The Risk Management Process and its Interactions with the Project lifecycle essay
The risk management process is the pivotal element of the project lifecycle because the successful implementation of the project and completion of its lifecycle depend on the accuracy and effectiveness of the risk management. In the contemporary business environment, it is virtually impossible to foresee all risks and threats that may affect projects, but the accurate analysis and assessment of existing risks and the elaboration of the risk management plan can help to prevent them or, at least, minimize the major risks, which the project may confront at any stage of its lifecycle (Chari, 2007). The risk management process should develop within the framework of the project lifecycle focusing on specific challenges that emerge at the specific stage of the project lifecycle. On the other hand, the risk management should also elaborate the holistic approach to the project lifecycle, risk assessment and prevention. Therefore, the risk management process should focus not only on every stage of the project lifecycle but also assess the project as a whole and elaborate the risk mitigation plan to prevent or, at least, minimize risks and threats the project may confront in the course of its lifecycle and, thus, minimize negative effects of risks and threats that may emerge.
Project lifecycle
The project lifecycle consists of four phases, including initiation, planning, implementation and evaluation. Each stage is equally important for the overall success of the project. Therefore risks associated with the implementation of every stage of the project lifecycle are dangerous and may threaten to the successful implementation of the project. The project team should analyze every stage of the project lifecycle to understand, identify and evaluate all possible risks, which the project may confront.
The initiation stage involves the elaboration of goals and essence of the project. As a rule, strategic goals are set and the vision of the project emerges. Risks emerging at this stage can affect the further development and implementation of the project. The initiation stage is the primary stage of the project lifecycle that gives the start to the project. Therefore, the initiation stage determines the trajectory of the development and implementation of the project and, thus, determines the overall success of the project lifecycle.
The planning stage is pivotal because it lays the foundation to the practical implementation of the project because the project team implements the project on the ground of the project plan. In this regard, researchers (Lucas & Baroudi, 2002) recommend developing alternatives to the main project plan. Alternative plans help to choose different ways of the project implementation depending on risks that affect the project and changes in the course of the implementation of the project both internal and external.
The implementation stage involves the implementation of the plan, which though is not always implemented succinctly because often changes to the plan are necessary to complete the project successfully. In this regard, researchers (Ponzi & Koenig, 2002) recommend to accompany the implementation stage with the permanent monitoring and control over the implementation of the project plan to identify flaws of the plan and introduce changes to complete the project successfully and transit to the final stage of the project lifecycle – evaluation.
The evaluation stage is the last but not the least stage of the project lifecycle. The accuracy of the evaluation of the project determines the effectiveness of lessons learned by the project team from the project. Moreover, the adequate evaluation of the project helps organisations to take a decision on the further maintenance or completion of the project as well as to assess the overall effectiveness of the project and its impact on the organisational performance.
Risk analysis and assessment
The identification of the risk is the first and major step to the effective risk management and risk mitigation to prevent its negative impact on the project lifecycle. The identification of risks involves the analysis of each stage of the lifecycle of the project, identification of key stakeholders and analysis of possible risks that may emerge along with the preliminary assessment of possible effects, if those risks do occur.
Researchers (Finley, 2007) distinguish the following potential risks, which the project lifecycle may face, including: technical, costs, schedule, client, contractual, natural, financial, political, environmental, people. At the same time, the project team should be aware of the fact that each project is, to a certain extent, unique and, therefore, risks may vary depending on the project. The list of potential risks may be shorter or longer but the point is to identify risks succinctly and allocate resources properly. The proper allocation of resources means that the project team identifies risks and determines their probability and allocates resources required for the mitigation of those risks and elimination of their negative effects. Resources required for the risk management may vary but, as a rule, they include human resources, financial resources, equipment and other resources that may be required to manage risks effectively. In such a way, the risk assessment and analysis involve the identification of key risks and the probability of their occurrence.
In addition, risks analysis and assessment involves the study of the impact of specific risks on the project lifecycle, which may vary from low to high impact. The project team should forecast the possible impact of every particular risk that may emerge in the course of the project. The analysis of the impact of specific risks helps the project team to allocate required resources and develop possible alternatives to mitigate risks and minimize their negative effects on the project. Risks may vary in terms of their impact on the project from low to high but the probability of their occurrence varies too.
