Risk Management Plan Essay
Risk Management Plan
Our company in line with our growth and expansion program has found it indispensable to acquire a new building that will be used for expanding our business in the coming years. Some of the key requirements for the project include purchasing 10 computers for our ten members of staff, internet connectivity together with the network servers, the project’s WBS and cables for the new building. For the above mentioned project to be successful, it is prudent to carry out an effective risk management process that will be essential in the identification of potential threats, weaknesses and consequently form as the basis of identifying potential opportunities and strengths. A sound plan for these unforeseen events will be crucial in underlining the most effective mitigating measures in case they arise. In light of this, this project will discuss why risk management is important to the success of this business. This will be backed up by practical steps that will be used to develop the Risk Management Plan with the project risks’ identification plan being of critical essence at the end of the project.
Why Risk Management is important to the success of the business
The success of any project is largely dependent on a number of factors including planning, preparation, results and an evaluation plan at the end of the project. Risk management is therefore an indispensable requisite in any project venture as it forms as the foundation basis for the above mentioned factors.
A Risk management plan to begin will aid in the success of the business by identifying the risks from both the external environment and the internal environment of the business (Davies, 2002). Some of the steps that will be carried out include a proper identification of risks, the likelihood of the risks occurring, the impact of the identified risks and the most effective course of action that should be taken in order to mitigate the risks. Borrowing from one of the most famed economists’ Sumner (2000), events that are highly risky significantly increase performance problems, cause disruptions in the project and lead to a budget constraint.
This project plan is therefore essential as it will ensure that the project runs smoothly and that there is a smooth flow of programs and steps. Planning in advance on the potential risks will thus enable the employees to respond swiftly to any problems that may arise and will also enable a prompt intervention from sponsors and stakeholders.
In addition, minimizing these negative risks will also will ensure that the project is finished on time and as a result, prompt results will be achieved. As a sponsor, you will be able to achieve your objectives and will also enable you to meet your targeted budget. Davies (2002) coined that a lack of an efficient Risk Management Plan will ultimately pose the project to problems and consequently the project will become vulnerable. Effective Risk Management Plan is therefore essential for minimizing expenses and maximizing costs particularly on those activities with little or no return on investment.
Contingency is the other factor that necessitates the essence of a risk management plan. A high contingency can become uncompetitive to the project while a low one may also lead to failure. A Risk Management Plan will therefore be essential for setting the perfect contingency level and will also be essential in assuring you as the sponsor, of the expects results or outcomes. This is vital since it will enable the business to assess whether it has achieved its projected objectives and goals, or not. As a result, you will also get the opportunity to assess whether you need to inject more cash into the business and the amount that should be injected in case of such a situation.
Despite some companies setting their contingency levels in every estimate their make, it is generally required that the contingency level should be set at the task level, with the amount of contingency to be set being either fixed or variable.
Risk management will therefore be essential in setting the contingency level at the project level. This will bring out the reality of the situation that some tasks will be completed on time; others will be delayed while some will be completed earlier than expected. This can only be possible if the risks are identified at the beginning of the project in order to drawdown the expectations to the rest of the stakeholders.
In addition to aiding the company to set the contingency at the right level, risk management will also be used as a platform for challenging assumptions and expressing concerns to other stakeholders. In addition, some barriers will be removed for instance the deterministic estimates, by allowing every member of the team to air out his/her opinion about what they expect to happen in the immediate or distant future. This is critical as it identifies and eliminates the barriers that may obscure the success of the project and in the long run enable the investors to get value for their investments and the customers will also feel that their needs are being taken care of and that their concerns and plights are being addressed.
Risk management will also result into a workshop where every member of the project will meet and discuss their affairs. During such a workshop, important details concerning the project will be raised and discussed. For instance, the scope of the project tasks will be reviewed and clarified through such a platform which may reveal some missing work (Raz & Michael, 2001). In addition through such a workshop, the awareness and understanding of the project’s status will be raised to every member involved in the project. In a majority of the projects, the schedule disciplines and the cost are often separate but risk management will be critical in bringing these two disciplines together through the assessment workshop.
Strategies for mitigating and responding promptly to risks will be implemented through a Risk Management Plan. A cost analysis or benefit analysis process will be used to assess and compare these strategies which will consequently enable all the sponsors and stakeholders to understand how effectively the money will be used. This is because of the basic fact that, an inclusion of the cost of implementation in the comparison will ultimately reveal the net returns of the overall project cost.
This response will then be reviewed based on whether the net returns will increase the overall cost of the project and if they do, an analysis will be carried out to assess whether this increase can be justified by the amount of time saved (Kutsch & Hall, 2010). A risk management plan is therefore an indispensable prerequisite for understanding these effects. The anticipated outcomes will also be revealed through this project and the investors and sponsors will therefore assess whether there cash will reap any benefits or not.
Contracts will only be negotiated fairly if there is an efficient Risk Management Plan in place. The appreciation of sensitivity will also be reached easily after assessing the risks and will also ensure that there is a right submission of bids in the long run. The factors mentioned herein, is a clear proof that Risk Management is a key requirement in every project as it will enable the sponsors to get a lucid understanding of the whole project. The management and planning of the project will also be easier if a Risk Management Plan is in place which will ultimately increase profits in the long run.
