ABSTRACT
Risks and assumptions analysis play a pivotal role in success of a project. After the identification of all the possible risks, all risks need to be quantified though critically examining the degree of impact the risks would have one the outcome of the project and then prioritized. Economic analysis could be used as one of the tools for assessing and managing risks. The economic analysis of projects is carried out before actually investing in it and is conducted throughout the project analysis when necessary, that is, design and preparation phase, implementation phase and post evaluation phase of the project cycle. Another way of assessing and managing the project risks is the project stakeholder assessment. However, there are some risks and challenges inherent in the effective management of stakeholders as well. One of the most effective ways of preventing risk from the start of the project would be the use of Project management office or PMO. Thus, the overall measures that could be taken by a project manager for management of risk and making a successful project would comprise some points that are to be well considered throughout the project.
Introduction:
Risk is a probability that actual outcome of a project would be different from what is actually expected. Risks and assumptions analysis play a pivotal role in success of a project. Therefore, various risks such as external environmental factors like socio economic and culture factors can affect a project.
Types of Risks:
Analysis of any possible risks involves the following:
Risk identification
Risk quantification
Risk prioritization
The probable risks that may affect an undergoing project could be the following:
Risks inherent with the project: One of the internal risks that the project could be affected would be the time, cost and quality. There are possibilities of cost and time overrun, if the budget is not properly utilized in the implementation of the project activities.
Political risks: Change in government policies regarding the major subject of the project would affect the project. Furthermore, political instability would also impact the success of the project such that procurement of resources would be difficult or performing the activities of the project would be difficult.
Environment risk: The effects caused by environment factors and the effect caused on environment comprise the risks at the environmental level.
Technical risk: For this economic empowerment project, various technical assistance and requirements may be needed in conducting the planned project activities. Also, technologies available in the project area may not be able to meet the quality and performance standards to achieve the objective of the project.
Resource risk: The lack of resources is another risk that could be faced by the project manager.
Project Management risk: Project management risks that may cause hindrance in achieving the project success could be the ineffectiveness of the project team in the designing, planning and executing the project activities. These may occur when there is no proper communication, coordination, monitoring and evaluation in different phases of the project cycle.
One of the major risks that a project may face would be cultural risk. As many projects today need to be executed in the cross cultural setting, cultural differences amongst various areas/regions where the project is to be conduct can have negative impact on the outcome of the project (Viswanathan,2015). These cultural differences would lead to difficulty in various stages of the project cycle. Cultural differences in terms of language, religion, beliefs and opinion would severely impact the project goals.
After the identification of all the possible risks, all risks need to be quantified though critically examining the degree of impact the risks would have one the outcome of the project and then prioritized.
For this risk assessment matrix could be employed to determine the level of impact each risk would have and come out with proper risk management strategy. Economic analysis could be used as one of the tools for assessing and managing risks.
Economic Analysis for Risk Management:
Economic analysis is a systemic approach that takes into consideration the opportunity cost of resources that are to be used and measures it in monetary terms private and social cost and benefit of a project to the nation and its economy. Economic analysis helps to identify ways to better utilize resources that are scarce. Economic analysis assists the concerned agencies in determining the best possible ways to achieve project objectives and whether the project alternative is economically significant and rewarding. Economic analysis is important to make sure of a project’s economic viability and financial sustainability and is based on opportunity cost concept and no entirely based on market price.
And a project is said to be economically viable when it proves to be economically feasible, innovative and sustainable, therefore, making the project investment ready. Since every project is different from another, each will have its own cost and benefits and economic and financial prices. Because of this, economic analysis needs to be conducted to determine the viability of the project so that the project meets the objectives benefiting the country. Development and other projects are undertaken when the market fails to provide and produce socially optimal quantities of goods and services through government intervention to increase welfare to people. As development projects affect all the population of a country, economic analysis of such projects becomes necessary to determine the viability.
The purpose of economic analysis of projects is to determine whether a project gives an acceptable level of economic benefit to its economic costs. Furthermore, it is also important to ensure -
That the project provide a sufficient incentive to producers,
Sufficient funds are available to maintain project operations,
That the benefits of the project are equally distributed.
The economic analysis of projects is carried out before actually investing in it and is conducted throughout the project analysis when necessary, that is, design and preparation phase, implementation phase and post evaluation phase of the project cycle.
In the design and preparation phases, the economic rational of the project is established and also the objective of the project is set. Also, the macroeconomic and sector-based context within which the project is run is determined. Economic analysis is conducted in the preliminary stage of the project cycle to determine the least-cost or the most cost-effective alternative that could be used to achieve the objectives of the project. Furthermore, cost and benefits are identified and valued in this stage.
