Risk Management in Projects Business Predefined Objectives

Question: Describe about the Risk Management in Projects for Business Predefined Objectives. Answer: Introduction A project in its simplest form represents a group of interrelated tasks that is carried out to achieve a predefined objective. It is a venture taken up by an individual or an organization that involves analysis and research by the project handler and disciplined execution of the defined strategies defined for the accomplishment of the goals that the project is expected to address. The design and development of projects is a constrained and definite process and the progress of the process is subdivided into smaller processes to ease the development of the project. Project management is the task of monitoring and managing a project from its inception to completion. It is the procedure to establish the scope of the project and strike balance between the quality, cost and time related to the project. Discussion Concept of Project Management The management of a project demands the application of knowledge, skills, methods, processes and experience. The management process is concerned with the process of coordination and collaboration of the individual components of the project development. Project management includes the task of defining the objectives and necessities of the projects, conducting the feasibility study of the project, estimating the resource, requirements and duration of the project (Hopkin 2014). Procuring investments, monitoring the execution of the project and the functions of the involved teams, maintaining the interaction among the stakeholders of the project, benchmarking the development process also fall within the responsibilities of project management. Managing the risks related to the project and the development of the project is a task of vital importance in the project management parlance (Kerzner 2013). Risk in project management is referred to as the combination of the specified hazard and the likelihood it means that the hazard occur in an organization. The risk is the product of hazard and probability. In order to resolve the risks of a project, risk assessment is required to be done to understand the potential losses. The goal of risk assessment is to identify the potential risks; application of appropriate methods based on the hazard occurred and estimated uncertainty to resolve the risk, providing exact solution to reduce the rate of risks (Dong and Ng 2015). It encompasses the analysis of the risks related to the company and formulates procedures and techniques to overcome the hindrances that might occur during the development of the project. Project management oversees the successful development and implementation of a project. The rate of risks oriented to construction industry could be mitigated after the implementation of Building Information Modelling (BIM). BIM is referred to as a process of developing building feature with the help of digital innovation. BIM helps to plan for safety and security as well. It helps to build a safe construction project from the environmental aspect. The amount of negative project events will be reduced. The concept ensures the durability of a building. After implementation of BIM, the rates of error occurrence also get reduced dramatically. Techniques of Project Management The variation in project management techniques followed by different organizations led to the formulation of a number of standards to deal with the intricacies of project management. Earned Value Analysis or EVA is one such technique that defines an industry standard method for project management. The Earned Value Management System is based on the principles of EVA, which offers a framework for designing, analyzing and measuring the progress of the project (Fewings 2013). An estimated plan of the project is prepared initially and the actual task is compared with the planned task, periodically to assess the progress and cost of the project. The actual project parameters are compared with the assumed cost of the project and the results of the comparison determines the earnings of the project (Kloppenborg 2014). The objectives of EVMS include the establishment of relation between budget, cost and time of a project and provide the management with a quantitative progress report of the pro ject. China, Japan, Australia, England, Canada, United States and Europe are some of the countries exploiting the prospects of Earned Value Analysis (Wilson,Frolick and Ariyachandra 2013). The EVM is based on the 32-point guideline provided by the ANSI/EIA 748, divided into five sections as 1. Organization, 2. Planning,schedule and management, 3. Accounting considerations, 4. Analysis and management report, 5. Revision and maintenance Guidelines in the organization section focus on the methodology of organizing the project components. Work Breakdown Structure (WBS) divides theproject into a number of tasks, describing the contribution of each task in the project. Organization Breakdown Structure (OBS) performs the assignment of the tasks to the responsible parties. WBS and OBS together forms the control account and the Control Account Manager (CAM) is responsible for outlining the scope, budget and schedule of the control account (Lu and Yan 2013.). The control account lays the foundation of the project formulation. Guidelines in the second section provide the foundation for planning and scheduling the project and define parameters to estimate and control the budget of the project. Detailed schedules are prepared, associating the justified values to the schedule structure to obtain the basis for monthly expenditure of the project in terms of finance, labor and time. The performance measurement baseline (PMB) is composed ofthe planned value (PV), taking into account the time schedule of the project (Mubarak 2015). The planned value or the budgeted cost of work scheduled (BCWS) is prepared depicting the estimated monthly cost of each phase of the project. The