Risk Management What is Proactive Management

Question: Locate, synthesise and critically evaluate recent/current information from a wide range of published literature in the area of Project Risk and Procurement Management. Apply knowledge of the theory and practice of Project Risk and Procurement Management to develop insights into and solve current problems. Critically evaluate the use of complex models of Project Risk and Procurement Management; systematically and creatively making sound judgements based on the systematic analysis and creative synthesis of ideas. Critically and effectively assess the value of theories, concepts and models to the practice of Project Risk and Procurement Management. Answer: Introduction Risk management refers to the technique of establishing control over the potential problem which can occur or may not occur depending upon the investment decision and market feasibility. To have better understanding on the immensely calculative topic of risk management, it is necessary to understand the terminology of risk, factors associated with risk, factors affecting risk situations and sources of risk. Unless, the base problem is known which carries in risk factor, it is tough to manage investment decisions and control risk. (Hamilton, Byatt, Hodgkinson and Terrill, 2012).While the strategic decisions related to projects, investments, are taken, high importance is given to factors of risk and their impacts in the short run or long run. Risk is the probability that the real outcome from an investment will contrast from the expected outcome. Further, when investor are alarmed on their investments and their unsure returns, there is greater risk associated with increasing expectatio n of possible outcomes. It should not be assumed that risk can be controlled because it can be minimized and the impact can be lower done but controlling is all about letting the event not happen at all. In so practical financial markets, where bull and bear are always in form of some action, there is no certainty over the outcome of the investments and this makes everyone in financial market on why the management of risk is proving to be gigantic task for the profession of project management. Risk management is the process of systematically and logically ascertaining, scrutinizing, treating and monitoring the risk which is associated with any project. It is obvious for managers to have long sightedness over the life of the project and pay keen attention to the expected outcome vs. actuals in progress. For managers, risk management is the important step in achieving success in their decision making goals and making the best use of resources which are available to the organization. W hen any project is started, its viability of success is tested over different financial scenarios to ensure no stone is left unturned for the accomplishment of the project. (Mar, 2016) Corporate managers understand it well that risk is not a certain thing because it might happen or it might not happen and there is no scope to consider the latter opinion and continue with the project as per steps concluded. Risk is associated with future happenings and for guaranteed, with the change in life of the project, there will be change in opinions and degree of impact of the risk factors. The uncertainty over happening or non-happening of the impact of risk, is not always in full proportion to 100% because it might happen that project have not failed but there are serious constraints. Such constraints will not allow the project to be completed as originally expected. (Duggan, 2013) Thus, it becomes mandatory to take care of the obstacles and then only actual results could be expected. Managing risk effectively is again a daunting task and demands the strong analysis of the market situations where project would be operational. Risk factors are not always associated with the market situations but also involves the risk of business continuity, risk of scarcity of resources or may be risk associated with the interest rates. In coverage of risk management, the best strategies are proactive one because projects managers can easily analyze the potential risk involved with the project and risk factors must be identified in advance of the project startup and thereafter, prioritized by significance. Another technique of reactive response deals with the opinion that if risk cannot be avoided so it can be minimized by the best possible use of risk management techniques which will be discussed in the further course of assignment. It will also deepen our knowledge on understanding the type and identification of risks, historical risk factors and practices to be followed which act as measure of the risk. End outcome must be the attainment of project goal in alignment with business goals. (Mack, 2013) Sources of Risk Risk originates from various source and among them following are crucially important for better treatment of risk factors and restore the life of the project: (Borysowich, 2008) Business risk: As an investor who have invested in corporate instruments such as shares and debentures, expectation is that business should grow in terms of performance and provide better ingathering to investors. But situation is not always as per expectation and there is always a risk of pitiable performance by business and the direct impact will be on the share value of the business which will fall giving disappointments to the investors. There could be number of reasons for poor show by the business such as cut-throat competition, failure to upgrade to new technologies, change in business laws, change is policies of the government, supply of raw material affected by any reason and so on. Such changes have huge impact on business activities and sometimes, even strings of the better planning break leaving behind the losses and uncertainty of recovery situations. No analysis of such factors could be remedial to cover the business risk but management cannot escape from the flaw of po or planning and strategies that were not implemented timely. In management of projects, poor performance of the business create a gap of timely accommodation of financial resources. Finance is the lifeline of the projects and when business do not perform well, there are strong chances that business firm will not be able to impair. (Blackman, 2014) Interest rate risk: Investment on projects have returns which can be fixed or variable interest. In market conditions, where interest rate fluctuations affect the interest of the both the investor scenario of fixed interest or variable interest. When interest rates change and move higher, investors getting fixed rate of interest are affected because they are getting lower interest in comparison to the prevailing market rates and fixed rate investors get benefitted when market rates are falling. On contrary, investors getting variable returns from projects enjoy the high yield when interest rates go higher and if interest rates fall, they are adversely affected. (Kumar, 2014) Market risk: It is believed that earnings of the company and interest rates usually do not fluctuate much and tends to remain intact. Projects with bulky investments are affected with the change in price of the securities. The sentiment of the investors are important factor in fluctuations of the securities because they investors keep their observations on the market and bull/bear horizons keep them tentative over their decisions to hold, buy or sell.