Management of Risk in an Organisation

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18th Sep 2017 Management Reference this

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As the central point of contact, and as the individual with both responsibility and accountability for the successful delivery of a project, it is the job of the project manager to put into place the necessary safeguards for the management of risk; safeguards which will help to uphold the anticipated value of the project. Before all of this, however, a project manager must grasp the notion that projects exist only to promote and benefit an organisation and that, by this logic, the value of a project is defined by the way in which the project accomplishes the business objectives. The value of projects can also be highlighted by the way in which they themselves extract value from opportunity by the carefully managed application of resources.[1]

Academics argue that current performance is the best predictor of future performance and that using the trends in data it is possible to forecast risks such as budget variance or scheduling issues at an early stage in any project. Earned Value is one of the most comprehensive trend analysis techniques and is one way in which project managers can monitor a project. Basically, EV requires the manager to monitor the project plan, the actual work completed and the work completed value to check whether the project is on track. The EV trend analysis helps to indicate how much of budget/time should have been spent at any given stage and allows a comparison with actual work done to date. EV is different to the usual budget v actual cost incurred model because it requires the cost of work in progress to be quantified. This allows for a comparison of actual v expected in terms of work completion.[2]

Where an organisation has failed to prepare to receive and apply the project deliverables the project manager must take control and formally verify all the information needed to fully understand the project and its expected deliverables. This requires a specific type of input and the project manager must determine the key players within the organisation. It is vital to the success of the project that the project sponsor is known to the project manager, and that the project sponsor takes on the role of ‘champion’ for the project. The project manager must also identify the stakeholders in order that each stakeholder’s precise expectations can be identified and managed. It is advisable for the project manager to establish a project repository: a place where all important documentation can be gathered together – this can be done manually, or can be an online document management system. In any EV system, there is a need for a benefits manager, too – and this is usually the PS. The benefits manager ensures, through the process of KPI measurement and investment recovery to measure the attainment of the project. A project which attains its projected value is a project which delivers operationally against the business case.[3]

In order to ensure that the project sponsor and manager understand the purpose of the project and its linkage to strategy, other projects and operations within the organisation, a project charter, or S.O.W., should be created. The charter formally recognises the existence of the project within the organisation and identifies the sponsor, manager and stakeholders and their respective responsibilities. The project objectives are clearly laid down, as is the scope of the project. In order to ensure the success of any project, the project manager must ensure that the objectives are SMART, and that the objectives are accompanied by a list of specific deliverables as well as any explicit exclusions.[4] The charter must provide a completion date as well as the completion project budget. The project sponsor must sign the charter as this indicates that s/he will provide the necessary funds and support to complete the project.[5]

It is then vital for the project manager to identify the core team who will work on the project and to hold a kick-off meeting, at which the project sponsor should be in attendance: this will help demonstrate their support for the project as well as provide them with an opportunity to contextualise the project with regards the mission and strategies of the organisation. It is important for the organisation that the project manager identifies other team commitments that may exist within the core team, and that commitment is obtained from the resource providers.[6] The first stage in managing risk in any project is to ensure that, once the project manager has been appointed, regardless of whether the organisation has prepared itself to receive and apply deliverables, a WBS is undertaken. The WBS allows the project leader to work with the core team to identity the key stages of the project and once identified to task board these stages into a logical sequence. Generally the key stage identification is undertaken at around level 2, in terms of detail, however, with an EV system the project manager must assign a budget to each work package. It is then essential to chart the dependencies that can be identified and at this stage this is generally done using a logic diagram.[7] The WBS, then, is simply a convenient way to present this work in a graphical manner but it is important to note that the WBS itself does not show dependencies other than at key stages and that it is not time based. It is also a dynamic tool which can be updated depending upon need. It may even be useful to add tasks for the project manager into the WBS since if the project managers’ time is being charged against the project this enables the manager to track their activities against the plan. Under the EV system, the WBS allows the project manager to monitor the earning of each work package against planned value and accord variance to plan, where necessary, in the case of creep.[8]

Resources must then be assigned to the project and it is important for the project manager to consider who and what might be needed in order to make the project a success and to meet the value anticipated by the sponsor; the actual availability of staff; the manner in which any deficit in resources may be covered if they are not readily available when required; and whether any unresolved constraints with resources may cause creep.[9] When all of this has been identified and resources assigned the project manager must draw up a project task worksheet and people this. If it is thought to be too early in the project to produce a detailed allocation of tasks, it is equally feasible to allocate responsibilities for key stages and to identify a key stage owner who takes ownership over all the responsibilities of that stage. The benefit of the EV system is that the project manager can report to the PS with more confidence and can generally spot creep early on.[10]

It is then the role of the project manager to create a realistic project plan or schedule and the manager must bear the following considerations in mind: the WBS to the task level; the specification of people to tasks; the dependencies between and amongst tasks, successor activities and potential slippage and the completion date for each task (in consultation with individuals).[11]