budget at complete (BAC) depicts the total budget of each task and the entire project. Management reserve (MR) forms the buffer that is required to manage uncertainties in the cost of project development (Patil, Desai and Gupta 2015). The contract budget base (CBB) is obtained by the sum of the BAC and MR.Guidelines in the third section outli ne methods to assess the actual cost of work performed (ACWP) in the project. Consistency is maintained between the planned and actual costs, and the guidelines advice the apt timing to allocate resources to tasks. The section also states the methods to avert booking lags. The guideline in the fourth section describes the methods to determine the variances in cost and schedule of the project and the associated impacts and corrective measures taken by the project (Patil, Desai and Gupta 2015). Estimates at Completion (EAC) are prepared to assess the change in costs. The fifth section incorporates the guidelines to include the changes in the requirements of the customer and the methods required for restructuring the project. Principle and process of risk management The effectiveness of the solution and the risk management decisions are also associated to risk management process. While, conducting a project to provide a set of solution to risks occurred in an organization principle and process of risk management are required to maintain by the project researcher. The principles are as follows: Principle of risk management The threshold approach of risk management is an evident and before making proper measurement, the risks are needed to be identified. Eventual control mechanism based on the estimated cost is needed to be adapted by the project development team (van den Ende and van Marrewijk 2014). A particular point should be considered where; the risk control must be stopped. The earning capacity and the asset could be mentioned by the definition. These assets could either be physical or human as well. Risk management has their own origin in place of manufacturing and in the process industries. Definition of Risks in project Risk is an integral aspect of project management and has a number of definitions in the industry, most of which states that risk is an uncertainty or unprecedented event that is capable of influencing a process significantly (Walker 2015). The uncertainty includes threats as well as opportunities. Risk can be broadlyclassified into two types: strategic and operational. Strategic risks include the risks associated with the design or strategy of the management process, whereas operational risks are associated with the execution of the techniques followed during the management of the project. Risks can also be classified as avoidable and unavoidable, depending on the factors involved in the risk (Pritchard and PMP 2014). An avoidable risk has the potential of being rectified but unavoidable risk cannot be rectified and require management. The possibility of risk may arise from factors such as natural disasters or factors encompassing economic upheaval, political crisis, faulty management and blunders in design (Sears et al. 2015). Risks affect the organization in a number of ways and it influences the assets, revenues performance, and many other factors of the company. Process of Risk management The process of managing risk is carried out by an organization in a series of steps that include the identification, analysis, evaluation of probable risks and defining the requirements and techniques of handling the risk. The risk management process is continually monitored, reviewed and the outcomes are regularly communicated to the stakeholders (Yi and Chan 2013). The risk management process can be broadly classified into the following steps: establishment of the context, identification of risk, analyzing the risk, evaluating the risk and responding to the risks. Process of Risk Management In order to provide a risk management plan for the proposed project for an organization, five simple and effective plans are needed to be served. The process of risk management and the required steps are as follows: Identification of risk: The project development team of a business organization, must uncover, recognize and describe the risks that might affect the expected project outcome (Heagne 2012). The identification process could be start by preparing a project risk register. In construction industry the different the identified different types of risks are environmental risk, business risk, economic risk, cultural risk, design risk, skill oriented risks, financial risks, procurement risks, and technical risks. Analysis of the risks: The consequences of each of the risks are needed to be analyzed properly. Based on the nature of risk and its potential affect the project goal and objectives are needed to be developed by the project development tem of an organization. Evaluation and ranking of the risk: While evaluating a project for an organization, different risks are identified by the management team and based on their risk magnitude the risk are rated by the risk management team (Hopkin 2014). In the project risk register the risks are added efficiently. Treat along with the risk: This is the risk response planning where; different strategies are identified to mitigate the risks that are continuously occurring in an organization (Fewings 2013). Other than that, the prevention planning and contingency planning are needed to be added to the risk management strategy. Monitor and review of the risks: In order to monitor, track and review required steps of risk management are needed to be adapted by the system. Many golden opportunities will be discovered after identifying and managing comprehensive list of project risks. Identification of Risks Identification of risk involves the process of speculating the events or occurrences that might lead to risks and estimating the consequences and effects of the risks. Risks related to a business organization can be categorized as financial, physical, legal