(Rodeck ,2012) Project risk: Market experts believe that those projects which are risk free or involve close to zero risk, actually do not return anything in terms of revenue from investment. There may be factor involving such as scope of the project is not defined properly so it becomes actually difficult to go correctly with estimates. Project managers must be very competent to analyze all the viability factors of a project so that upcoming deviations could be controlled on right time. (Naybour, 2015) Effective management of risk Management of risk is the part of business stratagems to deal with opportunities to be tapped positively and threats to be handled before they become insurmountable. Business activities are not carried in vacuum so whatever is done have some or the other involvement weighted potential risk. Business grow rapidly only when the risk taken are calculated and well analyzed. From the risk taking ability of the organizations, we analyze numerous things which are actually useful in decision making of investments. (Schurr, 2008). Taking too much risk and taking too low risk, both are termed to be adverse decisions. If any business firm is investing in those projects involving too much risk, it means business may fall at some point of time. On opposite, if business is investing in those projects which have very low or no risk, then it is clear that conservatism is at peak and growth potentials are locked. (Purdy, 2014) All projects do not always have similar kind of risk involved do dealing with them should be unique. Process followed to manage project risk: 1-Identify potential risks: Project managers are responsible to spend time on identifying those risk which may arise in future and growth of project may get hampered. Learning from the past experiences is important and experiences of the past can be utilized to make smart decisions. When risk are identified in priority, they are also dealt in advanced with the best possible solution. Since business do number of projects, it is easy to relate to number of projects with history of risk impact. Team work is important when management is trying to deal with risk factors because few in the team have vast experience of working on numerous projects and their input will serve as right key that will open right doors. Input from all the team-mates will be a mix of useful ideas which can be screened as per need of the project and thereafter, best could be implemented to detect the risks of future. Once the risk factors are identified, next step is to analyze their degree of impact. (Rawi, 2014) 2-Assessment and analysis of identified risks: Once the potential risks are on the decision cycle of the business, next step is analyze the degree of impact that will be coming because of certain risk factors and if such risk can be mitigated with the period change over the life of the project. It is not at all necessary that risk factors identified may actually prove harmful for the project because these risk might have lower impact than thought. (Bonnie, 2014) Assessment is done to see if the risk factors involved carry long term damage or short term damage only. Experts suggest that management should defer or decline those projects which have legality issues associated with them. Pros and cons are evaluated in respect to risk factors and then decision is made on whether the project is worth taking the risk. A tough is also given on the point that whether rewards will be higher or cost will crunch the game. (Chandana, 2013) Assessment of each risk factors will come with the output of quality and quantity.Tools that can be used by management for: Qualitative Risk Analysis: (Belinda, 2011) Risk probability and impact assessment Risk data quality assessment Risk categorization Risk urgency assessment Expert opinions Quantitative Risk Analysis: (Dash, 2015) Sensitivity analysis Monetary value analysis Decision tree analysis Monte Carlo analysis Apart from this, while project manager is finalizing plans to mitigate risk, reference to beginning of the project should not be missed at all. In a nutshell, it is necessary to have a diversified team for project so that inputs, thought process and actionable items on them do not result in redundancy. After the deep assessment of the risk factors, outcomes could be: High risk or serious threat risks- Such risk are the one which no one is willing to deal but they are unavoidable risk factors and may ruin the entire project if due management is not followed. Low risk or opportunity based risks- Such risks are worth taking because of positive factor which will give project right growth momentum. Contingent response- Such strategies are formed with future course of action and this ensures that all members of the project team are aware of what steps are required at different stages of the project. (Usmani, 2012) 3-Monitoring the project: Projects are regular part of the business and regular observation is necessary to keep a check on the deviations caused because of various financial factors. Sincere monitoring of the projects will not make the projects successful but also loyalty of investors will grow and faith will be established on management decisions. There are many purposes that get fulfilled in monitoring the project such as: (Benson, 2016) -Informed decisions are taken and are based on actual scenario rather relying on the estimates only. -Accountability could be fixed for the resources being used in the project. -Relevance and effectiveness of going with the plans is useful in long term. -Impact of high risk factors are checked from time to time and this ensures that project team is on right track. -Efficient use of project resources without going on pitfalls. Not all risk factors need to be mitigated because during the assessment of risk factors, risk tolerance are also set. Risk tolerance refers to the maximum degree which can be accepted for a project and this can be concluded only by measuring the rewards and risk and the balance between both of them is established. Risk tolerance is different from one organization to another and depends upon the legal status of the organization. Important principles of risk management are as follows: 1-Attention to be paid on the process of risk management on continuous basis.