Risk Identification

Project identification is vital for every project manager. It is imperative, therefore, for the project manager to arm himself with the approaches to project management. There exist two methods that can be used to approach project management (Agrawal, 2009). Depending on the situations surrounding the community, the project manager selects the most appropriate method of project identification. The two methods are the top-down approach and the bottom up approach.

Top-down approach

The top-down approach is the situation where demands from outside the community are used to initiate a new project. They may be directives from international conventions, international organizations and NGOs which may identify certain priorities and therefore projects, or national policy makers (Krause, 2006). The top-down approach is advantageous when dealing with crises or disasters like war and floods when time to consult is limited. It may also be effective in the provision of essential services like health, education, roads and water. It may also contribute the wider international and national goals and objectives hence becoming part of a wider benefit for trans-boundary resources like climate.

The top-down approach is however disadvantageous especially for the host community. First, it does not improve the ideas and beliefs of the host community. If communities fear starting up new businesses, intervention in the form of presenting a business whose planning is complete will not change such opinions (Agrawal, 2009). Others will believe that a lot of resources are required to initiate the least of projects. Certain communities may be limited to certain economic ideas. Failure to involve the community in the planning process leaves them as conservative as they were. Secondly, this approach assumes that the opinion of external individuals is superior to that of the beneficiaries of the service. Thirdly, having little say in the planning process, the community is rendered devoid of development of human resources. Fourthly, the community may become dependent on outside assistance rather than exploiting their potential. Finally, the development workers or change agents may offer obstruction to people-led development (Power, 2008). This comes in their way of imposing biases on their hoist community.

Bottom-up approach

This approach encourages communities to identify and plan for projects without outside interference (Agrawal, 2009). This approach is more advantageous for everyone. First, the interveners achieve more results through fewer resources. For this reason, it would be more appropriate. People who participate in the entire process of the project are more likely to be conscious of the decisions they make (Krause, 2006). They are therefore expected to be more productive as they have a tendency to feel like they co-own the project. Secondly, this approach helps the people to become more likely to identify problems within their communities and develop means to resolve them. This method is also educative for the people from the community. Thirdly, this approach initiates a more cohesive attitude between people hence encouraging teamwork which makes the project more sustainable and progressive. Finally, this approach encourages, more effective management, higher equity, accountability and equity while discouraging dependence.

However, the approach has some disadvantages as well. First, it is unsuitable for situations that require prompt action. Second, it is time consuming and therefore requires tolerance and patience to implement. Thirdly, the benefiting community may pull away if they dislike responsibility. Fourthly, the intervening company is never in control and therefore may not achieve all its priorities. Finally, the priorities of the company may be inconsistent with national and international ones (Krause, 2006).

Risk identification

Before undertaking a project, it is important for the risk identification process to be conducted. Letens, Van Nuffel, Heene, and Leysen, (2008) argue that the risk identification process is the most important step of project management. It is impossible to manage a risk that has not been identified. It is however difficult for some people to understand the role of risk identification. Risk identification serves to lower the probability of failure to succeed in the goals and objectives of the project.

Different methods may be employed in communicating the importance of risk identification to management and stakeholders (Agrawal, 2009). Failure to communicate the importance of this step may undermine its priority to both of these groups. For the management, if the identification of risks ii not identified as important, it may be done poorly or eliminated altogether. The stakeholders should also be informed about the importance of identifying risks rest they withhold their funds from being used in the process.

To make stakeholders and management understand the importance of risk identification, the project manager may inform them about the importance of risk identification (Krause, 2006). Often, it would also be important of comparing cases where risk identification was not done with those where risk identification was utilized. The chance of a company succeeding will most likely be lowered by the lack of using the risk identification in the initial steps of risk identification.

Risk analysis

There exist various methods that may be employed in risk analysis. Vose (2008) says that the risk analysis process begins with the risk identification. List prompts may be used for risk identification. In this method, a set of categories of risk is used. The project manager may divide risks along the types of projects being done or along the risks that may be expected. In the aspect of the project, the risks may be divided along various aspects of the project like legal, technical or commercial. A project structure may also be used as a prompt list while it has all the major tasks defined. While analyzing a manufacturing plant, a list of different types of expected failures may be utilized as a prompt list (Agrawal, 2009). Once a prompt list is selected, those planning the project go through the entire process and attempt to identify areas where risk could exist. A prompt risk can never be exhaustive. However, it serves to focus the attention to certain areas of the project such that it is easier to spot risks. Once the risk is identified, locating its category is not necessary. This method only serves to identify risks rather than group them into categories.

Once risks are identified, they should be assessed to determine their probability of occurrence. Risk analysis also serves to determine the impact of a risk in terms of performance, schedule and cost (Das & Das, 2006). Risk analysis may comprise of both qualitative analysis and quantitative analysis. In the initial stages of the project, quantitative analysis is very difficult since there exist insufficient data. In such cases, qualitative analysis is used.