and ethical (Chan 2014). Physical risks involve damages to properties due to accidents or natural disasters. Legal damages include legal concerns that bring the company into the act of government and legal authorities (Heagney 2012). Some of the basic techniques to identify the risks associated with a company include surveys, interviews, brainstorming, risk lists, historical data, documented knowledge and experience (Hopkin 2014). Advanced techniques used for the identification of risk include root cause analysis, assumption analysis, SWOT analysis, diagramming techniques and Delphi technique. Analysis of Risks Risk analysis encompasses the techniques to analyze the possibility of occurrence of identified risks and categorize them based on priority. Prioritizing risks enables the organization to design appropriate strategies to act on the risks (Kerzner 2013). The analysis is carried out from two different perspectives: qualitative and quantitative. Qualitative analysis technique employs heuristics to estimate the risk factors, whereas quantitative techniques use data and statistics to arrive at the conclusion (Kloppenborg 2014). Qualitative techniques involve assessment of risks based on experience and historical data. Risk categorization, expert judgment, impact matrix, probability matrix and risk urgency assessment are some of the qualitative analysis techniques. Evaluation of Risks Risk evaluation forms an integral aspect of the risk analysis phase. This process compares the identified risks using the analysis techniques and classifies them into two classes: acceptable and unacceptable (Fewings 2013). The acceptable risks denote the risks that are acceptable and are monitored. The risks falling into the unacceptable level are treated immediately. Impact matrices and scales are used to perform the evaluation. Treatment of Risks Risk treatment encompasses the steps of identifying the options of treating the identified and prioritized risks, considering the possibilities of the options and based on the analysis preparing the risk treatment plan. Depending on the requirements and visions of the company, a number of alternate risk management plans are possible (Dong and Ng 2015). The appropriate plan is chosen after analysis of all available options. The plan is based on the priority and significance of risks, taking into account the cost of the risk treatment plan. Insignificant or small risks that do not assert much influence on the working of the company fall into this category (Kloppenborg 2014). Use of standardized techniques to avoid the risks associated with the use of non-standardized techniques is an example of risk avoidance. Risk transference is associated with corporations or projects that involve multiple participants. The use of third party products or code in a software project and involvement of different stakeholders in a construction project are subject to risk transference. Mitigation of Risks Risk mitigation involves the process of controlling, managing or limiting the impact of risk by up taking appropriate measure. This risk management process includes the use of understanding the possibilities of risk and the methods to deal with the risk. Information pertaining to the risk is crucial in risk mitigation (Hopkin 2014). Mitigation process is applied to risks that effect the project adversely if not controlled and the cost associated with the risk is enormous. An example of a risk that requires mitigation is the risk posed by market competition in the development of a product (Chou and Yang 2012). Unprecedented opportunities are events that are unanticipated and offer the potential of being classified as risk. These risks, however, offer prospects of enhancing the growth of the business and therefore demands proper management and exploitation. The management of positive risks includes strategies that accept, enhance, share or exploit the risk and differ from techniques used for the management of negative risks (Mubarak 2015). Acceptance and exploitation of risk offers the prospect of seizing an opportunity that comes up during the project lifecycle (Heagney 2012). Buffering or hedging a risk is a strategic decision for risk management that a company or organization makes to absorb the effects of associated risks. Flexibility in the organizational structure eases the task of risk management and provides options in the decision-making process of the organization. The risk management process requires regular monitoring and reviewing to ensure that the risk management procedure is followed at all levels and all aspects of the organization. Managing risks in Project Risk management is crucial to the development and maintenance of projects. The importance of risk management processes and the variety of strategies followed by different organizations led to the standardization of the risk management process by different organizations (Rowlinson et al. 2014). Risk Management Practices and Guidelines (ISO 31000:2009), GRC Capability model (OCEG Red Book 2.0:2009. Code of Practice for Risk Management (BS 31100:2008), Enterprise Risk Management Integrated framework (COSO: 2004), A Risk Management Standard (FERMA: 2002) and Risk Management for the Insurance Industry (SOLVENCY II: 2012) are the widely accepted standards in the risk management domain (Zhu and Wu 2015). The Australia/New Zealand 4360:2004 standard (AS/NZS 4360:2004) forms the foundation of the ISO 31000:2009 standard. The standards differ in their objectives and target different aspects of project management in order to manage the risks associated with the project. ISO 31000:2009 , BS 31100:2008, COSO:2004, FERMA:2002 focus on the organizational objectives by addressing the key uncertainties associated with the organization and aspires to exceed the expectations posed by its objectives by improving the ability of the organization. OCEG Red Book 2.0:2009 and COSO: 2004 focus on compliance and control (Fewings 2013). These standards are based on historic information and