work in publication about typical risks. According to Chapman (1998), as much as risk identification is critical on the risk assessment and response phases, very little empirical evidence is available at this early phase. The heavier task in risk management remains in the analysis and response to the risk, yet the reasoning stands that unless the risks are identified, they cannot be analyzed and responded to.
For most engineers, the need to have a set out program is critical for it provides an umbrella under which all current projects fall so that an outcome can be delivered massively in general, and greater than the total sum of all others. A program is usually temporary, and flexible; created to direct and oversee the implementation of a set of related projects and activities for the deliverance of beneficial outcomes that relate to the organization’s strategic objectives. Several projects are undertaken under this umbrella. This explicitly differentiates between program management outcomes and project management outputs. However, there is a link between projects and strategy through the program. Risk management is becoming an increasingly important process due to external pressures in existence. However, good risk management is seen as a critical attribute of organizational success in the field of engineering. The assumption that programs are merely extensions of projects should cease to exist because many will tend to reflect program risk management to project risk management (Allan, 2008). Program management is a broad extension of the varied, yet related, projects.
On projects, it is important to define one or more objective functions like capital expenditure and completion time to represent it to measure the probability of achieving the set targets. Risk management then goes on to model the project’s objectives against the projects variables like costs and the quantity of inputs. These variables are usually uncertain as time goes on, hence the uncertainty of a hundred percent achievement of the objectives set. The most ideal situation would be identifying and characterizing the variables in advance providing that they will remain unchanged by time. This would make it easy to estimate the possible risks and the consequent variance of the project’s objective(s). However, not all project variables can be identified as new variables might surface as the project goes on while the probability of occurrence of the initial variables may vary (Kerzner & Saladis, 2009). The impacts of the initial variables, both positive and negative, may change too hence making risk management even more hard (Drummond, 1999).
Certainty and uncertainty of realizing a project’s objectives are measurable, only ideally. The possibility of a project not breaking even could be considered as a representative of the whole project: and then used in turn to evaluate against the variable and try to reduce the risks involved. This becomes a basis for decision-making. Some projects may proceed normally in a stable environment, hence making the uncertainty high at the time it is conceptualized. Pro-active planning and making prudent decisions will see the uncertainty reduce (Royer, 2001). However, uncertainty in complex projects within a changing environment will not necessarily reduce/ diminish as time goes by Chapman (1998). It is necessary to keep on checking on the project’s variables and re-evaluating of the objective function’s status to facilitate adjustments in the project’s strategies. Uncertainty surrounds many parts of a project; hence early resolution of variables may not be possible always. Variables change over time leading to exposure to new threats and risks along the way. This fact should not be refuted and a lot of work is required in the planning evaluating phases, where most of the critical work is done. In spite of all the uncertainty and complexity surrounding risk management and project management, it is important to seek methods of improving the project’s base value (Drummond, 1999).
Conceptualization, planning, and implementation of a project are complex process that requires management based on set strategic objectives, which vary from time to time. The objectives should be integrative and holistic in the sense that it caters for social, political, environmental, and community aspects (Sears et al, 2010). Traditionally, planning in project management should form the basis of planning, alongside other functions of project management including; human resource, time, scope, integration, quality and procurement. These should be the fundamental factors f consideration along each phase. A variety of guidebooks, protocols and codes of practice in the engineering field have been made available for use in risk management in project management. In the United Kingdom, the ‘Orange book’ is a framework that is set to offer guidance on basic risk management concepts and as a resource for developing risk management processes and implementing them I the public sector (Aritua et al 2011). It is also aimed at using a risk based decision-making on investment. There have been many more publications and publications aimed at dictating hoe risk management should look like. These guidelines have offered a basis upon which projects are appraised and their investment viability tested. This has enhanced the process and shifted its reception and perception from project risk management to a risk management strategic level (Melton, 2011).