The problem with much of the above is that is requires a great deal of estimation in terms of the duration of each activity and this can make the TPT projection difficult. It is important to build in contingencies to quantify the extent of uncertainty in the estimation process. The major portion of all project costs is frequently the time expended so it is important to schedule full team members at 3.5-4.0 productive working days per week; to include management time, where appropriate, as an additional 10%; avoid splitting tasks between individuals when planning; allow time for cross-functional data transfer and response and include contingencies at all levels of planning. It is possible to take an alternative method when planning estimations, particularly if the project is to take place over more than a couple of months. Rather than prepare estimates on the basis of individuals and seeking advanced agreement of commitments; the plan can be developed on the basis of some resources working full time on the project. This is usually done on the basis of what is known as single person dependencies (SPD) so that each piece of work is given a duration based on how long it will take if one person carries out the work, assigned full-time to the job and with no other commitments. This helps to create a common baseline. So for example, a part of a project with an SPD estimate of 8 days can be completed with: one person full-time; two people at 50% capacity; four people at 35% capacity. In practice, however, the more people who get involved the less effective the capacity becomes, so 2 people will need 55% capacity and 4 people around 35% capacity and so on.[12]

In order to deliver the value of any project, it is necessary to go much further than the above, in the planning stages. Thus far we have discussed simply the basics of the planning process, but to try and fully manage risk, a project manager must implement advanced planning techniques. There are two popular methods of indicating and tracking task completions: the Gantt chart and the PERT chart.

The PERT method allows for the planning of critical paths and is based on representing project activities by nodes which contain essential information calculated to show the flow of data through its various paths in the logic diagram. The PERT method allows for an indication of the earliest start time and the latest start time, and conversely for such finish times. The advantage of this method is that it shows predecessor and successor activities and allows for the imposing of constraints with the start-to-start or finish-to-finish relationships between activities. Forced delay can be imposed using a lag between the start and finish of predecessor activity and the start or finish of one or more successor activities. The forced start or lead is used to start a successor activity before the predecessor activity is completed.[13]

The Gantt chart allows the project manager to take all of the information derived from the above steps and display it so that the core team can understand it! The chart allows the project manager to show a listing of key stages of the project, their duration and the key stage owner. The Gantt chart also allows the project manager to build in float time, the limit of which is the limit of the work if the schedule is not to be threatened and possibly extend the project. Any critical activities will have zero float. Dependency links can also be shown on the Gantt chart as should milestones, project meetings and project reviews. The total float which the project manager can calculate from the analysis of the PERT diagram etc. provides the Gantt chart a range of capabilities as a decision-processing tool. It allows the project manager to decide when a piece of work should start or whether it can be broken up into smaller sections. As the project manager knows the float time available they are able to take a decision as to the feasibility of delaying the start slightly or delaying as late as possible. The real value of this is that it allows the project manager to establish ‘what if’ scenarios. High risk areas can be identified easily and can be examined for the impact of any serious slippage. This allows the project manager to make the necessary contingency plans. The logic of such processes allow the project manager to enter into neutral dialogue when organisational, market or political pressure for a ‘pushback’ receives a negative response from the project sponsor.

At this planning stage it is also necessary to estimate the cost of each activity and this usually includes people’s time, overheads and materials used. This provides the project manager with a total project cost which becomes the project operating budget (plus an allowance for contingencies). To be effective, the budget has to be time-phrased for each level of the project plan with accurate estimates of costs. In practice, the project manager will achieve this through the WBS. To manage risk, it is vital that any operating budget contains a contingency to cover unknowns: this is nominally a 10% variance. Once the budget has been established it is the job of the project manager to undertake const control which requires the manager to pay constant attention to the cost consciousness of all those involved in the project; company standards and the change control system. Cost control usually focuses on the value of the work completed (ACWP) at any time and compares it to the actual cost of the work in terms of the originally predicted costs in the operating budget (BCWS/BCWP).[14]

It is vital that the project manager accepts that not everything will go to plan so it is prudent to ensure that due consideration is given to an assessment of all possible risks to the project and the necessary contingencies that may be required. Risk can be defined as a function of three variables: an event that could disturb the project, the probability that such an event will happen and the impact of such an event happening. When a risk becomes a reality it is known as an issue. Once the risks have been assessed the project manager must constantly monitor risk to ensure that when it arises it is controlled. Controlling risks means that the successful project manager should be able to allocate responsibility for action; monitor and report actions and monitor valid risks for change. This is continuous phase throughout the PLC, and because it involves a significant amount of analysis should be documented through a risk status log. This should be reviewed at intervals (generally monthly) and risks must be reviewed and updated. Using the Gantt chart and the WBS ensures that if things do start to go wrong it is possible to undertake an impact analysis of the consequences of issues arising, and provides the project manager with the necessary information to take informed decisions regarding the action needed to mitigate slippage. [15]

