Risk management in project management practice and applications

Risk Management

Project management is a practical and academic field of growing importance as deadlines in the business world grow ever more rushed and profit margins grow ever slimmer. The need to maintain tight efficiency and cost control over all elements of a project is quite strong and growing stronger as competition in most industries grows more fierce, and this is exactly why project management is so increasingly useful. It is by establishing certain parameters and ensuring that they are adhered to throughout the different phases of a given project that effective project management enables controls over costs and timelines in a manner that increases profitability and minimizes risk exposure to the project's stakeholders.

Risk Management in Project Management

In the context of project management, risk management refers to determining the potentials and uncertainties of all possible courses of action, quantifying these risks and their effects in some manner, monitoring the emergence and/or fruition of risks and responding to and controlling these risks and their effects (Project Perfect 2000). Risk management is thus the aspect of project management that predicts the likelihood of various uncertainties and recommends planning suggestions based on these identified likelihoods and the potential for failure or success (Project Perfect 2000). This definition and understanding of risk management already makes it clear why it is such a useful area within the broader tasks of project management, but its relevance can be explored still further.

Effective project management does not merely keep project elements within specific parameters, but must also plan these parameters and all project tasks in a realistic manner in order to continually achieve in-bounds performance. If risks were not accounted for properly, effective and realistic courses of action that led to efficient and reliable actions could not be achieved and project management would be a failure form its inception. There are, of course, many skills needed by project managers that wish to remain effective in their jobs and maintain careers in the field, but none of the tasks of a project manager would truly be effective without having been built on a solid assessment and response to the various risks attendant with each and every phase of project completion.

Specific Issues

It is easy to demonstrate the importance of risk management in effective project management practice by simply imaging some scenarios in which risk management would need to be applied. In an expansion project for a manufacturing concern, for example, there are many different factors that must all be accounted for in the same basic expansion plan, and there is always some chance that various elements will prove to be incompatible. Effective risk management accounts for these possibilities and includes ample budget and time allowances for adjustments based on the likelihood of incompatibilities and the potential costs of correcting them. Sudden spikes in material costs, labor shortages, and other hindrances to the project must also be accounted for and risks effectively quantified for the projects parameters to be efficient (PMIS 2001).

Case Study

One recent business endeavor that has been in the public eye for quite some time, though it has been under less media scrutiny in the past few weeks than it was earlier this year, is the major outpouring of oil and natural gas from a well-known as the Deepwater Horizon in the gulf of Mexico. Though looked at more for its environmental impact and the commentary this spill and the response to it seemed to have on the collusion between multinational corporations and national governments, this case also serves as a useful point of study in the area of risk management. Had risks at the Deepwater Horizon well been more properly managed by all members and stakeholders in the project (such as the cement contractors, the drilling team, the rig operators and forepersons, as well as company officials) then the fallout from this disaster would not have been as extreme if indeed it would have existed at all (WNR 2010).

Applying the elements of risk management described above to this scenario demonstrates the real world applicability of risk management theories and processes. Any reasonable assessment of the potential damage from the type of failure that occurred at the Deepwater Horizon well would have demonstrated quite clearly that such a failure was to be avoided at all costs -- the quantified risks even when adjusted for probability greatly outweigh the quantified benefits from proceeding in rig operation despite warnings of a potential failure (WNR 2010). In this case, the failure of risk management was not directly found in the operational failure of the project, but rather in the decision-making that failed to account for potential risks (WNR 2010).

Tools and Development

The specific tools and development areas of project management that are essential to risk management include clear and extensive planning and organizational abilities as well as a utilization of effective management techniques in task delegation and team cohesion building (PMIS 2001; Tusler 1996). In addition to these skills, effective risk managers must have extensive research and analytical capabilities as well as a strong and confident intuition (Project Perfect 2000). The only real way to develop these skills and traits is to engage in the activates and tasks the utilize these skills on a regular basis thus becoming more familiar with ones own strengths and shoring weaknesses through practice and continuous study and application. Presenting oneself with hypothetical scenarios as well as reading case studies and news stories that pertain to risk management issues can also be of benefit to individuals attempting to improve their suitability and capabilities in risk management.

Conclusion

Project management includes many different areas of expertise, task completion, and ongoing knowledge acquisition. Risk management is only one of the many areas in which project managers must excel, yet it is arguably the most important of these issues and areas given its extreme importance in ultimate project success or failure. Without the proper management of risks, no organization would be around long enough to engage in many projects.