PMINJ Networking June 2018 


 


Assessing and managing project risks
by
Maryam Mirhadi, Ph.D., PMP, PSP
Amin Terouhid, Ph.D., PMP, PSP

 

Project risks are uncertain events or conditions that may impact a project, if they occur. It is important to note that this impact may be negative or positive. As such, project risk response strategies have to be used to deal with each of the project risks. Different risk response strategies may be used depending on whether the risk is negative or positive. Negative risks pose a threat; however, positive risks are to be treated as opportunities.

A Guide to the Project Management Body of Knowledge (PMBOK® Guide) –Sixth Edition., identifies the following as the five risk response strategies that can be used for managing negative project risks: avoidance, transference, mitigation, escalation, and acceptance strategies (PMI, 2017). The following table provides a short description and example for each of these risk response strategies:

Table 1. Risk-response strategies for managing negative risks

Risk response strategy Description Example
Avoid
Eliminate the project risk In anticipation of an uncertain risk of encountering underground utilities in certain areas of the site, the project team changes the foundation plan to ensure the foundations will not interfere with any underground utility.
Transfer Transfer the risk to a third party In anticipation of an uncertain change in local codes, the owner revises the project specifications and requires the contractor’s compliance with a more stringent standard of practice.
Mitigate Reduce the probability or impact of the risk To reduce the risk of injuries, the contractor installs additional temporary lighting, signs, and handrails to decrease the probability of injuries onsite.
Accept Accept the risk by taking no actions or, at most, setting aside contingency to offset the adverse effect of the risk Despite the possibility of deteriorated sub-grade beneath the base and binder courses in a pavement system; the owner does not include the replacement of sub-grade in the project scope of work and accepts its risk.
Escalate Escalate a risk to higher levels of authority because it is outside of the project scope, or if responding to the risk requires further authorizations
In anticipation of an uncertain lack of workforce for the project, the project team escalates this risk to the program manager and asks the program manager to assign more resources based on the resource histogram prepared for the project.
       

The PMBOK® Guide identifies the following as the five risk response strategies that can be used for managing positive project risks: exploiting, sharing, enhancing, escalation, and acceptance strategies (PMI, 2017). The following table provides a short description and example for each of these risk response strategies:

Table 2. Risk-response strategies for managing positive risks

Risk response strategy Description Example
Exploit Take actions to ensure the opportunity is realized The contractor has determined a new, more effective drilling technique reduces the duration of drilling operations by 20 percent; therefore, it takes necessary actions to change its means and methods and exploits this opportunity to save time and money.
Share Transfer ownership of an opportunity to a third party to share the potential benefits Due to the lack of some technical capability, a contractor is not able to bid for a project alone; therefore, it teams up with another contractor that is capable and they jointly bid for the project.
Accept Accept the risk by taking no actions or, at most, setting aside contingency to offset the adverse effect of the risk A project team may obtain some skilled workforce from another project at a lower rate; however, the team does not actively pursue this opportunity and instead, lets them decide whether they are interested in joining the team.
Enhance Increase the probability and/or impact of an opportunity A contractor knows that the project will be completed in two months. However, to be able to start a new project that is due to start next month, it accelerates to complete the project earlier and commence the second project in a timely manner.
Escalation Escalate a risk to higher levels of authority because it is outside of the project scope, or if responding to the risk requires further authorizations
In anticipation of a profitable change order that is being issued to the contractor, the project manager escalates the opportunity to the head quarter and ask for more in-house workforce be assigned to the project.

Some of the common mistakes concerning project risks and risk response strategies include the following:
  1. Risks are always negative: In fact, not all risks are negative. Although the word risk may have a negative connotation in conversations, risks are not always negative in project management. Risk is “any uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives” (PMI, 2017, p. 720). As such, risks may be negative (i.e., threats) or positive (i.e., opportunities).
  2. All risks need to be mitigated: In fact, not all risks need to be mitigated. First, it is important to note that mitigating is a risks response strategy only for treating negative risks. This risk response strategy is not applicable to positive risks or opportunities. In addition, although risk mitigation is one of the main risk response strategies for treating negative risks, mitigation is not the only risk response strategy that can be used for treating negative risks. As shown in Table 1– Risk-response strategies for managing negative risks– aside from mitigation, four other risk response strategies also exist that may be used in response to negative risks.
  3. Risks can be certain events or conditions: In fact, certain events or conditions for which no doubt or uncertainty exists should not be treated as risks. Definite, certain events are facts, not risks. For example, in case of "having inadequate time to complete the project", if it is known that the time needed to complete the project is inadequate, this is not a project risk, instead, it is a fact. If uncertainty is not associated with an event or condition, it cannot be considered a risk anymore. To differentiate project risks from facts and to properly name project risks, it is recommended that project management practitioners always use the cause-risk- effect format to define risks. This format can be used as follows: [uncertain event or condition] may occur due to [the cause] which may result in [the effect]. Here is an example: The contractor may incur damages due to unforeseen site conditions which may result in project delays or disputes.
  4. Other mistakes: The above-mentioned mistakes were some of the key mistakes made in defining risks or risk response strategies. However, other mistakes may also be made. Some examples include not accounting for contingency reserves or devising contingency plans as part of risk response plans, not assigning role and responsibilities in managing project risks, and not treating risk management as an ongoing process that needs to be performed throughout the project lifecycle.
In sum, many mistakes are made in defining project risks and identifying risk response strategies; however, the main ones include treating all project risks as negative events or conditions with an adverse effect on the project, treating mitigation as the only risk response strategy that can be imagined, and treating definite events or conditions as risks. A proper understanding of project risks and the strategies that can be used to manage project risks is necessary to ensure risks can successfully be managed. If project risks are left unmanaged, they have the potential to force the project to deviate from its plans or fail to reach its objectives.

Dr. Mirhadi and Dr. Terouhid are principal consultants at Adroit Consultants, LLC. Adroit is a consulting firm that provides project management, project planning and scheduling, construction management, construction claims and expert services as well as training to a wide range of clients. Find out more at: AdroitProjectConsultants.


 

Common Mistakes That PMs Need To Avoid That Even a Senior Project Manager Can Learn From – Taking Notes During A Meeting
by
Igor Zdorovyak


We all took notes during our school days. We graduated and took this habit to our work lives. Now it’s time to break this habit as we go up in our ranks.

As a Project Manager it’s your responsibility to make sure that you keep things on track and make sure everyone does what they are supposed to do. You lead meetings, create agenda items, prepare meeting minutes, update the project plan, keep an eye on milestones and dependencies, update issues and action items and risk logs.

As you go up the ranks engaging stakeholders in a personal manner becomes more important.
During one of the Board meetings one of the executives came over asking why I was on the computer when she was discussing her agenda items. I quickly realized from her point of view it looked like I was not paying attention, being disrespectful. I apologized and explained that I was actually taking notes of what she was saying. And stated that going forward I would be taking notes on paper so I wouldn't give the impression that I was playing Solitare. The next meeting the same executive gave me a notebook. Probably realizing that she might have overblown the whole situation. Because the notebook was full of Sudoku puzzles, we both laughed.

Ideally a scribe, a person taking meeting minutes, would be in a meeting. If that is not an option announce that you will be taking meeting minutes.

Do you have a common mistakes that a Project Manager Makes? If so, please contact Igor and it might appear in the next article.

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