-Risk management like business operations is a continuous process and need attention for the life of the project. 2-Forward looking view- Business management should always have their contingent plans ready to tackle risk that may arise any time in future. 3-Reporting-There should be transparency in decision making and visibility of the project to all members of the project and also to the investors for inner peace of mind. Also information used in making decisions, should be verified and from the trusted source. 4-Support structure-The project team should be diversified and equipped with teammates who are intelligent, dynamic and diligent in handling on time complex queries related to the project. 5-Integrate risk management In simple terms, risk management can be associated with certain technology which may warn the project team if deviations persists. 6- Emphasis on open communication- Communication is always strong key to address various issues. Honest input from the project team can be expected when manager have open door policy to listen and respect the opinions presented. (Tomtsongas, 2011) Risk Management Plan Risk management honestly becomes more nerve-wracking when project also involve international partners because at that point of time, project managers and team not deal internal pressures but also international interaction bring changes. Projects with international involvement need the protocol of contingency to be prepared in advance and thus, level of risk is manageable even in case of high uncertainty. (Dcosta, 2015) Project risk management strategy for complex projects involving international partner organization: 1-Identification of project risk: It is the initial step in the process to tackle risk factors. Risk factors must be evaluated on their chances of occurrence such as almost certain, likely, moderate, Unlikely or rare and according plans are made. Once the occurrence chances are on the analysis, further impact of the risk need to be analyzed. Projects are the lifelines of the business and managing projects without doing proper SWOT analysis is putting the money to waste because investors in the project will not be in situation of earning good yield. It also degrade business manage strategies. 2-Risk analysis and actionable item- After the potential risk factors are analyzed and there is clear picture on what is the action on the risk factors, detail analysis is required on important factor of how much risk will impact whether impact will be extreme, very high, moderate, low or negligible. There may be numerous risk factors and each of them will different treatment depending on their impact factors. Acceptable risk and acceptable impact of risk will differ from business to business and also on their financial structure so business have international partner organizations should quantify on priority the degree of risk factors and how much should be in tolerance without affecting the original goals of the business project. (Scheid, 2013) 3-Foreign exchange fluctuations- When an international partner organization is involved in the project, foreign exchange fluctuations have impact on the valuation of the project and should be taken care through initial set up of the project. 4-Risk categorization Treating the risk with best eligible solution is the key in management of projects. In general, project managers are not anxious by low risk and very low risk because impact by such risk factors is negligible. However, risk factors from moderate to extreme need strategic planning to handle them and therefore risk profiles must be developed in order to monitor risk areas and countermeasures adopted for the same. Effectiveness of the plans implemented must be reviewed on periodic basis and results can be shared for future assessment. Reports analyzed must be through reliable system and feedback reports may turn useful in decision making regarding which risk to ignore and which one to pay attention. (Lang, 2009). 5-Risk Audits After the risk factors and their solutions are in place, there is need of robust audit plan to ensure success of the risk control solutions. Risk audit measures the effectiveness of the plans implemented to manage risk. Audits are the part of project review process because project managers know the importance of cost-control and budgeting in finalizing the project. (Livingstone, 2012). 6-Risk reassessment-It is never onetime thing that risk factors are analyzed and plans are implemented because continuous monitor of the process through life of the project is must to make it successful. Risk reassessment is mandatory to ensure the progress of the project is on right track and earlier detected issued are in control or are not at all there in the process. It can be said that risk reassessment is proactive process and helps in avoiding pitfalls. (Williams, 2011). Conclusion With deep analysis over risk, risk factors, sources and impacts, it can be concluded that success of the project is vital and can be recognized only when risk factors are minimized and returns are maximized. Risk supervision can captivate a substantial amount of the project design efforts and help to form cover against the market fluctuations and business uncertainty. There is strong need of proactive planning for mitigating the risk factors and current planning information of risk control can be documented for future risk analysis. We also felt that process of risk management process help management focus on priorities and in taking decisions dealing with very limited set of resources. Risk management is a process and must be inculcated in the project lifecycle. At the beginning of the project lifecycle, there should additional concentration on the opportunity factors of the project planning and same attention should be risk factors associated with the project. 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