aims to manage and mitigate risks by controlling the fulfillment of objectives and being compliant to the objectives. SOLVENCY II on the other hand is a regulation and organizations are bound to abide by the risk management framework designed by the regulatory body and follow the proposed practices defined by the organization. Strategies for risk management Risk management strategies are evolving constantly and research and development in the field leads to the modification of existing frameworks and standards. The perception of risk management process differs from organization to organization depending on the requirements and business processes followed by the organization (Dong and Ng 2015). The prospect of risk management is different even for the different units within an organization. Mitigation of risks is of primary importance to the internal audit, whereas control of the risk management is of central importance to the compliance functions. The combination of risk management process and EVM offer a reliable information base for managing projects (Zhu and Wu 2015). The two methods complement each other as EVM offers the parameters and processes to establish the baseline of the project and risk management offers the techniques to identify the potential risks associated with the project and the tasks related to it (Chiang, Tao and Wong 2015). Improved baselines aids in the calculation of risk budgets (Wang 2015) The management is able to incorporate the risk management plan into each of the tasks and the granularity of earned value management offers the detailed approach to handle the risks. Risks faced by Construction Industry in projects The construction sector of Hong Kong and China is going through a tough phase and a number of risks are associated with the sector. Government officials, executives of construction industry, and construction professionals of China have come together to address the issue of Hong Kongs construction industry. The industry is facing challenges in the recruiting and retaining construction staffs (Chiang, Tao and Wong 2015). A number of risk factors are identified related to the construction sector of Hong Kong. The evolution of china has resulted in changing government regulations. The replacement and restructuring of regulations and change in standards drastically influence the progress of any business sector (Gershon 2013). The Government Procurement Agreement (GPA) is expected to have a significant effect on the construction sector of China. Intellectual property theft and trademark infringement is prevalent in Chinese industries and this considerably affects the construction business. The growing number of industries in Hong Kong drastically increased the competition in the construction market (Dong and Ng 2015). Rapid cost-cutting and hiring cheap labor is common in the Chinese market. Demand and supply of the market rarely coincide. Predicting the market is tough and finding the right moment to play the market is tougher. The construction industry is composed of a number of components that vary from raw materials to technical equipments and involves a number of other industries, transportation industry being the foremost contributor. Fluctuation in economy of the country and the world and rise of material prices affect the construction industry directly (Hopkin 2014). Majority of Chinese labor industry is middle aged or old and offer less work potential that is affecting the cost benefit of the sector (Pritchard and PMP 2014). The construction industry of Hong Kong is entangled in a number of issues and facing anumber of challenges and risks. Advantages and Disadvantages of Risk Management Various advantages of risk management are described as below: The risk management in projects can also identify possible loss of assets. In this manner, the organization can have financial back up. The risk manager will be able to illustrate if the system will be able to operate in case there is occurrence of threats (Yi and Chan 2013). It provides opportunities in terms of new way of communication on the unravel issues. It helps to increase successful business strategies and operational efficiency of an business organization. The disadvantages of risk management are provided as below: Cost:The risk management process will increase the expense associated with the project. Training:The time spent for improvement and research should be designated for preparing to guarantee legitimate execution of hazard administration (Walker 2015). Motivation:Employees that are as of now usual to their everyday exercises need to change in accordance with new measures. Role of Risk Manager There are various roles of risk manager, some of which are discussed as below: Providing a methodology for identification and analysis on the impact of financial loss for organizations. Examination of the utilization for realistic as well asopportunities that are cost-effective. Preparingrisks management procedures and allocating of budgets to various departments as well as divisions in the organization (Wilson, Frolick and Ariyachandra 2013). Assisting in the evaluation of major contracts along with proposed facilities and new program activities that contribute to consequences as loss as well as insurance. Conclusion The strategies and mechanisms offered by Earned Value Analysis, renders the Earned Value Management System is a suitable candidate to deal with the management of the construction sector of Hong Kong. The EVMS provides the framework to manage the intricacies in the construction sector and offer the techniques that can be utilized to estimate and manage the costs accurately. The incorporation of risk management techniques in the stages of project management offers a healthy business management and growth. Project Management is evolving to suit the requirements of modern projects. Contemporary project management techniques offer mechanisms that suit the transcending nature of projects. 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