Project Risk Management

A Practical Implementation Approach

Michael M. Bissonette

• Publisher: Project Management Institute
• Year: 2016
• ISBN:
  9781628251401
• Edition: 1
• Topic: Business
• Subtopic: Project Management
• Index: Business

It's not exactly news that putting the concepts of risk management into action can help make a project more successful. In fact, a solid understanding of risk management is a vital component of any project management professional's training, regardless of the industry in which he or she might work. In today's fast-paced, constantly changing, and extremely competitive environment, risk management is more important than ever for businesses hoping to find their footing in the global market. In Project Risk Management: A Practical Implementation Approach, author Michael M. Bissonette not only provides insights into the best ways to implement the traditional techniques of risk management, but also explores innovative new methods that can help modern organizations build their culture, improve financial performance, and ultimately achieve greater success in all of their projects.

CHAPTER

1

Practical Application of Project Risk Management

Overview

Proactive employment of project risk management concepts by project managers and their teams can make a substantial difference between being successful or unsuccessful in achieving project objectives. This is not a new notion. In fact, one of the major requirements for the Project Management Professional (PMP)® certification is successful completion of a course on project risk management because it is considered a critical Knowledge Area in A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition. Thus, more and more project managers are becoming armed with a good understanding of how project risk management interrelates with other project processes, and what tools and techniques are available for initial project planning and ongoing project management. This book was developed to not only provide insight into the practical implementation of the more classical risk management tools and techniques, but to expand the breadth of the subject to encompass all of the other aspects of project management that affect risk and project success.

One of the most compelling underlying principles of this discussion on risk management is the realization that many organizations have goals and objectives to continuously improve and endeavor to be increasingly more competitive in the marketplace(s) they serve. This competitive drive leads to attempts to do more with less, to outperform competitors, which typically leads to greater shareholder and stakeholder value through more compelling product offerings. Taylor Clarke (2015) articulates this notion of “doing more with less” as follows: “Amid increasing competitive pressures, many organizations are looking to do more with less. This has led to a plethora of initiatives aimed at stretching the resources and capabilities of the business with the aim of becoming more efficient and yield greater returns” (p. 1). Thus, organizations become driven to overtly take greater risks in their product development processes—risks that can lead to better financial performance if understood and managed well, but conversely, if not understood and managed well, can lead to a crisis management culture, organizational frustration, and ultimately to detrimental business/financial results.

By understanding the typical causes of unsuccessful project execution, one can formulate a methodology that ensures that all risks which are critical to a project's success are at least considered, appropriately communicated, and bought into (i.e., agreed to by all stakeholders). The practical application of sound project risk management principles can then become more effective, leading to better predictability relative to project execution and higher probability of success for all organizational endeavors.

The practical implementation of project risk management tools and techniques starts with the establishment of a sound risk management plan. This plan is developed and augmented by a risk management process that facilitates identifying, assessing, responding to, and managing risks throughout the project planning and execution processes. Several viable project-appropriate approaches are presented here, and this book focuses on the more prevalent tools and techniques used on complex, risky projects. Being aware of these tools and techniques is only half the battle—using them effectively is key to ensuring that the established project management processes will yield improved confidence in achieving project objectives. The content of this book was assembled to facilitate such practical implementation.

“How do we know if we have accounted for all germane project risks?” is a question that has been asked over and over by individuals and teams endeavoring to do their very best at actively managing project risks. The answer is not easy to provide. There are so many different types of projects with their own unique constraints, all of which adds to the difficulty of finding the right solution. Although it is challenging to provide all the “silver bullets,” there are ways to get very close—and this book addresses them. By understanding most of the typical causes of unsuccessful project execution, knowing the right kinds of questions to consider, and having access to individuals knowledgeable enough to provide objective assessments of every potential pitfall associated with a particular project, a project manager is armed with the resources necessary to develop a solid project plan. This typically takes team/organizational commitment, objectivity, discernment, and a thorough process. The contents of this book will expose you to information and processes that can enable you to achieve this goal—to develop good project plans and to make informed decisions concerning adjustments to project constraints when required necessary.

Another question is: “What are the right sets of tools and processes (techniques) to employ for your specific project(s)?” The “right set” can be referred to as the “best practices”—the methods or techniques that have consistently shown results superior to those achieved using other means; they are used as benchmarks (“Best Practice,” n. d.). Simply knowing the best practices to employ in managing your projects can provide the project team with a huge boost of confidence in its ability to successfully perform and achieve project goals and objectives. The context of project management “best practices” that is referred to here is not only relative to the specific risk management activities, but for essentially every project management activity undertaken by the project manager and project team—and hence, the reason that risk management is so integral to overall project management. Having an intimate understanding of this concept will put you, as a project manager, on an entirely different level. It will also significantly benefit your organization. This book provides that insight to help determine the most effective techniques to apply to your specific project(s).

A common question in the minds of those assigning project managers is, “How knowledgeable and capable must the project manager be regarding every aspect of the project plan, product development process, and applicable project management tools and techniques?” The answer can vary significantly from project to project, organization to organization, and industry to industry. Some useful ideas for consideration are provided—to both facilitate project staffing decisions and to help project managers understand what it takes to progress in their chosen career path.

Content

This book is comprised of a total of 16 chapters. Chapter 2 provides a big-picture perspective of what practical project risk management entails. To set the stage, several general aspects of project management (i.e., project life cycle, product life cycle, and product development cycle) are reviewed to not only point out how integral risk management is to each, but to reveal some of the more important project risk management principles to be aware of. Chapter 3 lays some foundation by articulating risk-related definitions, categories, and groupings. Chapters 4 through 15 will be explained in the following section. The final chapter provides some case study examples, which should provide more insight into the concepts discussed throughout this book. Additional detailed information is provided in appendices at the end of the book; they expand upon the content where appropriate and are there for those inclined to delve into further layers of detail.