In engineering and construction professions, program management and project management came to existence due to the changing procurement environment (Cox et al 2006). In the United Kingdom, procurement of infrastructural assets was done in a sequential manner, which involved a clear differentiation in the project life cycle phases. Currently there are three major procurement systems. These systems are prime contracting, Design and Build procurement and Private Finance Initiative (Aritua et al 2011). These methods were because of the need to adopt integrative and collaborative project delivery methods. The procurement systems have features like framework agreements, the use of specifications that are output based, and more importantly, emphasis on the lifelong value of the structures (Shehu and Akintoye, 2009). The office of Government Commerce has facilitated the change in construction procurement in the public sector too. The agency’s main agenda is to ensure that policies are followed and enhancing promotion of the best performance practices. These systems ensure that the project undertaken is of high quality and regard set policies and guidelines. These sanctions in the public works and construction sector have acted as strategic risk management tools for they ensure quality assurance as well as proper quality management.
Project management should incorporate the use of a strategy-based management approach. This will facilitate the integration of planning, risk management and decision-making hence ensuring real time real time realization of an optimum of the project’s strategic objective against its variables (Schmidt, 2009). The project’s promoters are not always the investors. Investors are not always actively involved in the management of the project, but invest resources into the project hoping to get dividends. The promoters’ objective, on the other hand, is to deliver a facility that will ensure a long term balanced and financially viable business entity. The project is therefore a compromise between the attainment of investors’ interests and that of the community (Pinto & Morris, 2010). Project development should be based on a set of strategic objectives, which stamp the project as a business and entwining project decisions to strategic business decisions (Wearne, 1989). Amid all risks, the project should be planned proactively regarding its variables and with a focus on the life cycle objective functions (Westland, 2007). All life cycle functions should be observed. These are: financial functions, customer satisfaction, and policy observance/ adherence to statutory concerns. Statutory concerns could be like those regarding projects adjacent to ecological systems or highly populated areas (Jha, 2011). Proactive planning of the project ensures real time minimization of risk. Effective risk management ensures that there is typical conceptualization of projects and their subsequent implementation using strategic objectives. It also ensures any further variables are assessed and managed accordingly to optimize the project’s strategic outcome, that which of a business entity (Heagney, 2011). Since projects are subjected to changes in objectives and variables due to external factors, it is important to incorporate a continuous risk management process that involves continuous risk and uncertainty management process conducted in real time to bring value to the project manager. Strategies made from risk analysis are a basis upon which decision-making is based going forward. Objectives of the life cycle are the vessel for analysis.
Ethical practices are important factors to put into consideration when taking up/ procuring a project (Ralf et al, 2014). There exists codes of conduct and these codes may vary depending on the government regulations from one country to another. These codes guide management of projects, operations and supervision of work, and the technical aspect of the project, which is building. Since the work done is of great importance, the designed code of conduct and ethical measures should be used as they set standards for the output as well as achieving business objectives with the community in regard (Haukur et al, 2011). Reflective assessment
Group activities that included vast research and group projects were vital in broadening my understanding of the project management theory, which of great importance to establishing and undertaking successful projects. According to Turner (1993), scope management is what the project management theory regards. Scope management involves three fundamental issues; ensuring that an adequate amount of work has been done, avoiding doing any unnecessary work and ensuring that the work done fulfills the intended business purpose as stated. The recognition of the sequential state in which activities are undertaken helped us as a group in determining what had to be done at a particular time and by what particular persons as well as accounting for what had been spent on completed work in anticipation of costs that would be accrued in the next steps. I came to understand project management by likening it to production operations management. The crystallization of project management theory to operations management theories made it easy for us to recognize the resounding reliance on the transformational theory, which is production oriented. This is because project management involves injecting inputs on which transformational processes occur to bring the result, which is the output (Nell, 1998). Goals are set on the output, upon which a basis for control is placed: control systems are put in place to ensure activities align with achieving intended goals and putting improvement measures in place. This deep understanding of the theory has been enhanced mainly by the critical analysis and discourse that we have engaged ourselves with in the group to widen knowledge on the process. Relevant knowledge on management theories on planning, execution and control has expanded from these activities as well as project theories pertaining flow of production (which projects have been likened with) (Sulliman, 2014). These productions method include incorporating techniques such as lean production and just in time (JIT) (Gilbereath, 1922). Ethical practices in governance for contemporary organizations are also a major factor for consideration (Ralf et al, 2014). Conclusively, exploration on the area of project management has instilled in me management skills, which are very critical in handling projects and managing every aspect in them including risk.
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Subject: Business & Economy,
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 27 September 2015
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