Managing Project Risks

Peter J. Edwards, Paulo Vaz Serra, Michael Edwards

• Publisher: Wiley-Blackwell
• Year: 2019
• ISBN:
  9781119489733
• Edition: 1
• Topic: Architecture
• Subtopic: Architecture General

A comprehensive overview of project risk management, providing guidance on implementing and improving project risk management systems in organizations

This book provides a comprehensive overview of project risk management. Besides offering an easy-to-follow, yet systematic approach to project risk management, it also introduces topics which have an important bearing on how risks are managed but which are generally not found in other books, including risk knowledge management, cultural risk-shaping, project complexity, political risks, and strategic risk management. Many new concepts about risk management are introduced. Diagrams and tables, together with project examples and case studies, illustrate the authors' precepts and ideas.

Each chapter in Managing Project Risks begins with an introduction to its topic and ends with a summary. The book starts by providing an understanding and overview of risk and continues with coverage of projects and project stakeholders. Ensuing chapters look at project risk management processes, contexts and risk drivers, identification, assessment and evaluation, response and treatment options, and risk monitoring and control. One chapter focuses entirely on risk knowledge management. Others explore the cultural shaping of risk, political risk in projects, computer applications, and more. The book finishes by examining the current state and potential future of project risk management.

In essence, this book:

• Effectively communicates a conceptual and philosophical understanding of risk
• Establishes the nature of projects and the stakeholders involved in them
• Presents a systematic and logically progressive approach to the processes of project risk management
• Demonstrates how to recognize the drivers of project risks and the factors which shape them
• Emphasizes the importance of capturing and exploiting project risk knowledge
• Provides guidance about implementing and building (or improving) project risk management systems in organizations

Managing Project Risks will benefit practitioners and students of project management across a wide range of industries and professions.

1
Introduction

1.1 Introduction

In this introductory chapter, we describe the project and project stakeholder perspectives that we have adopted to frame this book. Since we cover a range of topics and readers will have different levels of knowledge and experience about projects, project risks, and their management, we also provide a brief overview of the contents of the book. The chapter synopses will guide you in choosing the actual sequence you wish to follow for individual reading, but we recommend that you do follow the order for Chapters 4–10, as these chapters embrace the sequential and systematic application of project risk management processes.

1.2 The Project Perspective

We live in a world that is highly focused on ‘development’ and has become increasingly ‘project‐driven’. This is largely because projects are seen to be more ‘containable’ than other methods of achieving development goals. Projects are perceived as having clearly identifiable beginnings and finite endings (although sometimes these are hard to pinpoint precisely). The fulfilment of sought‐for objectives is intended to deliver desirable (and hopefully measurable) outcomes. It is thus assumed that the project approach is more manageable than other ways of doing things, although that assumption may not always translate easily or fully into reality.

Projects are endeavours usually surrounded by uncertainty and often cloaked in risk. While we tend to regard them as exclusively human undertakings, projects do occur in the natural world. Beavers build dams across watercourses; termites construct elaborate edifices to shelter themselves from harsh extremes of weather; birds build nests to accommodate their young. These creatures also face risks as they go about their ‘project’ work.

Managing risks is an important part of managing projects, as much for human society as for natural fauna. This book describes a comprehensive and systematic approach to the management of project risks. Whilst we have no plans for further references to animals and insects, their potential contribution to risk management should not be ignored. Biomimicry has become an important source of innovation for contemporary society in many fields, and there is every reason to suppose that it could also contribute to risk management.

Project management, as an art and a science (hence its vulnerability to many interpretations), stems largely from the construction industry, which has been project‐based since human beings first attempted to create shelter for themselves. Since then, we have become increasingly aware of the need to organise the ways in which our building activities are planned, resourced, and carried out in order to satisfy our need to develop our physical environment. Traditionally, therefore, project management has been associated with building projects, and many books (including those on risk management) retain that perspective exclusively.

In this book, however, we have tried to embrace the project‐driven nature of contemporary society more fully and have deliberately adopted a generic project perspective.

All projects are exposed to risks. While particular risks will be different for varying projects and project environments, we intend to demonstrate that it is possible to adopt a systematically uniform approach in order to deal with those risks. Thus, while many of the examples presented in this book are taken from projects in the construction industry, we have sought to include others from a range of different fields. The actual risks will not be identical (although many will be similar), but the risk management principles remain the same.