Economic analysis becomes necessary to confirm the sustainability of projects, involving economic, financial, social, environmental and institutional aspects. Similarly, benefits of undertaking the project are also assessed through scenarios such as ‘with-project’ and ‘without-project’. The beneficiaries of the project is also identified and in what proportion they are benefited is also measured. Policies, rules and regulations are important factors to consider before undertaking any project as projects have to comply with the set norms which it needs to follow and cannot violate (McAfee, Lewis, and Dale, 2016). Hence, in the design and implementation phase, the relationship between project and policies is established.
In the implementation phase, economic analysis helps determine whether the project is proceeding as planned or not. In the implementation phase the project cannot be changed or altered therefore, it is important to conduct proper economic analysis in the design phase itself. While in the evaluation phase, economic analysis is essential to check whether the project is done properly and the economic benefits of the project is achieved.
Thus, economic analysis is pivotal to any project as it helps identify the shortcomings and risks at each project stage and the benefit of needs to be shared equally by everyone.
Stakeholder Management for Risk Assessment:
Another way of assessing and managing the project risks is the project stakeholder assessment.
Project stakeholders should be looked at and identified from four different lenses, namely; demand side, supply side, donors and institutions/regulators. Engaging stakeholders in various stages of project is vital to gain knowledge, expertise and stakeholder’s experience in projects. Interactions with stakeholders help providing useful information to shape the design and implementation of an idea/concept.
For example, in a public health project for improving local health and well-being requires the involvement and engagement of both internal and external stakeholders.
Internal stakeholder’s involvement is essential in coordination, funding, resourcing and development of strategy. Example, Public health strategists, public health manager, director of public health, etc.
External stakeholder’s involvement is important in contributing their views and experiences in addressing the issues that are important to them as patients, service users, careers and members of local community. Example, Patients, local authority, media, customers, funders, etc.
A project can only be deemed success when all the important stakeholders are properly assessed and their problems, needs and interests are delivered at the end of the project. Thus, it is important for an organization undertaking a project to understand whether different stakeholders have a common purpose or not, looking not only at a very general level but also at more detailed levels as different stakeholders may want to have different purposes and priorities.
For example, at a general level, stakeholders could have the same purpose of improving health status in a local community by providing quality services but at micro level the picture may differ (one would like to improve community health by increasing number of health posts while another stakeholder may have a purpose of bringing in professional and experienced health workers). Hence, it is important to engage and have interaction with different stakeholders in the defining, designing, implementation and evaluation stages of a project.
Risks and Challenges of Stakeholder Management:
However, there are some risks and challenges inherent in the effective management of stakeholders as well. We could take a hydro project as reference to understanding the concerned challenges.
The major challenges to effective management of key stakeholders in a hydro project would be firstly identifying and mapping stakeholders. Even though stakeholders are mapped, some may get left unnoticed. This was the case before late 1970 when hydro projects didn’t consider the environmental and social impacts of large dam developments as a priority in the decision-making and implementation processes (Srk.com,2016). Some of the problems associated with effective stakeholder management would be:
Unclear purpose of the stakeholders: For example, there could be conflict of interest between the contractor and project team as contractor may not agree to use the set raw materials and equipment for construction of dams. Also, the people in the local area affected by hydro project (those who get displaced from their place of stay) may not come to proper compensation and demand higher benefits as compensation.
Differing capacity of stakeholders: For example, the main authority for electricity in the project area may stipulate different rates during dry and wet season as proposed by the project or since the authority is the only buyer of hydro projects in the project area, it can create problems in payment.
Another case of difficulty in management of stakeholder would be of environmental organizations, agencies and activists. There would be an adverse impact on the resident and migratory fish population of the river due to reduced flow of water and barrier effect of weir.
Similarly, getting into consensus with the local people can also be one of the hurdles in stakeholder management. The locals may put forward various demands and may cause obstacles in smooth operation of the project if their demands are not met.
The above two cases show that different stakeholders have varying capacities and thus means that there will be problems in management.
Insufficient skills and knowledge of the management: At times it could be seen that the project team lacks sufficient experience and knowledge in the project. Similarly, most of the promoters also lack experience in a given sector as they are engaged in their own businesses. Lack of time in hydro project would result in delayed decision making.
Thus, there are several challenges, both identified and un-identified, that a company undertaking a project has to tackle. Therefore, company handling a project should firstly identify all possible stakeholders and ways in which it can effectively manage and engage them so as to get the best output/ideas for the undertaken project.
