Risks management
In project management, risk refers to any event that can affect your project,
positively or negatively. Risk management involves identifying and addressing these
events beforehand or as they occur. Risks can include employee illness, bad weather,
unforeseen expenses, and transportation delays.
Risk and Opportunity management is the control of business risks and opportunities
in a manner to ensure that both long and short term objectives and priorities of the
Councils are achieved and that opportunities are fully maximized. In this context,
risk is defined as uncertainty of outcome, whether positive opportunity or negative
threat of actions and events. It is the combination of likelihood and impact, including
perceived importance.
Types of project risks
Project risks can affect the time and resources required to bring a project to
completion. Risks can be internal (within the control of the project team) or external
(outside of the project team's control. Note the following types of risks and
examples:
Financial risks such as rising costs, inaccurate budget forecasts, increases in labor
and materials, low sales, and challenges in securing funding.
Strategic risks result from errors in strategy, such as choosing a project management
methodology that doesn't work for the project, basing efforts on a company culture
that needs updating, experiencing high employee turnover, or investing in
technology that is difficult or expensive to use.
Performance risks result from team members' missed deadlines, delays, undefined
goals, and KPIs, using insufficient or outdated market research, and scope creep
(when initial goals expand or shift away from a project’s original intentions).
External risks occur outside of the control of the project team, such as changing laws
and regulations, market volatility, inclement weather, vendors' missed deadlines,
labor strikes, civil unrest, vandalism or damage, and supply chain issues.
How to manage project risk
1. Identify risks.
Identify project risks by creating a list or spreadsheet of potential challenges.
Consider past projects and consult stakeholders, team members, and experts for
insights. Common risks include implementing new technology, unclear project
objectives, and inadequate safety measures. This step lays the foundation for
effective risk management.
2. Analyze potential risk impact.
In risk analysis, assess the likelihood and impact of each risk on your project. Use a
risk register to document risks, prioritize them, and outline mitigation plans. Record
both qualitative and quantitative data to inform decision-making. This stage guides
proactive risk management efforts.
3. Assign priority to risks.
Assign risk priority based on probability and impact, categorizing risks as high,
medium, or low. This evaluation guides focus on risk mitigation efforts. It informs
the team where to concentrate their energy effectively. This stage ensures efficient
risk management allocation.
4. Mitigate risks.
Mitigate risks by developing a plan and recording it in the risk register. Risk
mitigation involves avoiding, accepting, reducing, or transferring risks. Use
judgment to decide the best approach for each risk. For example, avoid risks with
high likelihood, accept low-impact risks, reduce medium or high risks, and transfer
risks through insurance or outsourcing.
5. Monitor risks.
In the final stage, establish a system to monitor risks as your project progresses.
Assign team members to monitor specific risks and take action to address them
promptly. This ensures continuous awareness of risk status and readiness to handle
any issues that arise.
Project disputes
Project disputes are disagreements or conflicts that arise between stakeholders of a
project. They can occur at any stage of the project lifecycle, from planning to
execution to completion. Disputes can have a significant negative impact on the
project, leading to delays, cost overruns, and even project failure.
Causes of project disputes
There are many different factors that can contribute to project disputes. Some
of the most common causes include:
Communication problems: Poor communication between stakeholders can
lead to misunderstandings and disagreements.
Scope creep: Scope creep is the tendency for the project scope to change
over time, often without proper authorization. This can lead to disputes over
who is responsible for the additional work and how it will be paid for.
Unrealistic expectations: If the project scope, schedule, or budget is
unrealistic, it is more likely that disputes will arise.
Poor contract management: If the contract is not well-written or managed
effectively, it can create opportunities for disputes.
Personality clashes: Sometimes, disputes arise simply because of personality
clashes between stakeholders.
Impact of project disputes
Project disputes can have a significant negative impact on the project. Some
of the most common consequences include:
Delays: Disputes can lead to delays in the project schedule, as stakeholders
try to resolve their differences.
