Project Risk Analysis and Management Guide, 2nd edition

Association for Project Management (APM)

• Editorial: Association for Project Management (APM)
• Año: 2014
• ISBN:
  9781903494103
• Categoría: Business
• Categoría: Project Management

Risk is present in all project work, whatever the nature of the project, or the environment in which it is undertaken. The Project Risk Analysis and Management (PRAM) Guide 2nd edition, written by the APM Risk Management Specific Interest Group focuses on the risk issues that affect the project manager. It addresses how the risk management process at project level connects to corporate or programme level risk management. This guide offers the latest practices, opportunities, governance, benefits and behavioural issues.

1

Introduction

THE PURPOSE OF THE GUIDE

Risk is present in all projects whatever their nature, although some projects are inherently more ‘risky’ than others because of the nature of their task, the technology on which they are based, or the environment in which they are undertaken. A formal approach to risk management in projects is often demanded by customers or by the governance requirements of the organisation itself. As there are many possible approaches to risk management, and many tools and techniques to support these approaches, it is often difficult for the inexperienced project manager to determine which approach would be most appropriate to meet his project’s needs.

The PRAM Guide describes a systematic and disciplined approach to controlling risk that can be used to help improve the success of projects. It sets out methods for the identification and recording of risks, highlighting the consequences and establishing appropriate management action. The Guide does not prescribe a system that project managers can adopt without careful thought; it will still be necessary to study other risk methods and techniques and to develop judgement through personal experience. Successful project managers know that they must develop an approach to each project that is appropriate for the purpose and which makes full use of the team’s strengths and the inherent qualities of the project and its environment. It must also reflect the project manager’s own individual style of management. There are, as always, no short-cuts to good management.

This latest edition of the Guide aims to assist project managers and risk practitioners by describing a range of approaches and techniques that are being used by their peers, and from which they may choose to suit their own particular circumstances.

This Introduction describes some of the issues and choices with respect to possible approaches and then goes on to outline the structure of the Guide.

APPROACHES TO RISK MANAGEMENT IN PROJECTS

A successfully managed project is one that achieves its stated objectives in the most effective manner possible. No project manager would attempt to run a project without giving the disciplines of quality management, planning and financial management detailed attention; the same is true of risk management. However, the benefits of risk management may be achieved in many ways.

Many project managers still see risk management as a rearguard action to protect the project from its own fears. In some cases, it is only applied superficially in order to comply with internal company rules or meet client expectations.

Simply managing to lowest cost – a typical scenario resulting from competitive fixed-price bids or unenlightened project sponsors – potentially leaves the project exposed to inherent risks. Identifying those risks and making mitigation plans in the form of alternative paths, action plans or ‘a contingency fund’ go some way towards dealing with the risk, but such an approach can be too reactive in that the mitigation plan is invoked only when the potential threat has become an issue, and opportunities (that is, risks with a positive impact) are not actively pursued.

If a project team is to be successful it cannot rely on the absence of problems but must predict and manage the inherent risks so that, when problems do occur, they can be overcome and, when opportunities arise, the benefits are maximised. A successful project manager is undoubtedly also a good risk manager who not only controls project risks to avoid ‘management-by-crisis’, but is also aware of opportunities and is ready to exploit them as they arise.

The effective management of risks will reduce the requirement for contingency planning, leading to more competitive bids, more profitable projects and more satisfied customers. This ‘risk-efficient’ approach acknowledges that proactive and judicious spending of some of the risk budget (time and/or cost) before risks occur offers the project manager the opportunity to exercise full management control over those potential events.

The net effect is to make the project far less susceptible to chance in that threats are rendered less critical in impact, or even eliminated altogether, and significant opportunities are actively pursued and realised. As a consequence, the project is less exposed to ‘crisis’ situations, and thus the project team is less stressed, more confident and is better able to apply its skills. The net result is a project that is more likely to succeed in achieving its stated objectives within agreed time and cost budgets and a customer who is more relaxed and happy.

Project risk analysis and management, as described in this Guide, is in many respects a formalisation of the common sense that project managers usually apply to their projects. It is not a new way of managing and need not require a significant change in the way a project manager thinks or behaves. It is a tool to assist in discharging project responsibilities effectively and in ensuring the fulfilment of project objectives. Although project risk analysis and management has a clearly defined formal structure, it cannot be applied mechanically – it should not be seen as a ‘painting by numbers’ approach. Most experienced risk practitioners understand this, but formal statements of risk methodologies do not always make this important point clear. Creativity, lateral thinking and an understanding of the domain or environment in which the project is taking place are crucial to successful risk management.

Project risk analysis and management is often concerned with extremely complex risk issues, so a complex method is the last thing that is needed. Accordingly, the method described in this Guide has been kept as simple as possible, while nevertheless fully encompassing all the various methods and viewpoints known to the authors that contribute to the comprehensive analysis and management of risk. This means that this Guide does not knowingly exclude any approaches that are currently being used successfully.

At its most fundamental level, risk management is extremely simple. The risks (both threats and opportunities) are identified, a prediction is made on how likely they are and the extent of their impact, decisions are taken on what to do about them, and then those decisions are implemented. At a more complex level, overall risk outcomes (rather than individual risk events) are identified and strategies devised to manage these outcomes by, for instance, changing the project approach, solution, timescales, basis of contract or even the scope of the project. This increased complexity is generally rewarded by a significantly improved performance against objectives.

