Project Risks – three factors that

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THREE FACTORS THAT WE SHOULD NOT UNDERESTIMATE WHEN WE MANAGE PROJECT RISKS

 

Ayse Nordal

Ayse Nordal, BSc, MSc- METU, Licentiate NHH

Background

Unfortunately, many projects do not achieve their goals. There are numerous factors, both internal and external, which may hinder the achievement. There is extensive research that pinpoints the sources of failure and the risks of closing projects prematurely. (1) Further, there is available research that focuses on the failure process by asking “What are the critical and recurring team behaviors that lead to failure phase by phase? What are the transition patterns between the failure phases”? (2)

Three factors should not be underestimated

The case studies which describe prematurely closed projects and project failures which result in additional costs, frustrated stakeholders, significant delays, and loss of reputation list and underline the importance of

  • Unclear and unrealistic goals
  • Weaknesses in estimation models
  • Unrealistic schedules
  • Inadequate planning and tests
  • Inappropriate technology
  • Lack of resources
  • Lack of project management
  • Poor management of uncertainties

Often, three important factors which affect the achievement of project objectives are not mentioned in such lists. These are:

  1. Understanding the importance of communication and consultation in project risk management
  2. Understanding the criticality of the risks
  3. Deciding and communicating the risk appetite of the project.
  4. Understanding the importance of communication and consultation in project risk management.

ISO  31000: 2018 defines the purpose of communication and consultation as “to assist relevant stakeholders in understanding risk, the basis on which decisions are made, and the reasons why particular actions are required”. Communication will ensure awareness and understanding of risk, whereas consultation will contribute with feedback and information to support decision-making. (3)

On several occasions, the owners and/or responsible stakeholders in projects claim that they were not aware of all project risks. The project did not put in place the necessary mechanisms which could ensure correct and complete information to all stakeholders.  Such information could facilitate risk oversight and decision-making by bringing the benefit of expertise gathered through the consultation process. Projects consult with expertise however their recommendations are not discussed, evaluated, or prioritized.

Many successful projects benefit from a RACI matrix to enable work assignments, information, communication, and risk management. The RACI matrix has the following categories (4):

Responsible: the person who performs a project activity

Accountable: the person who is ultimately accountable

Consulted: the person who will give feedback on an activity

Informed: the person that needs to know of a decision or an activity

Preparing a RACI matrix and a communication plan can ensure that all the relevant stakeholders receive information about the project risks and about recommendations from involved parties.

Understanding the criticality of the risks

When a project fails, those who are accountable claim that the project had a risk register, and the risks are documented and treated in accordance with said register.

The recent management standards have a clear focus on CCPs (Critical Control Points) (5) and Critical Limits which should be set to monitor risks involved in these points.

IEC 31010:2019 Risk Assessment Techniques describe several methods, for instance, FMECA and HACCP, which enable the project to focus on the criticality of risks. (6) By using available techniques, the project creates awareness of the causes of its risks, correlations between them, and of those risks which may be a showstopper for the project process.

Deciding and communicating the risk appetite

COSO Enterprise Risk Management Framework elaborates on risk appetite in principle 7. (7) It states that the organization defines risk appetite in the context of creating, preserving, and realizing value. This principle is valid for project organizations too.

The risk appetite is defined as the types and amount of risk an organization is able and willing to accept in pursuit of value.

Projects should define their risk appetite attached to the strategic, financial, and operating parameters managed by the project.  These parameters should be discussed, should be known, and understood by stakeholders and the limits set to them should be respected.

From time to time those who are involved in the project mean that several parameters are too technical and not easy to communicate to all stakeholders.

Understandable communication of causes, consequences, interdependence, and criticality of risks is important to ensure accountability in projects.

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