Managing, coping with project risks

It is not possible to duplicate a project outright, the closest one can get is to mimic a project through the use of documented lessons learnt from previous and similar projects.
In view of this, all projects experience the unexpected, which calls for a systematic way of managing the project risks.
The ability to prepare for and reduce uncertainty is well illustrated within the insurance industry, where risk management has become a sophisticated science. Actuaries are constantly researching the probabilities of various calamities, and this research helps them set insurance premiums.
Not only do insurance companies charge us for assuming risks, they actively try to avoid risks by encouraging their policyholders to avoid risky behaviour.
Project managers need to take cues from the insurance industry, as effective risk management on projects is synonymous with an internal insurance policy offered by the project manager.
All Project Management is Risk Management
Insurance companies understand and practice risk management better than most project managers because they realise that it is their primary business.
Not many project managers realise that it is also their primary task, but those who do have a competitive edge.
They are constantly on the outlook for uncertainty that could lead to project failure.
l Is risk management the primary job of a project manager?
Yes, it is true because every project knowledge area (scope, time, cost, quality, human resources, communication, integration, procurement, risk) within the PMBOK guidelines is meant to be a risk management technique to curb risks and constraints in those project areas. Let me motivate for the systematic way of project risk management, with a troubled project example.
Tollgate Project – What Went Wrong?
In a recent Herald article titled “Scanners for tollgates”, of March 31, it was reported that the “Government will introduce a tollgate management system that will see vehicles fitted with electronic discs that will be read by a scanner at toll sites to minimise fraud”.
The article outlined how the State was potentially prejudiced of US$1,7 million by two Zimra employees who stole some ticket books and were pocketing cash paid by motorists.
The State is unhappy with contractors who were awarded the tender to develop the tollgate infrastructure as project deliverables are poor and late.
Zimra officials sometimes abandon the tollgate when it rains, leaving motorists to pass through free of charge.
The State is now looking at claiming US$400 per day from contractors who exceed project delivery deadlines.
It is evident that the tollgate project is infected with risks. Was risk management effectively executed in the project?
Let us go through the PMBOK requisite processes to ensure effective risk management on a project with occasional reference to this case.
Risk Management Planning
Everything begins with a plan. The project risk management plan includes categorising risks into broad areas, ranging from political, economic, social, technical/technological, legal and environmental/ecological risks, including the project knowledge areas where there are inherent risks.
Did the tollgate project management team consider the technical risks, now that there are intentions of installing a motor vehicle scanning system?
Will the new system be able to differentiate among the different types of vehicles as these pay different rates?
Are they going to make arrangements to have foreign vehicles fitted with the discs are the ports of entry?
Will the scanning system be capable of sending information to a remote location?
What happens when the scanning devices are out of order? What measures are going to be put in place to ensure the devices are available 24/7?
The project risk management plan should also include roles and responsibilities (in the broad risk categories), budget and schedule for managing the risks.
Risk Identification
The art of identifying risks begins with a critical attitude. By applying Murphy’s Risk Management Law which states that “anything that can go wrong will go wrong”, it is appropriate to adopt this attitude so that problems are caught before they emerge.
Projects may involve risks in any one of a hundred areas beyond your direct control, but as the project manager, the finger of responsibility will point directly at you. However, all the risks in a project boils down to these:
Known risks – these are the risks that we can identify after reviewing the project definition within the context of the business and/or technical environment. The project manager can draw from his/her experience and that of the stakeholders in defining risks of this nature.
Predictable risks (known unknowns) – represent identified potential problems, such as the possibility of a strike, staff turnover. We do not know exactly what will happen, but we do know it has a potential to damage our project and we can prepare for it.
Unpredictable risks (unknown unknowns) – these are the ones you honestly could not have seen coming.
But seasoned project managers do expect them, because they know something unexpected always happens.
Turning to the tollgate project, in which category do the fraud, contractor underperformance risks fall? Were these risks identified in the project upfront?
Risk Analysis (Qualitative & Quantitative)
The potential risks identified must be kept in a register and the next process is analysis of the risks in order to prioritise them.
Both qualitative and quantitative risk analyses seek to qualify and quantity the risks respectively, as some risks are like pebbles in a pond, they cause small ripples because they fall in the low probability, low impact.
However, there are some risks that are vicious (high probability, high impact), which cause tremors like a tsunami.
Project managers must recognise the difference between the two. They must know how to discern the magnitude of the risk and how to develop an appropriate strategy to deal with it.
Risk Response Planning
There are basically five categories of classic risk response strategies: accepting, avoiding, monitoring, transferring and mitigating the risk. In the tollgate project, the State employed the risk transfer strategy, where contractors where engaged on a fixed-term contract. The State effectively transferred the cost and schedule risks from the project to the contracting firms, any overruns were the responsibility of the contractor, and hence the State’s intention to charge the contracting firms US$400 per day as penalty.
Risk Monitoring & Control
If it is smart to proactively plan for risks at the beginning of a project, it is even smarter to continuously plan for risk during the project, through monitoring and control.
The overall goal of project risk management is to minimise potential negative risks while maximising potential opportunities, in a sustainable manner through the life cycle of the project.
l Robert Taruwona is the president of PMIZ.