PMO for Project Risk Assessment and Mitigation:
We can now access the solutions that could be applied by project managers for the mitigation of risks and an effective management of projects. One of the most effective ways would be the use of Project management office or PMO. As most of the industries arein the phase of transition and the growth of the industry has achieved maturity, many companies in these industries need toadapt the changing structure and PMO. Many companies havealso brought the establishment of Strategic Planning Office (SPO) to propose business changes. Under the SPO, initial PMO is established so that the company is able to fight the competition. Many of the companies have been focusing on the operational projects, which didn’t require standard practices. But projects are changing from operational to complex and large sized projects, which require planning and standardization.
The mission of the PMO is to realize benefits derived from consistent project practices ranging from project performance, efficiency and resource utilization to enterprise improvements. The purpose of the PMO is to provide standard approach, as there are no proper documentation and plan. PMO was introduced so that they can provide standardization in managing projects. The specific duties of the PMO have been categorized into project focused (consulting, mentoring and training) and enterprise oriented focus (portfolio management, PM standards, methods and tools and project performance). PMO can be more effective if the strategy aligns with corporate strategy rather than the departmental strategy. PMO will be help in the improvement and enhancement in project management and boost in capacity and long-term benefits. The PMO staff consists of PMO director and project managers. Project charter is introduced as idea form, which helped to prioritize projects. PMO has to establish, publish, and disseminate project practices, standards and tools then portfolio management and archive projects for knowledge sharing. The power base of the organization and knowledge sharing is generally under bottom-up principle.
Challenges to PMO Implementation:
Any company’s decision of implementing PMO has got different challenges and obstacles as the company had been operating in no formal project management environment. The company faces different cultural issues and challenges as the people are resistant to changes brought to methodology. For successful implementation of the PMO, it has to blend into the company’s culture. The company’s culture was unaccustomed to consistent, disciplined process and standards. PMO was viewed as the administrative overhead and it came in the way of the real work. Limitation in resources and knowledge barriers creates gap and obstacles, as there is no formal experience of project management practices. Senior management also plays role in the change process of project management, which seems to be lacking. Many attempts to implement standard software development methodology have failed and that is one of the most inherent risks for any project.
The correct allocation of the resources for PMO for project is another challenge. Also there is lack of experts in PMO. The PMO is generally lacking in the support form organization (from top to bottom). Lack of enough stakeholders support creates challenge for the implementation. The PMO services are limited to functional areas and IT areas and there is no current plan to enforce usage at the enterprise level in most of the Companies. There is lack of understanding at all levels and see no value of PMO in the projects by department managers. Managers are also worried about the authority of PMO. Success of the PMO can be achieved by the formal structure and centralized command and later its can be used for the success of business processes and to compete in the market. This will in turn help check and balance the project risks.
For most companies, there are no roadmaps or timeliness for its maturity so that PMO performance can be measured. Small teams present in the PMO and the resource availability are the constraints, which reduces the capabilities of working. The PMO will be establishing project planning, tracking, initiation, and closure. PMO would provide project manager project charter as idea form to capture project request. One key manager would be working and resources would be allocated by matrix structure for certain duration.
Effective risk management involves standards and implementation strategy. And the approach would help in managing more projects. The issue of accountability of risk assessment and management is also critical for effective risk mitigation implementation. For establishment of PMO, support from strategic planning office is essential. Planning office and seniors need to show commitment to more planned and project management approach. If any senior management gives weak support, this is the drawback and should be addressed. For proper implementation of risk mitigation measures such as PMO, company can hire individuals according to the requirement.
Conclusion:
Initiating process group, planning process group, executing process group, monitoring and control group and closing process group should be properly identified for effective assessment and mitigation of project risks. Thus, the overall measures that could be taken by a project manager for management of risk and making a successful project would comprise the following points:
For a growing organization, the project in hand should be according to the capacity of the company.
A company should focus on full time workers rather than part-time worker as the commitment is higher among full-time workers.
Quality should never be compromised for the sake of cost as a company might lose its regular customer.
References
BusinessDictionary.com. (2016).What is economic analysis? definition and meaning. [online] Available at: http://www.businessdictionary.com/definition/economic-analysis.html [Accessed 18 Jun. 2016].
McAfee, R., Lewis, T. and Dale, D. (2016).Introduction to Economic Analysis. 1st ed.
Srk.com. (2016).Stakeholder engagement: key for project success| Social Assessment. [online] Available at: http://www.srk.com/en/newsletter/social-assessment-engagement-and-advice/stakeholder-engagement-key-ingredient-project [Accessed 18 Jun. 2016].
Viswanathan, B. (2015). Understanding the 4 Types of Risks Involved in Project Management. [online] Project-Management.com. Available at: http://project-management.com/understanding-the-4-types-of-risks-involved-in-project-management/ [Accessed 18 Jun. 2016].