THE STRUCTURE OF THIS GUIDE

Following the Introduction, Chapter 2 ‘Benefits’ shows how a formal approach to risk management helps directly and indirectly to improve the likelihood that a project will be successful.

Chapter 3, ‘Principles’ offers a high-level definition of the recommended approach to managing risk and introduces the fundamental principles and concepts on which the rest of the Guide is based. It also provides a summary of the risk management process, which is expanded in Chapter 4.

Chapter 4, ‘The PRAM Process’ takes the reader through a number of iterations of the process, demonstrating the changing emphasis as the project progresses and better information becomes available. The approaches described here have all been experienced by members of the APM Risk SIG. Few implementations of risk management need to specifically address every phase and action as presented in this chapter although, to varying degrees, every aspect is present in successful risk management.

Having established the principles and described the process in detail, the Guide turns to implementation. Chapter 5, ‘Organisation and Control’, examines risk management in the context of the project’s management and describes how to govern and control risk management activities on the project.

By definition, risk management involves not only most team members, but also other parties, many of whom will not be willing participants when it comes to assessing the nature of risks and how best to deal with them. Understanding this is crucial to successful risk management and is discussed in Chapter 6, ‘Behavioural Influences’.

Chapter 7, ‘The Application of PRAM’, discusses issues concerning the introduction of risk management into the organisation – namely, establishing and sustaining effectiveness, developing capability, measuring success and managing expectations.

Finally, Chapter 8, ‘Tools and Techniques’ gives a high-level summary of the tools available for implementing a risk management process. These are categorised as identification, quantitative techniques, qualitative techniques, risk control, risk audit and risk management tools. More detailed descriptions of techniques in the first three of these categories are provided in the Appendix, ‘Using Risk Management Techniques’.

The Guide concludes with a glossary and a list of other publications that may be of interest to the reader in ‘Further Reading’.

The principles and objectives of risk management have been widely adopted in recent years. Many government agencies, educated clients and wise contractors now insist on a risk assessment before any contract is placed or undertaken. They also require risk management to be undertaken during execution of the project. Yet, some organisations still take risk management less seriously, perhaps through ignorance or a bad experience. It is hoped that, whatever the reader’s circumstances, this Guide will go some way towards ensuring that tangible benefits accrue wherever risk management is applied.

2

Benefits

This chapter sets out to identify common benefits of risk management and to point out some of the problems that may be experienced in undertaking project risk management. It is hoped that the reader, armed with this knowledge, will be better able to justify the need for project risk management, and will also develop a more rounded understanding of the issues that can arise.

THE ‘HARD’ AND ‘SOFT’ BENEFITS OF RISK MANAGEMENT

It is helpful to divide the many benefits that have been cited by those working in the field of risk management into two categories:

●‘hard’ benefits – that is, contingencies, decisions, control, statistics and the like

●‘soft’ benefits – that is, people issues which are implicit in some of the ‘hard’ benefits but which are not usually expressed as benefits in their own right.

The reason for separating these out is that it is relatively easy to express ‘hard’ benefits and, with enough effort, it is possible to ‘measure’ them. ‘Soft’ benefits are much less easy to quantify but, like so many people issues, can give rise to dramatic improvements in performance. Research by the APM Risk SIG in 1996 produced the list of ‘hard’ and ‘soft’ benefits shown in Table 2.1, and these are more fully described below. Benefits to other parts of the organisation arising from project risk management follow, and the chapter concludes with a general survey of threats to effective risk management.

‘Hard’ benefits

H1 Enables better informed and more believable plans, schedules and budgets

All planning is a statement of what needs to be done, together with a prediction of what resources (time, cost, and labour) will be needed to achieve it, usually expressed as absolutes. Few managers believe that the plans are accurate and, indeed, many treat them as outline guides. The use of risk management to identify risk factors, and to allocate tolerances or contingency in respect of those risks, helps create a more objective description of the tasks and the related budgets and schedules. This gives more credibility to the plans.

Table 2.1 The ‘hard’ and ‘soft’ benefits of project risk management

‘Hard’ Benefits		‘Soft’ Benefits
H1	Enables better informed and more believable plans, schedules and budgets	S1	Improves corporate experience and general communication
H2	Increases the likelihood of a project adhering to its schedules and budgets	S2	Leads to a common understanding and improved team spirit
H3	Leads to the use of the most suitable type of contract	S3	Helps distinguish between good luck/good management and bad luck/bad management
H4	Allows a more meaningful assessment of contingencies	S4	Helps develop the ability of staff to assess risks
H5	Discourages the acceptance of financially unsound projects	S5	Focuses project management attention on the real and most important issues
H6	Contributes to the build-up of statistical information to assist in better management of future projects	S6	Facilitates greater risk-taking, thus increasing the benefits gained
H7	Enables a more objective comparison of alternatives	S7	Demonstrates a responsible approach to customers
H8	Identifies, and allocates responsibility to, the best risk owner	S8	Provides a fresh view of the personnel issues in a project

H2 Increases the likelihood of a project adhering to its schedules and budgets

Clearly, the more realistic the project’s plans (schedules, budgets), the more likely it is that the outcome will reflect those plans. Team members who believe that they have a hopeless task and expect to fail, no matter how well they do, will tend to be demotivated. Giving them achievable targets, in which they can believe, will secure greater levels of commitment leading to a higher probability of success.

In addit...