Portfolio Project Risk Management—A Holistic Perspective

Project risk management not only permeates the project management process, but when considered holistically becomes an organizational asset that feeds off and affects the entire project portfolio—past, present and future. Figure 1.1 provides a graphic depiction of the build-up of project risk management influences. Arguably the most impactful and foundational aspect of project risk management is the process of identifying, analyzing, responding to, managing and controlling, and organizing/communicating (via a risk management plan) project risks—referred to as project risk management basics in Figure 1.1. Chapters 4 through 11 cover these topics in detail. The next two layers, project management tools and techniques (Chapter 12) and project manager competencies (Chapter 13), expand on the subject from a standpoint of how project management “best practices” and capabilities affect project risk. Stakeholder and organizational influences (Chapter 14) develop additional risk management considerations and capabilities—at both the individual project level and beyond (i.e., at the program and portfolio levels, as well). Finally, the lessons-learned (or postmortem) processes, if applied proactively, can add another layer of organizational excellence (to mitigate risks on future projects, and enable continuous improvement in project execution performance) at the portfolio level (Chapter 15). This is particularly relevant to organizations engaged in repetitive development activity associated with similar or derivative products and/or services.

When taken in its entirety, portfolio project risk management can be a powerful concept for ensuring project success and organizational/business competitiveness. Project management offices exist in many organizations to standardize practices and systemically improve project management performance. To help achieve this objective, the elements of project and portfolio risk management depicted in Figure 1.1 should be given serious consideration.

Practical Project Risk Management Concerns

The following is a list of some key relevant questions addressed by this material:

• How do you develop a project plan that effectively takes risks into account?
• What is the significance of rebalancing a project plan, and how is it done?
• How do you know whether or not you have successfully identified all the project risks that are germane to your project's success?
• How do project requirements, stakeholder expectations, and resource capabilities affect project risk—and what can be done to effectively deal with these risks?
• How do you determine the best practices to apply to your particular project?
• What is the right product development process (or product-oriented process, or new product introduction [NPI] process) to follow, and how is it determined?
• What are project postmortems? How are they conducted? How can they help?
• What capabilities should the project manager, team members, and performing organization(s) possess to plan and execute their project(s) successfully?

CHAPTER

2

Risk Management—Integral to Project Management

Once a project is initiated, the first order of business is usually to establish a core team consisting of a project manager and one or more designated team leads. The team's first task is typically the development of a sound (i.e., executable) project plan. After the project is kicked off, whether or not the plan is indeed executable, adjustments are likely to be required over time—a more frequent occurrence in complex, inherently risky projects. In response, project managers must effectively deal with issues that arise by exploring and implementing remedial action (i.e., changes to the plan). These issues usually originate from a priori risks—thus, the need to proactively manage risks to keep issues at an absolute minimum and improve the likelihood of successfully meeting project goals and objectives.

In this chapter, project risk management is introduced as it relates to overall project management. General project management concepts and processes are reviewed and corresponding key elements of project risk management are highlighted.

Project Risk Management Fundamentals

Projects are defined by a set of interrelated tasks (or activities) bound by a set of overarching constraints. Figure 2.1 depicts a simple way of graphically portraying a project. Although the number of overarching constraints has been expanded upon (up to six) to better embrace the concept of developing “balanced” project plans, three of them represent the classical “triple constraint”—project schedule, cost, and scope. Basically, a project is established to produce an end result (product, or service, or combination thereof) within a prescribed time frame for a predetermined amount of money. A plan is established, which: (1) defines the deliverables (i.e., product quality and technical performance requirements); (2) establishes the statement of work (SOW), or scope, to perform for meeting the deliverable objectives; (3) establishes the corresponding baseline schedule to adhere to; (4) establishes the corresponding baseline budget to stay within; (5) assumes a level of resource capability and capacity at prescribed times throughout the project duration; and (6) establishes the level of project risk to contend with.

These six constraints, taken as a collective set of conditions, comprise a balanced project plan. In Figure 2.1, the project plan is depicted as a straight line between the two opposite corners of the cube created by the three dimensions of the triple constraint—where the tail and arrow represent the start and finish of the project, respectively. The plan will not likely be linear as shown, but think of this as being a normalized plan. Even if all project objectives are met, it is highly unlikely that the actual execution will follow that path exactly. Issues will likely arise and course corrections (i.e., responses) will have to be developed and acted upon. This usually means that the team must make trade-off decisions between the super-set of project constraints (not just scope, schedule, and cost, but also quality/technical, resources, and risks). The accepted rule of thumb is that a change in one of these constraints will affect at least one of the others.

Figure 2.2 depicts the ongoing general process of managing and controlling a project. The team executes the planned tasks, monitors progress (via some measureable data—i.e., metrics), re-evaluates the plan as a result of issues that arise, and replans to best achieve project objectives given stakeholder priorities. Keeping issues to a minimum will naturally lessen the disruption within the project and performing organizations. This becomes increasingly difficult for projects that are more complex. Active risk management is, consequentially, a good practice to employ, regardless of project complexity. Furthermore, the right practices (or “best practices”) to employ for planning, managing, and controlling projects may vary considerably between different project types. Knowing the “best practices” associated with project execution and employing them effectively will typically improve the probability of project success (i.e., reduce project execution risk).

General Process Cycles and Related Project Risks

When considering projects, in general, there are different process cycles one should understand: (1) the project life cycle, (2) the product life cycle, and (3) the product development (or product-oriented) cycle. Project risk is an inheren...