Cost overruns: Disputes can also lead to cost overruns, as stakeholders may
spend time and money on legal fees and other expenses.
Project failure: In some cases, disputes can lead to the complete failure of the
project.
Dispute resolution methods
Negotiation: Negotiation is a process in which the parties involved in the
dispute try to reach a mutually agreeable solution. This is often the most
effective way to resolve disputes, as it allows the parties to work together to
find a solution that meets their needs.
Mediation: Mediation is a process in which a neutral third party helps the
parties involved in the dispute to reach a resolution. The mediator does not
make any decisions, but they help the parties to communicate effectively and
to find common ground.
Arbitration: Arbitration is a process in which a neutral third party hears both
sides of the dispute and makes a binding decision. Arbitration is often used
when the parties are unable to reach a resolution through negotiation or
mediation.
Litigation: Litigation is a process in which the parties involved in the dispute
take their case to court. Litigation is the most formal and expensive dispute
resolution process, and it should only be used as a last resort.
Preventing project disputes
The best way to deal with project disputes is to prevent them from happening in the
first place. There are several things that can be done to prevent project disputes,
including:
Clear communication: All stakeholders should be kept informed of the
project's progress and any changes to the scope, schedule, or budget. This
can help to avoid misunderstandings and disagreements.
Well-defined scope: The project scope should be clearly defined and agreed
upon by all stakeholders. This will help to prevent scope creep and disputes
over who is responsible for specific tasks.
Insurance Risk Management
Insurance in risk management acts as a financial buffer, reducing the effects of
unexpected events by identifying, monitoring, and transferring risks through
policies. Therefore, new business owners should prioritize comprehending and
incorporating insurance into risk management plans to protect against unforeseen
obstacles.
1. Protection from unforeseen events
Business interruption insurance aids companies during periods when they can't
operate due to unexpected events like natural disasters. It covers lost profits and
ongoing expenses, ensuring financial stability. For new businesses, it can mean
survival by preventing resource depletion during interruptions. This insurance is
crucial for maintaining continuity and safeguarding a company's future.
2. Risk identification and management
Insurance aids in business risk management by identifying threats and their
likelihood. Obtaining insurance prompts businesses to analyze and prepare for risks,
fostering a proactive approach. This preparation mitigates risks and enhances overall
business resilience by planning for the unforeseen.
3. Fewer out-of-pocket expenses
Integrating insurance into risk management helps new businesses prevent early
financial losses. Insurance provides financial protection against unexpected
challenges like property damage or legal issues. It ensures business continuity by
replacing lost income during interruptions, maintaining cash flow. Additionally, it
shares financial risk with the insurer, easing the burden on new ventures for
sustained growth.
4. Liability management
General liability insurance is essential for new businesses, safeguarding them from
claims related to daily operations. It's particularly crucial for those interacting with
customers or clients on-site. By covering legal costs and settlements, it ensures
financial security and peace of mind against potentially harmful claims. This
insurance is vital for business survival, managing liabilities effectively.
5. Encouraging good practices
Insurance policies drive businesses to implement effective risk management
practices. They cover areas of concern, establishing safety measures and compliance
standards to minimize incidents. This proactive risk management reduces insurance
premiums and the risk of lawsuits, enhancing financial protection for businesses.
References
https://www.coursera.org/articles/how-to-manage-project-risk
https://www.resolver.com/blog/insurance-in-risk-management-new-businesses/
https://www.linkedin.com/pulse/project-disputes-joni-oraon#:~:text=Project
%20disputes%20are%20disagreements%20or,overruns%2C%20and%20even
%20project%20failure.
https://www.pwc.com.au/risk-controls/insurance-risk-mgt.html
https://www.techtarget.com/searchsecurity/definition/What-is-risk-
management-and-why-is-it-important
https://www.2020projectmanagement.com/risk-and-opportunity-management
