However, the unitary nature of overall project risk means that each project will occupy only one position in the matrix at a given time. While this might seem to be of limited use, it does allow trends in overall project risk to be plotted over time, indicating whether the project as a whole is becoming more or less risky.
Despite the attraction of this simple matrix approach, its use for assessing overall project risk is subject to the same flaws and drawbacks as with individual risks, and alternatives should be considered by organisations with a more mature approach to managing risk Association for Project Management, The standard Monte Carlo simulation approach is ideal for this type of analysis, since the main output presents the range of possible outcomes against the probability of each value being achieved.
This is usually shown as a cumulative probability density plot, or S-curve, and an example cost analysis is shown in Exhibit 3. So for the example in Exhibit 3, the two subsidiary questions could be answered in detail as follows:. The results from this quantitative risk analysis of overall project risk can be shown on a heat map, plotting the probability of failure against the potential variation in outcome, similar in nature to the qualitative likelihood- consequence matrix.
As for qualitative assessment, using a heat map to plot changes in overall project risk with time will indicate the trend in risk exposure, allowing the project sponsor and other stakeholders to make appropriate decisions on the future of the project. The example in Exhibit 3 discussed above focuses only on the project budget, describing overall project risk solely in cost terms. It is of course possible to undertake similar quantitative risk analyses on other project outcomes, such as time, performance, return on investment ROI , etc.
Indeed, current best practice is to analyse overall project risk in terms of both cost and time together in an integrated risk model Hulett, In this case, variations in both outcomes can be shown in a single output, as in Exhibit 4, allowing project stakeholders to visualise overall project risk in terms of both cost and time.
Since quantitative risk analysis is the main means of determining the extent of overall project risk exposure, it is vital that risk modelling is done well. The quality of output from any risk model depends critically on two factors: the quality of the input data, and the structure of the underlying model.
While the need for good-quality input data is well understood, the ability to produce robust and realistic risk models remains rare. Basic requirements are often missed, such as:. The absence of these fundamental modelling techniques will render the model outputs meaningless and misleading. Once the level of overall project risk is understood, the project sponsor and other stakeholders can make appropriate and proactive risk-based decisions about the future of the project. In most cases, risk responses use information on the causes of overall project risk gained during the identification phase.
Having identified root causes of overall project risk, these can be targeted specifically during the response phase in order to remove or reduce potential negative outcomes for the project and to capture or enhance potential upside. This response strategy to negative overall project risk exposure involves removing high-risk elements of scope from the project, recognising that this is likely to reduce the available value or benefit that the project can deliver. The ultimate risk avoidance response at overall project level is to cancel the project. While this may be a last resort, it is often the right course of action if overall project risk exposure remains unacceptably and persistently high.
The aggressive response to high levels of upside risk at the overall project level is to increase project scope to take advantage of areas where additional value or benefit is available. These two response types match their counterparts in the individual risk space, involving third parties to manage overall project risk where they are more competent than the current project team. Transfer requires someone to bear the potential downside of the project and take responsibility for minimising overall project risk; share invites a partner to take responsibility for capturing potential upside in return for a proportion of the additional value created.
At the whole project level, these two strategies often involve setting up collaborative business structures such as joint ventures, special purpose vehicles or mergers, or possibly subcontracting or selling the project entirely. The reduce strategy seeks to minimise downside risk exposure, while enhance aims to maximise upside. This often involves re-planning the project, changing scope, modifying project priority levels, changing resource allocations, etc.
As for individual risks, accepting the existing level of overall project risk means continuing with the project as currently defined, aware of how much risk is being carried, monitoring changes in overall project risk as the project proceeds, and ensuring appropriate levels of contingency at the whole project level. Most risk responses are not cost-free, and it is important to ensure that selected responses are both cost-effective the potential saving exceeds the cost of the response and risk-effective the response changes overall project risk exposure significantly and proportionately.
This is likely to require consideration of more than one candidate risk response strategy before selecting the most suitable response for implementation. It is important to communicate the status of overall project risk to key stakeholders throughout the lifetime of the project, including:. Overall project risk is dynamic—changing constantly as the project progresses—due to effective implementation of risk responses, internal developments within the project over time, and changes in the organisational and external environments.
As a result, it is essential to monitor overall project risk levels regularly, to determine the effectiveness of chosen responses, to track the trend in overall project risk exposure, and to ensure that the project remains on course for success. A key principle of risk management is that ownership of a particular risk should lie with the person or party who owns the objective that would be affected if the risk occurred, known as the risk owner.
This is of course different from an action owner, who is responsible to the risk owner for implementing agreed actions to address a risk; the action owner is the person or party best able to manage the risk effectively. This principle then raises the question of who is responsible for managing overall project risk. This makes it clear that the project sponsor is ultimately accountable for ensuring that overall project risk is managed effectively and that it stays within the overall risk threshold set by key stakeholders for this project. This accountability of the project sponsor is, however, delegated to the project manager, who is responsible for managing overall project risk as part of his or her duty to deliver the objectives of the project.
As a result, management of overall project risk becomes a shared duty of both project sponsor and project manager, acting in partnership to ensure that the project has the optimal chance of achieving its objectives within the allowable risk threshold. Successful management of risk at this whole-project level therefore depends largely on the effectiveness of the working relationship between these two key players. This paper has highlighted the concept of overall project risk that has featured in Project Risk Management guidelines for the past decade Association for Project Management, , but which is largely ignored by most project-based organisations.
