Risk management is a process used in all industries to reduce the risk. The Risk management tool usage changes from sector to sector and hence each sector has developed their own risk management tools and methodologies to mitigate the risk. But the concept remains the same behind all the tools (Ropel, 2011). The main steps for risk management irrespective of the sector are:
1. Risk Identification
2. Risk Assessment
3. Evaluation of the risk
4. Steps to mitigating the risks
5. Regular monitoring and review of the risks
Here we will discuss risk management in the construction sector and in execution of construction project, project risk management is one of the most critical phase for successful completion of the construction project. Risk can be both negative and positive for the project. Negative risks are considered as threats and positive risks are taken as opportunities.
Risk management also applies to operational functions of an organization. Risk management covers all types of listed risks like:
1. Financial risk
2. Quality risk
3. Reputation risk
4. Business impact
5. Long term impact on overall operations
6. Risk on organization structure
7. Business risk
8. Product risk
9. Process risk
Risk is combination of consequence and likelihood of the event
Risk of an event = Consequence * frequency (likelihood) of an event
Risk can be mitigated based on Risk priority number (RPN). RPN is the combination of severity, occurrence and detection of an event.
RPN = severity * occurrence * detection
This rating criteria for all three elements of RPN mentioned above will be defined by the project management team based on the impact it has on ...
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...logy, Laboratory of Industrial Management.
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The risk management program provides for collaboration among all departments and services within HNI, and provides policies, procedures and protocols to address events which may create various business-related liabilities to HNI. This plan will influence the leaders of the following departments to achieve quality and protect HNI’s resources: 1. Senior Management 2. Administration. 3.
As project activities are directed and finished, risks components and events will be observed to figure out whether in certainty trigger occasions have happened that would show the risk is currently a reality. In view of trigger occasions that have been reported amid the risk investigation and moderation forms, the project group or project administrators will have the power to order emergency courses of action as esteemed suitable. Everyday risk relief exercises will be instituted and coordinated by the project managers.
Commonly, the level of control retained by the owner links with the level of risk, and those levels typically have an transposed relationship to the risk and control levels of the contractor (CMAA, 2012). Not all of these delivery methods is suited for every project. For each situation, there will be advantages and disadvantages in the use of any specific method. One needs to carefully assess the specific project requirements, goals, and potential challenges in order to establish the delivery method that offers the best opportunity for success (CMAA, 2012).
In today’s uncertain economical business environment there is an understandable pressure to improve the quality of decision making at all stages of the project. A number of techniques have been developed to address this concern, two of the leading approaches used in the construction industry are Earned Value Management and Risk Management (Hillson, 2004), those two approaches share a common aim of providing decision makers with the best information available when setting objectives and considering management strategies. However, they take differing approaches, Earned Value Management establishes project performance status and extrapolates that information to gain an understanding of future trends and the allocation of resources needed to successfully
Hillson, D, & Simon, P. (2012). Practical project risk management: The ATOM methodology (2nd ed.). Vienna, VA.: Management Concepts.
What is risk as it is related to this project? Microsoft defines project management risk as “A risk is the possibility of an event or condition that would have a negative impact on a project. Risk management is the process of identifying, mitigating, and controlling the known risks in order to increase the probability of meeting your project objectives” (Microsoft, 2013). This definition of risk will stand as a point of clarification between JSA and TCP to establish a basic understanding of project management risk.
Risk management is a major success key of project management in business world. With major budget overruns in parallel with significant delays, Sydney Opera House is a real example of poor risk management. Risk management requires effective planning, budgeting, and scheduling. First of all, the highest risks should be identified and evaluated in order to find methods to reduce their impact and exposure. Then, factors that cause risk should be addressed while factors that only correlate with the negative impact but do not affect it may be omitted. At this stage, interrelation between various risks should be accounted for to spot the core factors that should be treated in order to ensure effectively and stability of the project's functioning.
Risk Management is the science that identifies analyzes and responds to the risk factors throughout the life of a project (Pinto, 2013). Before a project is put in place and a plan that goes along created, the Team Management for the project needs to make sure that is identifying and controlling the risk associated with the project. The team needs to consider any unexpected situations that might appear and try to come out with a strategy of mitigation in the event in which the factor of risk is happening throughout the life of the project. At the same time, the management needs to be able to analyze the probability of the risk to happen and the consequences that are taking place once the event took place. Once the factors of risk are identified, the manager needs to make sure if and at which extent the factor of risk is going to impact the critical path of the project.
XIANG, P. et al., 2012. Construction Project Risk Management Based on the View of Asymmetric Information. Journal of Construction Engineering and Management, 138(11), pp.1303–1311.
Fleming (2003) says that project risk can be divided into three categories known as a triple constraint. The three categories that make up the triple constraint are risk related to the technical, quality, or performance attributes of a deliverable; risk associated with schedule; and risk associated with cost (Fleming, 2003). The triple constraint has a hierarchy of risk that ranks risk from highest down to the lowest. Technical risks are the highest-ranking risk on a project followed by schedule, at second, and cost, at third. However, it is important to understand that all three categories are related in unique ways that cannot easily be observed (Fleming, 2003). Technical risk often stem from a lack of funding to procure highly reliable material. Unreliable material can cause technical problems within projects. Piecemeal funding can be another way risk is introduced into the project schedule.
Zou, P. X. W., Redman, S., & Windon, S., 2008. Case Studies on Risk and Opportunity at Design Stage of Building Projects in Australia: Focus on Safety. Architectural Engineering and Design Management, 4, 221-238.
Risk management has become an integral part of the world of entrepreneurship. Generally, risks are events that have negative effects on a business. Some of the risks can jeopardize businesses, while others can cause serious and costly damages, which may need time to rectify. Not all risks are bad. According to Heldman (2011) risks can present future opportunities as well as future threats.
This paper will reflect on the different uses of Project Risk Management and ways in which it can benefit organizations to have the ability to identify potential problems prior to the problem occurring. Risk, this is not something to be taken lightly whilst dealing with matters that include high end projects meeting specific details, deadlines and expectations for the end client. Project risk management teaches one to be aggressive early on in the phases of planning and implementing the tools for a project. This is usually easier as costs are less and the turnaround time to solve the issues at that present moment is beneficial rather than later. The result in a successful project for one’s self and other key people involved in the process is also another requirement. Stakeholder satisfaction is important because the
This make project management very significant because it ensures risks are identified and properly managed by preventing them so that they do not become a big issue that threaten the success of the project within the organization. Good project management practice requires project managers to carefully analyze all potential risks to the projects, and develop a prevention plan against them. Risk should be prioritized according to the strength of them occurring and allocate appropriate responses. How to deal with risk and adapt change of any kind is the key to successfully delivering the projects.
In this competitive world, companies have to deal with various types of risk all the time with there projects. Generally, it affects the budget and schedule of the project. So it is important to keep in mind the risk management strategies while creating an initial project plan.