Managing True Risk in Projects and Programs
WELCOME to the first of a series of articles concerning engineering, the resource sector and business in Central Queeensland and around Australia.
To kick things off my sister's partner Andrew Williamson who is a qualified engineer and has worked on projects around the world has kindly taken the time to pen the below article.
Andrew is a current practicing Project Manager / Director and Business Consultant working in the areas of civil engineering, civil infrastructure management, development projects and business within Australia, the South Pacific and Asia. His experience comes from 15 years within State and Local Governments and several years in the private sector operating his own civil engineering and project management company.
Now living in Victoria, Andrew has had a long-term relationship with Central Queensland. He spent part of his childhood growing up in Blackwater and at 18-years of age he worked at the Curragh Mine as well as in Emerald for the Department of Transport and Main Roads and has lived in Rockhampton.
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GEA Communications Officer Kieran Moran.
Managing True Risk in Projects and Programs
Author: Andrew Williamson – A & M International Partners Pty Ltd
MANY organisations and governments across the world are actively engaged in delivering projects to meet a number of their strategic goals, but are we consistently managing the risk in these projects, programs and portfolios?
It is common practice within a number of industries irrespective of whether it is a private or public organisation to accommodate the financial implication of risk, simply as a statistical percentage of the total project or program cost. While this method may reduce or provide comfort for the known-knowns and known-unknowns of the project, it is no more than a guess. If we are to undertake projects and provide our project sponsors with true professional management, the industry of project management needs to move to managing risk as a true reflection of the cost of the risk of undertaking the activity, task, project or program.
There are several classes of risk in the project:
1. Known-knowns – we know it is risk and we know when it will impact the project;
2. Known-unknowns – we know it is risk, but little idea when and if it will impact the project;
3. Unknown-unknowns – we have not been able to consider it a risk and the timing cannot be foreseen.
These risks can be managed in a number of ways, one of those being accepting cost of the risk. While there are arguments to use one of the other methods of risk management to isolate the project from the potential of experiencing the event, all methods of the risk have a cost implication for doing so, some are not so obvious to the end user.
Risk Management Techniques:
• Eliminate – Remove the risk;
• Mitigation – Apply a solution or alternative to address or reduce to the risk;
• Transfer – Move the risk to another organisation or person;
• Acceptance – Accept and apply financial resources to deal with the risk.
Both mitigation and transfer techniques can be classed as methods of risk control, while acceptance of the risk is where these events need to be managed financially to ensure that outcomes of projects are not detrimental to the principal organisation or a third party contractor involved in delivering the project. It is always the goal of organisations and the project to eliminate or avoid risk, but as we can all appreciate, if we are to grow and deliver change, risk is something we are going to have to manage.
For organisations that undertake similar type projects from time to time, some of these projects are subjected to repeated risks and issues due to failure to not address the root cause of the issue that has risen from previous risks in projects. We need to keep in mind that risk is the theoretical identification of possible events. As issues are those events that are now impacting on the project or program from the theoretical event outlined previously as a risk.
It should be noted that if we fail to address these issues and the reoccurrence is felt in future programs and projects, they can become what should be described as a problem. The reason for these problems not being addressed are varying, but it could be a lack of vision, need to advance progress, or failure to have the authority to address the root cause. For projects where the authority is not held by the project manager to address the root cause, it is important that organisational frameworks are in place to allow the project manager to raise the problem to a level where the root cause can be addressed. Failure to address problems will increase cost in the future and limit the possible advancement due to loss of efficiencies from the principal organisation.
As we decide as professionals and grow in organisational maturity, the method for managing risk should be about aligning true cost of risk for the known-knowns and known-unknowns with the timeline of the project. This method will allow adequate funding to be available to support the management of the risk. If in the event that the risk does not impact the project and the activity for which the funding of the risk has passed, these funds can be relocated to other ventures or project enhancements previously not funded.
It is important to remember that the purpose of a project and supporting programs is to allow change, this change may be positive or negative. If we continue not to manage risk, we are doing the industries we work in an injustice and ourselves out of potential returns to companies involved in delivering change.