Risk and project management

Managing risk is an integral part of good management, and fundamental to achieving good business and project outcomes and the effective procurement of goods and services. It is something many managers do already in one form or another, whether it be sensitivity analysis of a financial projection, scenario planning for a project appraisal, assessing the
contingency allowance in a cost estimate, negotiating contract conditions or developing contingency plans.

Although many managers do not use the term ‘risk’ when they undertake these activities, the concept of risk is central to what they are doing. Better management of risk and more

successful activities are the outcomes. Systematic identification, analysis and assessment of risk and dealing with the results contributes significantly to the success of projects. However, poorly managed project risks may have wide-ranging negative implications for the achievement of organizational objectives. Risk should be considered at the earliest stages of project planning, and risk management activities should be continued throughout a project. Risk management plans and activities should be an integral part of an organization’s management processes. It is important for the project sponsor and the prime contractor, and the main subcontractors where relevant, to use effective and consistent risk management processes. The processes should promote transparency and effective communication between the parties to facilitate effective and expeditious management of risks. There are three keys to managing project and procurement risk effectively:

• • identifying, analysing and assessing risks early and systematically, and developing plans for handling them;
• • allocating responsibility to the party best placed to manage risks, which may involve implementing new practices, procedures or systems or negotiating suitable contractual arrangements; and
• • ensuring that the costs incurred in reducing risks are commensurate with the importance of the project and the risks involved. The scope of risk management for projects includes risks associated with the overall business approach and concept, the design and delivery of the project, transition into service, and the detailed operations and processing activities of the delivered asset or capability.
• • Business risks include all those risks that might impact on the viability of the enterprise, including market, industry, technology, economic and financial factors, government and political influences.
• • Project risk includes all those risks that might impact on the cost, schedule or quality of the project.
• • Operations and processing risks include all those risks that might impact on the design, procurement, construction, commissioning, operations and maintenance activities, including major hazards and catastrophic events.