Preparing a project
Preparing a project

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Preparing a project

7.3 Risk and contingency planning

Risk in projects may be defined as ‘an event or situation … which can endanger all or part of the project’

(Nickson and Siddons, 1997).

Risk management is fundamental to project management and has an impact on estimates of time and effort required for the project. It is concerned with assessing the kinds of risk associated with trying to make something happen, for example the possibility of delays in the schedule caused through staff sickness or materials not being available at the appropriate time. Risks in a project can be both internal – arising from within the project – and external – arising from the context or environment of the project.

Example 2: The potential cost of failing to identify a risk

In the late 1960s, our New York sales office sold a 707 charter to Mr Harold Geneen, then chairman of ITT, for an executive meeting in London. We had 28 of the most senior ITT executives all on one plane, all at the same time. The charter was the first American Airlines flight to London for about 20 years. The ultra-First Class service contained the finest wines, thousands of dollars in gourmet meals, five movies and the best cigars. Our chief pilot was captain, our executive chef from the general office worked the galley, and we had a doctor, nurse, and a security guard onboard. Our New York sales office even sent a senior representative to coordinate all the details. Every detail was taken into consideration, or so we thought.

When we landed at London Gatwick, we taxied to the terminal and our captain asked Ground Control for fuel. We were horrified when a disturbed looking Exxon supervisor came onboard and informed us that because we had forgotten to obtain a credit standing for Exxon in Europe, they would not fuel our plane. In the face of a complete disaster with ITT, our sales rep calmly took out his personal automobile Exxon credit card, studied the back (which contained no credit limit), handed the card to the fuelling supervisor and said, ‘Fill it up.’

Exxon billed the personal card for more than $10,000, and our representative saved the day.

(Kay Muller, Flight Attendant Dallas/Fort Worth in Capozzi, 1998)

Risk in a project is generally limited to the possibility of different hazards impacting on the project, not risk in any form in which it might affect the organisation in which the project is located. There are four stages to risk management:

  1. identifying the risk – determining which risks are likely to affect the project and documenting the characteristics of each;

  2. impact assessment – evaluating the risk to assess the range of possible outcomes in relation to the project and the potential impact of each of these;

  3. developing plans to have in reserve to reduce the impact of the most likely risks and to ensure that these plans are implemented when necessary;

  4. ensuring that the risks are kept under review and that appropriate plans are developed to meet any changes in the type or likelihood of adverse impact.

Contingency plans indicate what to do if unplanned events occur. They can be as simple as formalising and recording the thought processes when you ask ‘what if …?’ and decide which options you would follow if the ‘what if?’ situation happened. The key points in contingency planning can be summaried as follows:

  • Note where extra resources might be obtained in an emergency and be aware of the points in your plan where this might be required.

  • Identify in advance those dates, which if missed, will seriously affect your plans, e.g. gaining financial approval from a committee that meets only once every six weeks.

  • Know your own plan very well; probe for its weak points and identify those places where there is some ‘slack’ which only you know about …

  • Keep all those involved (including yourself) well informed and up-to-date on progress so that problems can be addressed before they cause too much disruption.

  • Recognise the key points in your plan where there are alternative courses of action and think through the possible scenarios for each one.

  • Learn from experience – sometimes the unpredictable peaks and troughs in activity follow a pattern – it's just that we have yet to recognise it.

The following suggestions for dealing with contingencies were all made by practising managers:

  • Break key tasks down to a greater level of detail to give better control.

  • Be prepared to overlap phases and tasks in your plan in order to meet time-scales, but give the necessary extra commitment to communication and co-ordination this will require.

  • Spend time at the start in order to pre-empt many of the problems.

  • Learn from experience, e.g. develop a list of reliable contractors, consultants, etc.

  • Try and leave some slack before and after things which you cannot directly control, to minimise the knock-on effect of any problems prior to, or during, such tasks.

  • Pull tasks forwards if possible: one less thing to worry about!

In many projects, these four stages are considered almost simultaneously, but in large-scale projects each stage might warrant considerable attention. The main categories of risk can be summarised as:

  • physical – loss of, or damage to, information, equipment or buildings as a result of an accident, fire or natural disaster

  • technical – systems that do not work or do not work well enough to deliver the anticipated benefits

  • labour – key people unable to contribute to the project because of, for example, illness, career change or industrial action

  • political/social – for example, withdrawal of support for the project as a result of change of government, a policy change by senior management, or protests from the community, the media, patients, service users or staff

  • liability – legal action or the threat of it because some aspect of the project is considered to be illegal or because there may be compensation claims if something goes wrong.

Where a risk can be anticipated, contingency plans can be implemented if the risk materialises, thus reducing its impact. Contingency planning can generate a range of possible responses to potential crisis situations. For example, you may prepare a list of temporary staff or agencies that you can call on in the event of a major flu epidemic among staff. Planning for risk at an early stage also means that the identified risks can be shared with stakeholders when plans are approved and potential costs can be built into the budget.

Activity 5

0 hours 10 minutes

Imagine that you are managing a project that relies on services provided by one supplier over a six-month period. Make a list of the possible risks associated with that supplier.

Discussion

The relationship with this key supplier will obviously be very important. Organisations will usually issue contracts with conditions about quality, frequency and process of supplies. Costs will be agreed at an early stage. However, things can go wrong. The supplier might fail to provide an acceptable service in price, quality or quantity. The supplier might go out of business during the period of the project. The supplier might fail to obtain sufficient staff or materials to be able to deliver as agreed. You might also have thought of the possibility that the project estimates were wrong and the contract with the supplier was inadequate for the needs of the project.

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