Steps involved in a Risk Management Plan
The first step should be to identify the problems that may affect the project. In everyday undertaking of a project, it is a common norm for one or almost all members of the project to overlook one potential danger that may cause devastating effects to the project, so it is therefore indispensable to identify these problems at the beginning of a project in order to avert the problems that may occur at a later time in the project, more so when the project is at an advanced stage.
One of the first steps will be to walk around the area of the project and to look at those things that may potentially cause problems for the project. Some of these risks include insufficient number of raw materials, insufficient cash and low customer awareness. Other factors will include a dumping site near the projected location of the building, bad topography of the land or bad climatic conditions in the area. This will also be done by asking the employees or representatives in the area their thoughts regarding the new site. These representatives and employees may equip you with knowledge that was alien to you, some of which may include potential problems in the area or regarding the project (Raz & Michael, 2001). This dialogue with the employees and representatives will also enable each member involved in the project to think and in the process; some potential problems and hazards will be identified.
Trade associations related to this type of business might also prove helpful to the project as they may provide useful guidance on some potential problems that may arise in such a project and will consequently enable the stakeholders to put efficient measures in place in order to mitigate the identified problems.
The next step will be to assess the implications of the identified problems and how they might affect the company. This will involve assessing those areas in the project that will be most affected and the stage when such problems are expected to occur. It will also be prudent to assess whether these problems will affect the employees and members of the public, or not. In this case, it will be crucial to assess how they might be affected and how these implications affect the overall cost of the project, the projected completion time and the projected returns in the long run.
Evaluating the identified risks and formulating precaution measures will be the third step. After identifying the risks and assessing their implications, it is essential to decide the steps that will be taken in order to avert them. Since these problems may potentially harm the people involved, it is pivotal to ensure that this does not happen as this is your duty as a sponsor, as stipulated by law.
This will be made possible by assessing the current undertakings, the controls that have been put in place and how the work has been organized. This will them be compared with the generally accepted standards and the good practices and will consequently enable us to identify the areas that should be improved, if there are any. The staffs will be fully involved in order to ensure that the practices being implemented achieve their aim of resolving the issues and do not introduce more problems to the project.
The fourth step will be to record the results and the implementation process. Putting the results into action is central to averting these problems before they hinder the construction of the building (Kutsch & Hall, 2010). The fourth process will therefore begin by writing down the results of the identified risks and these results will be dispatched to every member involved in the project and this is critical bearing in mind that there are 10 members of staff. The results will be written in a simple language to elucidate a clear understanding to every member.
The perfection of the risk assessment will not necessarily be a primary consideration, but the sufficiency and suitability of the assessment of the process will be thoroughly analyzed. If the results prompt for some major or minor improvements in the whole project, a plan of action will be developed. This is in order to ensure that the most critical improvements are addressed first and this should be the trend for any improvements that may ensue thereafter. The course of action will include a number of factors such as temporal solutions that will be done swiftly, long term solutions that will address those risks that may have devastating effects in the future and workshops to notify the employees about the identified risks and how they can be controlled effectively. Checks will also be made on a regular basis to ensure that there is consistency in these control measures, and that the responsibilities of every member are clearly stipulated.
The fifth and last step will be a review of the assessment and future amendments or updates if need be. The construction of the project is dynamic and sooner or later, new materials will be required which can all but lead to the emergence of new problems (Vila & Morote, 2011). A critical review of every undertaking will therefore be carried out on an ongoing process. The risk assessment will be checked on a regular basis and if a change is necessary, it will be done swiftly and promptly in line with the required amendments.
In conclusion, it is correct to argue that a Risk Management Plan is an indispensable prerequisite in any project and this is evidenced from the research. A risk management plan will identify the risks in both the external and the internal environment. In addition, it will enable the project to move smoothly without any hitches and meet its projected completion date. The right contingency level will also be achieved and the awareness and understanding of the project’s status will also be raised to all members involved in the project. During the identification of the projects risks it will be critical to carry out an overview of some areas in the project including the equipment, scope, technology, people, budget, the existing data and the time scale. After these areas are properly analyzed and risks identified, the steps involved in the Risk Management Plan will be formulated and will include identifying the problems, assessing the implications, evaluating the risks and formulating precautionary measures, recording results, implementing them and will culminate with a review of the assessment and making proper amendments and updates when necessary. If each and every factor mentioned herein is put in place, this is a clear affirmation that this project will be without any doubt, a huge success.
Davies, T. C. (2002). The “real” success factors on projects. International Journal of Project Management 20, 185-190.
Kutsch, E., & Hall, M. (2010). Deliberate ignorance in project risk management. International Journal of Project Management 28, 245-255.
Raz, T., & Michael, E. (2001). Use and benefits of tools for project risk management. International Journal of Project Management 19, 9-17.
Sumner, M. (2000). Risk factors in enterprise-wide/ERP projects. Journal of Information Technology 15, 317-327.
Vila, F., & Morote, N. (2011). A fuzzy approach to construction project risk assessment. International Journal of Project Management 29, 220-231.