The project manager should also ensure that they undertake a certain amount of communication planning. Poor communication can hinder the progress of projects and can result in unnecessary risks. The project manager must work out the number of communication channels, especially in large projects, for example with 7 core members in a team there are 21 channels. The project plan should, therefore, detail who needs information; why they need it; what information they need; when they need it; the way it should presented; and when the core team should meet to discuss project status etc. Routine status reports can take the form of simple memo.[16]

Another very important part of managing risk is having an effective change control process. Scope creep can drive a project schedule and budget over an approved baseline and so it is important for project managers to have the appropriate mindset when dealing with the possibility of change. The most basic change control process ought to include: the submission of change requests to the project manager via a change request form; the logging of change request; an assessment by the core team of the impact of the change – when this has been done the impact of the change is then discussed with the individual who requested the change, as often, when the impact is known the request is withdrawn. If the change request is not withdrawn, the proposed change is discussed with the PS and the customer, and is either approved or disapproved and the requester is notified, as are stakeholders. The change is then incorporated into the project plan and the deliverables.[17]

This then is the basic methodology which allows project managers to deliver value through all stages of a project life cycle, and to carry out the project in accordance with both the objectives and strategies laid down by the organisation[18]. The success of the project manager is directly measured through the perceived results in each dimension of the project, and in order to achieve this attainment, the project manager needs to achieve these results with and through others.[19]

Bibliography

Augustine, N. Managing Projects and Programs. Boston. Harvard. 1989

Cleland. D, King, W. Systems Analysis and Project Management. New York. McGraw-Hill. 1983

Cleland, D., Ireland L. Project Management: Strategic Design and Implementation. New York. McGraw-Hill. 2002.

Collins, J. Good to Great. New York. Harper Collins. 2001

Cook, C.R, Just Enough Project Management. McGraw Hill. New York. 2005

Frame, Davidson. Managing Projects in Organizations. San Fransisco. Jossey-Bass. 2002

Goodpasture, J.C., Managing Projects for Value. Vienna. VA. 2002

Harvard Business Review. Project Management: A Harvard Business Review Paperback. Boston. HBSP. 1991

Haughey, Duncan. What is Earned Value? Project Smart. 2007

Katzenbach, J., Smith, Douglas. The Discipline of Teams. New York. Wiley & Sons. 200

Kerzner, H. Project Management: A Systems Approach to planning, scheduling and controlling. New York. Wiley & Sons. 2001

Leech, D. Turner B.T. Project Management for Profit. Chicester. Ellis Horwood. 1990

Lewis, J. Project Leadership. New York. Mc-Graw Hill. 2003

Lewis, J. Project Planning, Scheduling and Control. New York. McGraw-Hill. 2001

Project Management Institute Standards Committee. A Guide to the Project Management Body of Knowledge/ 2001, p205

Smith, Steve (ed.). Make Things Happen: Readymade Tools for Project Management. London. Kogan Page Limited. 1997

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Footnotes

[1] Goodpasture, J.C., Managing Projects for Value. Vienna. VA. 2002

[2] Haughey, Duncan. What is Earned Value. Project Smart. 2007

[3] Goodpasture, J.C., Managing Projects for Value. Vienna. VA. 2002

[4] Cook, C.R, Just Enough Project Management. McGraw Hill. New York. 2005

[5] Project Management Institute Standards Committee. A Guide to the Project Management Body of Knowledge/ 2001, p205

[6] Augustine, N. Managing Projects and Programs. Boston. Harvard. 1989

[7] Cleland, D., Ireland L. Project Management: Strategic Design and Implementation. New York. McGraw-Hill. 2002.

[8] Cleland. D, King, W. Systems Analysis and Project Management. New York. McGraw-Hill. 1983

[9] Harvard Business Review. Project Management: A Harvard Business Review Paperback. Boston. HBSP. 1991

[10] Frame, Davidson. Managing Projects in Organizations. San Fransisco. Jossey-Bass. 2002

[11] Smith, Steve (ed.). Make Things Happen: Readymade Tools for Project Management. London. Kogan Page Limited. 1997

[12] Katzenbach, J., Smith, Douglas. The Discipline of Teams. New York. Wiley & Sons. 2001

[13] Lewis, J. Project Planning, Scheduling and Control. New York. McGraw-Hill. 2001

[14] Lewis, J. Project Planning, Scheduling and Control. New York. McGraw-Hill. 2001

[15] Kerzner, H. Project Management: A Systems Approach to planning, scheduling and controlling. New York. Wiley & Sons. 2001

[16] Lewis, J. Project Leadership. New York. Mc-Graw Hill. 2003

[17] Lewis, J. Project Planning, Scheduling and Control. New York. McGraw-Hill. 2001

[18] Leech, D. Turner B.T. Project Management for Profit. Chicester. Ellis Horwood. 1990

[19] Collins, J. Good to Great. New York. Harper Collins. 2001

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