Risk management forms an integral part of Project Management. This is precisely because of the fact that a project is susceptible to various risks. Any undesirable event or incident that is likely to hamper the progress of a project may be considered a risk.
Importance of Risk Management
Risk management, in the context of project management, thus assumes greater importance in ensuring the sustainability of the project as well as its successful and timely completion. The main purpose of risk management is to minimize the impact of risks within a project and it involves identifying, analyzing, reporting and managing risks on a continuous basis.
Project Risk Management is an ongoing process that can be applied to all projects. It begins at the project level with the commencement of the project and ends when the project is completed (Gordon 2008).
Risk Management Process
Basically, the project risk management process involves three essential activities of risk identification, risk assessment and risk containment.
Risk identification involves the finding of internal as well as external factors that might affect the smooth running of the project.
In the current context, some of the probable risks that the project is prone to may be identified as:
- The criteria for successful demonstration of Project X are not well-defined although the plan to order 150 more AMDS depends on successful demonstration
- The project is expected to take at least 5 yrs. Since it is a complex project, it runs a high risk of schedule slippage if the external dependencies like enhancement of MHU, are not resolved on time.
- The AMDS design is at a conceptual level and hence there may be implementation risk.
- The project involves over a dozen nuclear scientists, engineers and technology professionals. Availability of skilled resources at the time of requirement is a potential risk (Andersen 2007).
The risk assessment involves assessing all the probable risks that might occur throughout the life of the project. Its primary aim is to analyze
- The possibility of the occurrence of a particular risk
- The potential impact of the problems associated with that risk.
This process must be administered on an ongoing basis keeping in view the changing conditions and priorities on the project. For example, external dependencies must be managed continuously to assess the possibility of schedule slippage.
Risk containment involves containing the most probable and damaging risks. Attempts are made to avoid risks failing which steps are taken to curb the severity of damage inflicted by the probable risks. Here, the foresight of the project manager assumes greater importance (Gordon 2008). In the present scenario, for instance, schedule slippage is a probable risk that can be contained effectively by increasing project tracking. To track better, the project can be segregated into smaller milestones to be reached at regular intervals. This will give an indication to the project manager on the progress of the project.
In a nutshell, project risk management is crucial for ensuring the success of any project. If the above three steps of the risk management process are implemented properly, the uncertainty factor associated with project management can be reduced effectively leading to the success of the project.
Andersen, J. (2007). Strategic responsiveness and Bowman’s risk-return paradox. Strategic Management Journal 28(4), 407-429.
Gordon, D. (2008). Managing Project Risk: Best Practices for Architects and Related Professionals. New York: John Wiley and Sons.