This step is also very important. There should be accurate and comprehensive recording of the results obtained in this step to avoid losing vital information (Das & Das, 2006). The relative implication of each of the risks being analyzed should be scrutinized in terms of the threats it causes to the objectives of the goals and objectives of the project. Whether to use both qualitative and quantitative methods should be dependent on two aspects. These two aspects are the need to remain cost-effective and the availability of data.  Sometimes performing quantitative analysis does not add value to the risk management process or it may not be cost effective to perform.

Quantitative analysis

Various methods may be used for quantitative analysis. They can however be divided into two major classes.

  • Data gathering and representation techniques
  • Quantitative risk analysis and model techniques

Data gathering and representation techniques

Interviewing: This method is used to quantify the probability and effect of risks on the goals of the project (Das & Das, 2006). This method seeks to obtain the parameters of the distribution depending on which distribution is being used. In this case, if the triangular distribution is utilized, the information on the optimistic, pessimistic and most likely scenarios would be obtained. I a normal distribution would be utilized, the means and standard deviations would be required.

Expert judgment: The organization should then seek expert advice on certain matters. These are usually vital to validate the data obtained (Power, 2008). This step is very important. People who are informed on the various areas of the company are consulted to ensure that the various risks are understood.

Quantitative analysis and modeling techniques

Sensitivity analysis: This method seeks to determine the risks which have the most potential harm on the company. The method also determines the amount of change that is experienced when certain project elements are varied while all the other uncertain elements are kept constant.

Expected monetary value analysis: this method determines how much money would be required to resolve an issue if the risk actually occurred.

Decision tree analysis: in this method, a diagram that shows all the possible ways of resolving each risk is used. It also includes the implications of selecting one consideration over others (Jordao & Sousa, 2010). The diagram includes the probability of risk and the rewards or costs that are likely to occur as a result of selecting every logical path. Solving the decision tree comprises obtaining the expected significance of each decision. The decision maker may then select the decision that yields the highest expected value when all the uncertain choices, subsequent decisions, costs and rewards are quantified.

Simulation: this method quantifies the risks in terms of their impact on the objectives of the project. The Monte Carlo technique is often employed. For a cost-risk analysis a traditional project WBS model may be used. The Critical Path Methods is utilized for a schedule risk analysis (Jordao & Sousa, 2010).

When a manager is conducting risk identification, he intends to find either positive or negative risks. Negative risks are the potentially harmful risks. They risk derailing the project and causing serious problems. Positive risks on the other hand are opportunities that may arise during the running of the project (Jordao & Sousa, 2010). They impact on the project positively, for example by increasing the return on investment or causing the faster completion of investment.

Both positive and negative risks should be accounted for in the risk management plan. While the plan intends to eliminate negative risks, it tends to maximize the effect of positive risks as well as to tame them where applicable.

Examples in negative risks

  • In the case of a construction project, building materials may lack as a result of political or civil conflict within the area covered by the project. This may stall the project until the conflict is over.
  • Change in currency exchange rates may causes on all monies that have not been converted to local currency. This way, the company finds itself with less money to run its project.

Examples of positive risks

  • Prompt adoption of services by the consumers
  • Completion of a certain project earlier than expected may cause wastage of labor hours

Notably, it is possible for negative risks to arise from positive risks. If a mobile phone company gets a lot of subscribers on the earlier days of its completion, for example, the company may find it difficult for its network to accommodate all is subscribers.

In conclusion, risk management is imperative for any project. For it to be effective, the risks must be identified, analyzed and acted upon. This is not always easy. Sometimes, the management or the shareholders may think that either of the above steps may be ignored. It is the role of the project manager to stress the importance of every process lest inadequate funds are allocated to risk management. Project managers should also be on the lookout for both positive and negative risks. They should then make plans to take advantage of the positive risks and to eliminate the negative risks.
References

Agrawal, R. (2009). Risk management (1st ed.). Jaipur, India: ABD Publishers.

Das, S., & Das, S. (2006). Risk management (1st ed.). Singapore: John Wiley & Sons.

Jordão, B., & Sousa, E. (2010). Risk management (1st ed.). New York: Nova Science Publishers.

Krause, A. (2006). Risk management (1st ed.). Bradford, England: Emerald Group Pub.

Letens, G. G., Van Nuffel, L. L., Heene, A. A., & Leysen, J. J. (2008). Towards A Balanced Approach In Risk Identification. Engineering Management Journal, 20(3), 3-9.

Power, M. (2008). Organized uncertainty: Designing a world of risk management. OUP Catalogue.

Sanchez, H., Robert, B., & Pellerin, R. (2008). A project portfolio risk-opportunity identification framework. Project Management Journal, 39(3), 97-109. doi:10.1002/pmj.20072

Vose, D. (2008). Risk analysis: a quantitative guide. John Wiley & Sons.

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