These seem to prefer to concentrate on managing individual risks within their projects while not addressing the overall riskiness of those projects. This is reinforced by the major project management associations, whose Project Risk Management processes do not explain how to manage overall project risk, even where they include the concept in their definitions PMI, , ; Association for Project Management, , This paper unpacks the concept of overall project risk, explaining how it can be identified, assessed, and managed.
The question remains as to whether project-based organisations will take up the challenge to implement the guidance in this paper, and begin to address risk at the whole project level as well as considering individual risks. This book examines the challenges that managers face in assessing the likely risks and benefits that need to be taken into account when choosing projects. It then explores the strategic level risks that will need to be dealt with in managing those projects and suggests risk management strategies.
In so doing, it makes a rare but important link between strategic level appraisal of project opportunities and project risk management. Many projects have similar characteristics that are common to a number of projects experienced by the same or other organizations.
Elaine Harris shows how the use of a project typology can guide project risk management by identifying common risks shared by projects of each type. After eight years of use it has been refined, maintaining it as a group activity. Its strength lies in its roots in PCT, as risk assessment is too subjective to rely solely on mathematics. It offers a qualitative method of knowledge acquisition that can be used to elicit and share intuitive feelings about projects and risks within a structure that allows metrics to be applied without need of probabilistic calculations.
It requires a trained facilitator who will usually be external to begin with, but internal facilitators can take over. It can be combined with cognitive mapping to benefit from a visual representation of project risk. This was tested for type 4 business acquisition projects see Harris, , p. Five of the seven most common types of strategic investment decision were studied in this organizational context.
Some project risks are specific to the type of project, for example, the competitive advantage attributes Exhibit 4 in new product developments, or the integration with existing business, management ability, and method of acquisition Exhibit 3 in business acquisitions. Detailed understanding of project risk attributes and the specific terms used may vary across individual managers even within the same organization, so gaining a shared understanding of the risks and capturing that understanding in a glossary of terms is vital for risk assessment to be meaningful and sustainable.
Over the eight-year study, key project risk attributes changed very little. In —, there were 12 project risk attributes agreed for the first three project types. By one had been added to reflect financial risks attached to large contracts with new or existing customers, and three had been dropped as no longer important enough to differentiate high from low risk projects strategic fit, reputation, and cultural fit of parties , though a new definition of cultural fit compatibility of corporate cultures was retained for business acquisitions.
The focus of discussion on project proposals had shifted from whether it was a good strategic fit toward how risks could be mitigated and monitored post-decision. This may be interpreted as demonstrating a more mature managerial stance, where the confidence that the strategy was agreed and clearly communicated reduced the uncertainty over whether a new project fitted with that strategy.
Full integration of information systems had not been achieved, but the organization was at least attempting to improve knowledge management by sharing the outcome of project appraisal with operational managers tasked with project implementation. This longitudinal study has many facets worth further reflection, but the focus of this paper is to demonstrate how methods drawn from psychology were employed in such a way as to develop a risk assessment tool that managers could apply at a strategic level.
Capturing the insights and intuitive aspects of managerial judgment in this way does not negate the need for measurement of possible outcomes and probabilities of risk impacting on the project, but it helps to promote dialogue and debate around the issues subject to uncertainty such that risk management may become more meaningful than a purely numeric exercise. It is recommended that to maximize the benefits from investing managerial time in careful elicitation of project risks, this is captured in sufficient detail that the learning can be carried through the project life cycle.
Thus the broad areas of risk identified pre-decision that can be controlled post-decision residual risk entered into the project risk register, where ownership and action can be recorded and monitored. The methods used here have demonstrated how an essentially qualitative approach can improve risk management practice. Bower, J. Managing the resource allocation process.
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Each of these mitigation techniques can be an effective tool in reducing individual risks and the risk profile of the project. This dual concept of risk is important and useful when considering how to manage risk in projects. There are four basic ways to handle a risk. On complex projects, statistical models are sometimes used to evaluate risk because there are too many different possible combinations of risks to calculate them one at a time. Managing Project Supply Chains 1st Edition.
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The affect heuristic. Gilovich, D. Griffin, and D. Kahneman Eds. Tversky, A. The framing of decisions and the psychology of choice. Science , — Webb, A. The project manager's guide to handling risk. Aldershot, Hants, UK: Gower. Williams, T. Learning from project failure. Love, P. Irani Eds. Management of knowledge in project environments pp. By Fister Gale, Sarah The show must go on. Now more than ever, this mantra applies to large events, where organizers invest heavily to entertain the masses for days or weeks.
Editorial Reviews. Review. ' Elaine Harris's volume is timely. In a world of books by "instant File Size: KB; Print Length: pages; Publisher: Gower; 1 edition (September 28, ); Publication Date: September 28, ; Sold by. rapyzure.tk: Strategic Project Risk Appraisal and Management (Advances in Paperback: pages; Publisher: Routledge; 1 edition (October 30, ).
Yet as attendance at massive music and…. Article Risk Management , Complexity 1 June The project was as ambitious as the artwork is gargantuan.