Why Do Project Risk Management Well?


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A few reasons why effective project risk management is both important and beneficial include:

Background

The Down Side of Poorly Performing Project Risk Management


A few reasons why effective project risk management is both important and beneficial include:


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Background

Since the early to mid-1990s, substantial cuts have occurred in the budget for a number of government organization for the development and procurement of systems. For example, some government organizations who traditionally have had large budgets that often increased in times of need, have, in the last several years, experienced budget cuts causing the stretchout and even termination of some projects.

Other government organizations and commercial industry have also been substantially affected. During the 1990s there has been an overall industry trend towards consolidation and downsizing, which has sometimes resulted in fewer qualified people and smaller budgets to develop new projects. This trend is exasperated when coupled with increased shareholder expectations in the market place (e.g., the need for sustained, high return on investment). And commercial industry too has recognized that reducing development cost and time to market are key considerations for profitability, and even survival.

Given this situation, it is clear that performance dominated designs may no longer be accepted carte blanche at any cost and schedule for both government and industry. For example, the DoD and Services are implementing cost as an independent variable (CAIV)--an initiative to re-balance the trade space away from a performance dominant position towards one where cost, performance, schedule, and risk are evaluated (although the primary emphasis is on cost versus performance).

One result of such trends is an increase in project risk (cet. par.) and the need for enhanced risk management, both in terms of a more viable process and one that is more effectively implemented. For example, NASA management has recognized that their desire for "faster, better, cheaper" systems makes enhanced risk management a necessity, not just a "nice to have." On projects where there are strong cost and schedule constraints, yet high performance requirements, there is typically a high opportunity cost and little ability to correct mistakes (e.g., dealing with risks late in the development phase that should have been identified much earlier). While enhanced risk management is desirable for a wide variety of projects to better allocate scarce resources, it is particularly important for high performance projects where large, adverse impacts can occur.

When done properly, risk management can be a key process which can provide valuable project insight. But this requires that typically separate cost, performance (technical) and schedule risk management activities be effectively performed and integrated. It also requires that risk management be effectively integrated with other key top-level project processes (project management and systems engineering), and lower-level processes (e.g., cost analysis, design, and schedule analysis to name a few) to be effective. And a fundamental shift in the attitude of both project management from reactive problem solvers to proactive risk managers. Likewise, risk management should be considered by working level project personnel on a day-to-day basis as part of their job function. This does not suggest that everyone should become a risk manager, but that risk management should be considered and performed by all project personnel. Unless these and other considerations are properly executed, the value of risk management performed on a project will be substantially reduced.


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The Down Side of Poorly Performing Project Risk Management

When not performed or performed poorly, the opportunity cost associated with risk management can be huge--and in some cases can even be the difference between project termination and success.

Since risk management has now taken on the status of a "buzz word," consultants and products abound that offer unsubstantiated claims, and whose knowledge may be highly erroneous or 10 or more years behind the state of the art. For example, a risk management consultant recently developed a white paper on risk analysis. Remarkably, 14 technical errors were identified and documented in this three page paper! In other cases, risk management consultants and trainers are nothing more than "chart readers" (using other people's material but not understanding it)--who have never performed risk management on an actual project, or had long-term accountability and responsibility to "make it work." Are you willing to trust the future of your project to someone with erroneous or antiquated knowledge or no real experience?


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We have accurate, state of the art knowledge and experience to bring effective risk management to your project! Please contact us to discuss how we can assist you on your project.



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