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Understanding and managing risks is a cornerstone of project risk management

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Effective project risk management is necessary for a successful project. The world is changing around us, and this presents new challenges such as robotics, artificial intelligence, climate change and more; in other words, risks. That is why understanding and managing risks is vital to project success and a knowledge cornerstone of project risk management, the focus of this blog.

Categories of risk

There are two categories of risks.

  • The known risks (scope, schedule, cost, and quality). The known risks are managed by applied effective project management methods explained in my previous blog.
  • The unknown risks (uncertainties and variations) that surround each project need a excellent applied project management process This is especially true for future high technology industries.

What is the risk management process?

Risks can have a positive or negative impact on the project; a positive impact is often called an ‘opportunity’. The goal on a project is to identify as many opportunities as possible to offset the cost and schedule consequence from risks. Human nature being what it is, it is easier to identify what can go wrong than identify what will go better than planned. The point is, it takes a lot more work to find the opportunities than the risks.

Unknown risks need to be identified using various techniques, such as brainstorming, work package level assessments or historical information for example. To think of these types of risks, you need to think outside the box. And they need to be analysed using qualitative and quantitative methods. The risk must be handled appropriately and finally, it should be controlled and monitored on a regular basis. Earned Value management (EVM) is an excellent tool to use in tracking mitigation plans performance and you can learn more about EVM in this blog.

Examples of thinking outside the box

One of our key vendors was developing a critical fan handling system for us. The vendor was approximately 90 per cent complete with design documentation and 50 per cent finished with hardware fabrication. We were informed by the vendor their facility caught fire and all of our documentation and hardware were destroyed. This resulted in a six-month schedule delay, significant cost overrun, and a very unhappy customer.

Assume the team is brainstorming and one member suggested a risk is the vendor’s facility will burn down and destroy our documentation and hardware. This is thinking outside of the box. Would you accept this as a legitimate risk? If so, what would you suggest as a mitigation plan? Check the facility for a working fire suppression sprinkler system? Develop another vendor to make a spare unit just in case it did happen? This is why risk management is a knowledge cornerstone. It forces you to think outside the box.

Not convinced? Here's another example. A chilled water system designed to cool a radar included pump selection to handle the estimated pressure drop in the system. The pressure drop for the unit was primarily due to the piping and flow components in the system that connected the chilled water unit to the heat source, and was calculated based on the physical routing of the piping to the drawings as well as the flow component sections. The assumption made for the calculations was the piping system would be installed per the drawings. If this was not the case, the pressure drop may be higher than requirements resulting in low system flow rate and unacceptable performance.

The chilled water unit was installed on a ship without incident. However, the piping run to the heater was not installed per the drawings due to unexpected interference resulting in a much longer piping routes with many more bends than assumed. This resulted in a greater pressure drop than calculated. Once the unit was up and running, a performance test showed the flow rate was considerably below the required performance. After a brief assessment, it became clear the actual pressure drop was significantly higher than calculated.

In this example no one thought outside the box. That is to say, no one thought about a higher than calculated pressure drop risk. Fortunately, the solution to the problem was solved by swapping out the medium sized impeller with the large one. With this modification, the chilled water system performed to specification.

To manage the unknown risks, it is essential to understand risk management. This is especially true for future new technologies due to the uncertainties and variations surrounding any new technology project. Why? The known risks of a project are simpler to understand. But to deal with the unknown risks, it will be required to use risk management techniques available, and thinking outside the box is essential to project success.

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Image: MaDedee/Shutterstock.com​

5 comments

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  1. Emile Fakhoury
    Emile Fakhoury 21 January 2020, 10:50 AM

    nice article! as many confuse risk with issue, a risk with 70% probability to occur becomes an issue to manage.

  2. John Ayers
    John Ayers 22 January 2020, 09:53 PM

    Emile. I agree with your comment. Thanks for taking the time to comment.

  3. Emanuele Bormida
    Emanuele Bormida 23 January 2020, 06:47 PM

    This makes for an interesting reading. I appreciate the need to think outside the box to cover potential scenarios. However, how do we draw a line between thinking outside the box and adding extremely unlikely risks just for the sake of? One example could be all of your project team resign at once. This might well happen, but the likelihood is so remote, that I would not include that on my risk register. Likewise, in the example of the facility catching fire, I would have not included that in the risk register initially, as I would have thought that, whilst possible, it was very unlikely?

  4. John Ayers
    John Ayers 24 January 2020, 04:52 PM

    You make a good point. When thinking outside the box you need to apply a little common sense. I doubt I would have thought of the facility fire as a risk. But it did happen and caused us a lot of pain. Another out of the box risks is your subcontractor union went on strike. I have seen this happen as well. That is why when sitting in a conference room with your team I think you need to encourage any risk they can think about even if it sounds ridiculous. Thanks for your comment.

  5. John Ayers
    John Ayers 09 April 2020, 09:12 PM

    Emile-I agree with your comment . Thank you.