Therefore, it is possible to roughly group risks into four main categories: risks that have the low impact and are unlikely to occur; risks that have the low impact but are likely to occur; risks that have the high impact but are not likely to occur; and risks that have the high impact and are likely to occur (Schein, 2009). The latter are the most dangerous risks, which the project management team should come prepared to and be ready to confront at any stage of the project lifecycle. Nevertheless, the project team should not underestimate minor risks too. In fact, low risks may have a considerable impact on the project lifecycle, if they remain unaddressed by the project team. Such risks will steadily undermine the implementation of the project that may lead to its failure. In addition, different risks may have a different impact on different stages of the project lifecycle (Seitanidi, 2008). For example, risks that may emerge at the planning stage may cause the failure of the project at the implementation stage, if they remain unaddressed at the planning stage. Similarly, risks that emerge at the initiation stage may lead to the failure of the project at the planning stage. In such a way, risks should not only be identified, analyzed and assessed properly, but also the project team should respond immediately to any risk that is identified in the course of the project lifecycle.
Risk mitigation to the project lifecycle
Researchers (Peters, 2002) distinguish different risk mitigation strategies that help to identify risks and respond to them effectively. At the same time, risk mitigation strategies include: risk avoidance, risk sharing, risk reduction, and risk transfer (Wisner, et al., 2004). Each strategy is applied depending on the nature of the risk and its impact on the project lifecycle or particular stage of the project lifecycle.
The risk avoidance implies the careful risk management strategy, when the project team attempts to minimize all the risks by elaborating the most secure project management strategy. However, even though this strategy seems to be very efficient because it leads to the avoidance of risks, but, in actuality, such strategy makes the implementation of the project extremely challenging. Researchers (Royse, Thyer, Padgett, & Logan, 2006) insist that the risk avoidance may lead to the refusal of the project team from daring and potentially highly beneficial projects because of certain risks associated with their implementation and the focus on mediocre projects that are safer, but also they are less profitable compared to more daring ones.
The risk sharing is quite challenging strategy because it admits the occurrence of certain risks but the team management does not try to avoid it but confronts those risks and shares the responsibility and mitigation of risks between different stakeholders or project team members. For example, a project may involve the risk of increase of its costs that will raise the burden of additional funding of the project. While using the risk sharing strategy, the project management team members can invest equal shares to cover extra expenses required for the successful accomplishment of the project.
The risk reduction is an efficient strategy, which involves the reduction of risks by means of the preparedness of the project team for their emergence (Schmitt & Simonson, 2007). As the project team comes prepared to risks, the team can allocate resources and develop effective strategy to reduce the negative impact of risks on the project lifecycle. As a result, the risk reduction strategy helps to reduce negative effects of risks on the project lifecycle.
As for the risk transfer strategy, this strategy is also quite effective because it involves the transfer of risks from the most vulnerable stakeholder or part of the project to the least one (Viardot, 2011). For example, a company working on the construction project can use the subcontractor, who is more experienced and prepared to the risk mitigation, to complete certain stage of the construction. As a result, if the risk occurs, the subcontractor will deal with the risk management. Such risk transfer is effective because the subcontractor will be more efficient in the risk management compared to the company working on the construction project due to more extensive experience and better preparedness to such risks.
The risk mitigation should remain intact during the entire project lifecycle. In such a way, the project management team will always come prepared to risks and prevent them from occurrence or manage them effectively, if they occur. The risk mitigation should also focus on the project lifecycle as the whole to tackle risks that may be not identified at specific stages of the project lifecycle.
Contingency plan
Contingency plan can secure risks and prevent the overall failure of the project lifecycle. The project plan should always involve alternatives or, at least one alternative, which can come into action, when either risk starts undermining the project and threatening to the project lifecycle. In addition, project managers should also plan contingency funds, which are funds set aside and used, in case of risks start interfering into the implementation of the project and affecting negatively the project lifecycle. The contingency plan contributes to the overall helps to back-up the risk management initial plan and minimize the negative impact of risks on the project lifecycle.
Correlation between the project lifecycle and risk management process
Each stage of the lifecycle should have all possible risks to be identified and measured in terms of their impact on the particular stage of the project lifecycle. Second, the risk mitigation plan for each stage of the project lifecycle should be elaborated and implemented respectively to the implementation of the project and progress of its lifecycle. Third, the contingency plan should be developed for each stage of the project lifecycle to ensure that the project management team will come prepared to confront risks and introduce reserves and extra funding and other resources to deal with risks, if the prepared risk mitigation plan fails. Finally, the project management team should elaborate the general risk mitigation plan along with the contingency plan that will help to plan the risk management for the entire project lifecycle.
Conclusion
Thus, the project plan should be a flexible plan to maintain the project lifecycle successfully and mitigate risks emerging in the course of the implementation of the project at any stage of its lifecycle. The identification, assessment and analysis of risks help the project team to elaborate the risk mitigation plan. The risk mitigation plan, in its turn, helps to decrease the negative impact of risks on the project lifecycle and facilitates the successful accomplishment of the project. In addition, the risk management process should also include the contingency plan that will help the project team to accumulate resources and develop alternative plans to deal with emerging risks.
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