1.3 The Project Stakeholder Perspective

All projects involve stakeholders: those people or entities that have capacity to influence the decision making associated with projects. We explore this concept in greater depth later in this book. Suffice it to say here that every project involves multiple stakeholders (or at least more than one). I may decide to embark on a renovation project on my house. While it is ‘my’ project, it is likely that other family members will be involved, that tradesmen will be engaged and external suppliers sourced. I may have to approach consultants for advice or even apply for permits from local authorities. To a greater or lesser extent, each and all of these will influence the decision making that inevitably surrounds the project. Anyone with that capacity has to be regarded as a stakeholder. How much influence they have will determine the nature, level, and treatment of the risks involved.

Similarly, you may propose a project to write a book as a sole author. However, if you want others to read it and if you want to earn royalties from its publication, other people will become involved in and help to make decisions about the publication process. The same scenario applies to artistic and creative works. While the intellectual inputs may be entirely individual on the part of the artist, if the project outcomes are intended to become available to others, or even to just a single end‐user or purchaser, then we might argue that the follow‐up process is also part of the project and thus susceptible to decision making beyond that of the original artist. Few artists can afford to ignore their ‘market’.

A single project stakeholder perspective is thus only tenable if the project outcomes were never meant to be available to anyone other than the project originator.

However, while all may be involved in bringing a project to fruition, each stakeholder is likely to have at least some objectives that are different to those of other stakeholders. By definition, as we shall see in Chapter 3, this means that each stakeholder will be exposed to different risks, albeit possibly of a similar type but of varying uncertainty in terms of likelihood and consequence. Each stakeholder may have to manage its risks in ways that may be subtly different to those of other project stakeholders.

Logically, therefore, whatever the organisational arrangement of stakeholders in a project, any attempt to insist upon a common risk management system for that project is neither practical nor advisable, particularly where the stakeholders are autonomous entities. Even where projects are undertaken ‘in‐house’ by an organisation (e.g. under project management office [PMO] or enterprise project management [EPM] arrangements), there will still be other stakeholders involved, including other departments within the host organisation and external stakeholders supplying goods or services to the project.

In this book, we adopt a stakeholder perspective that assumes that each stakeholder implements its own risk management system for each of the projects in which it is involved. Ideally, each stakeholder will employ an overarching approach that, while dealing individually with all of its risks on each of the projects in which it is involved, will apply common principles of risk management throughout, and will capture risk knowledge from each project to the benefit of the whole stakeholder organisation.

The project and project stakeholder perspectives outlined here provide the essential context for the whole of this book.

1.4 Overview of Contents

As noted in Section 1.1, the chapter synopses in this section should help you to determine the topic sequence you wish to follow. For those who are involved in teaching project risk management, the synopses may help you to formulate a useful reading programme for students.

In Chapter 2, attention is given to understanding risk itself. Definitions of risk are explored, and common risk terms set out. Positive and negative concepts of risk (threat risk and opportunity risk) are presented. The psychology of risk is considered, together with risk awareness. Risk and uncertainty are distinguished, and their association is clarified. The dynamic nature of risk is discussed. Approaches to classifying risks are considered. The important topic of risk communication is introduced here, but it is treated more comprehensively in Chapter 19 (Communicating Risk).

Chapter 3 is all about projects, further consolidating the essential platform upon which the processes of managing project risks can be presented. The nature of projects is considered, in terms of their life cycles and processes. Additional thought is given to project stakeholders and their influence. Project decision making is considered, and the chapter concludes with some wisdom about what may constitute a risky project.

National and international risk management standards are described in Chapter 4, which then presents a systematic approach to project risk management in the form of an experiential learning cycle. This provides an essential precursor for the more detailed presentation of the stages of the risk management process in subsequent chapters.

In Chapter 5, the important preliminary task of establishing the internal and external contexts for a project is presented, together with the importance of considering the risk drivers operating in those contexts.

For risks to be managed, they must first be identified. This process is dealt with in Chapters 6 and 7. Approaches to identifying project risks are first considered and then followed by a presentation of several risk identification tools.

Following identification, risks should be analysed and assessed in terms of their individual and comparative magnitudes or levels. Chapter 8 presents simple ways of doing this so as to provide an informed basis for subsequently deciding what should be done about the ri...