3 Project risk management
Much is made of risk management in projects but in essence good risk management is the same whether performed in projects, operations, compliance or strategy. At its most basic it is all about understanding what risks you face and then doing something about them.
Where projects differ is that projects (and therefore some of their risks) have an end date whereas other business risks do not.
In general there are three types of risk that need to be considered for any project:
- the risks to delivering the project (on time and in full) and the benefits promised
- the risks to the business during the project – particularly pertinent for change and transformation projects, where the transformation may cause uncertainty in the business
- risks that are introduced post project – new systems, products, ways of working and locations can all introduce new risks that were not present at the start of the project.
Transcript: Video 5 Project risk management
There are standard assessment models available for assessing the state of risk management in projects, one such being P3M3, which is recommended by the UK government.
This is a project maturity model that defines ‘what good looks like’ for various aspects of a project, from financial planning, to estimating through to risk. A maturity model such as P3M3 can be a useful tool for understanding your current level of maturity and providing a road map for improvement.
Activity 3 Short risk exercise
Consider this project and run a short risk exercise.
Consider the following scenario:
A small family owned manufacturing business has been expanding rapidly, selling to new customers in different countries as well as introducing new products.
But this expansion has not been without growing pains. They have received an increasing number of customer complaints because of late deliveries, some of which have been caused by customs-related delays of shipping products to new countries and poor product quality.
In addition they are seeing high levels of staff turnover. At their exit interviews people leaving the company commonly highlight old IT systems and excessive workload as their reason for leaving. Many of the people who helped to build the original IT systems have now left the company.
The owners have decided to invest in a new IT system to handle order taking and production scheduling. The system is relatively new and no one in the company has any experience of using it. The provider of the IT system has said that it can be installed and up and running in less than six months, providing that all of the necessary information is available and of good quality and that the company’s best people are available. They have said that the customs module is not in their current quote. The sales team believe that they will recoup the cost of the IT system if it reduces the late deliveries by 50%.
The company management team have asked you to give them some advice. They would like to know the following:
- Which of their existing threat risks the project will reduce and which it will not.
Select all of the risks that will be reduced:
Late delivery to customers
Business continuity: Lack of support for existing IT tools
The correct answers are a, d and e.
- What risks you foresee to delivering the project on time (and its benefits).
Availability to release the ‘best’ people to support the project
Quality of data (and time to clean up)
Capacity at manufacturing plant
The amount of the benefits caused by customs issues
The correct answers are a, b and e.
- What risks to normal operations you think they should be aware of during the project.
Higher levels of staff turnover (due to higher workload)
Higher levels of customer complaints (due to higher workload)
Higher levels of product quality issues
The correct answers are a and b.
- The new risks they should consider once the new IT tool is installed.
Opportunity: lower staff turnover
Opportunity: additional benefits from installing customs module
Higher levels of product quality issues
Business continuity for new IT tool
The correct answers are a, b and d.
Good project managers deliver projects on time, to costs and to the customer specification. They do this, in large part, by effectively managing risks.
Good business managers need to understand not only the risks to delivering a project but also the risks to running their business whilst the project is running and the risks that will be created once the project has finished.