Published by – Goutam Kumar Jena
on behalf of GNEXT MS OFFICE
Category - Commerce & industry & Subcategory - Risk
Summary - Risk Management, commercial risk
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Details ( Page:- Risk )
What is Risk ?
Risk is a probability or, threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action.
Risk tolerance - Capacity of an individual or an organization to accept or absorb risk. This has to be estimated or calculated during project planning phase.
Commercial Risk, defined as the risk by a company by offering credit with no collateral, is a common term in the business world. Any time a company offers credit, be it trade credit, credit terms like 2/10 net 30, or other, they are essentially offering financing with no collateral. In easier terms, let’s say considering payment without surety on income.
[justify]Project Risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective. A risk has a cause and if it occurs a consequence. In order to maximize the probability and consequences of positive events and minimize the probability and consequences of adverse events to project objectives, risk management processes must be established.[/justify]
What is Risk management?
The identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events combined to be known as Risk Management.
Risk is a probability or, threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action.
Risk tolerance - Capacity of an individual or an organization to accept or absorb risk. This has to be estimated or calculated during project planning phase.
Commercial Risk, defined as the risk by a company by offering credit with no collateral, is a common term in the business world. Any time a company offers credit, be it trade credit, credit terms like 2/10 net 30, or other, they are essentially offering financing with no collateral. In easier terms, let’s say considering payment without surety on income.
[justify]Project Risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective. A risk has a cause and if it occurs a consequence. In order to maximize the probability and consequences of positive events and minimize the probability and consequences of adverse events to project objectives, risk management processes must be established.[/justify]
What is Risk management?
The identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events combined to be known as Risk Management.
End of Page
Details ( Page:- Risk identification )
Risk Identification & Assessment -
During the Project Initiation Phase, the risks that might affect the project must be identified and their characteristics must be documented in the Risk Log or Risk Register.
The Risk Log/Register is a document that needs to be created during the preparation of Project and be refined at the next phases of the Project Management Cycle. The Risk Register is a control tool for the Project Manager providing a quick reference to the key risks facing the project, what monitoring activities should be taking place and by whom.
Risk identification is an iterative process. The risks identified and registered in the Risk Log during the preparation of Project , are evident, normally concerning availability of resources, impending or mooted legislation, dependencies with other projects and their results. These risks should be refined during the Planning Phase when the Project Plan is being created. Generally, there should be a check for any new risks every time the Risk Log is reviewed, at least at the end of each stage. The Project Steering Committee has the responsibility to continually check external events for external risks.
Risks Identification
Techniques to be used for the identification of possible risks during the Project Initiation Phase are being presented below:
- Performing structured review of the Business Case Document as well as the project’s approach recorded in the Project Fiche.
- Performing brainstorming. The project design team usually performs brainstorming, although a multidisciplinary set of experts can also perform this technique. Under the leadership of a person who plays the role of the facilitator, these people generate ideas about possible project risks.
- Risks can be identified by interviews of experienced project managers or subject –matter experts. The appropriate individuals have to be identified, the design team briefs them on the project and the interviewees based on their experience identify risks
- The design team uses as a guide an almost standard checklist of possible risks, which is usually developed based on historical information and knowledge that has been accumulated from the implementation of different scale and type projects. Since it is impossible to build an exhaustive list of risks, care should be taken to explore items that do not appear at a standard checklist if they seem relevant to the specific project.
Checklist category : Risk identification
Under performance to specification
Management will under-perform against expectations
Collapse of contractors
Insolvency of Funding Source (applicable only in case of Private contribution in the funding)
Failure of suppliers to meet contractual commitments, this could be in terms of quality, quantity, timescales or their own exposure to risk
Insufficient capital revenues
Market fluctuations
Fraud/ theft
Partnerships failing to deliver the desired outcome
The situation being non insurable (or cost of insurance outweighs the benefit)
Lack of availability of capital investment
Exchange rate fluctuation
Interest rate instability
Inflation
Shortage of working capital
Market developments will adversely affect plans
New or changed legislation may invalidate assumptions upon which the activity is based
Failure to obtain appropriate approval, e.g. planning consent
Unforeseen inclusion of contingent liabilities
Failure to achieve satisfactory contractual arrangements
Unexpected regulatory controls or licensing requirements
Changes in tax structure .
Management incompetence
Inadequate corporate policies
Inadequate adoption of management practices
Poor leadership
Key personnel have inadequate authority to fulfil their roles
Key personnel have inadequate time to deal with the project due to heavy workload
Poor staff selection procedures
Lack of clarity over roles and responsibilities
Vested interests creating conflict and compromising the overall aims
Group interests given unwarranted priority
Indecision or inappropriate decision making
Lack of operational support
Inadequate or inaccurate information
Health and safety constraints
Change of governmental policy (national or international)
Change of government
War or disorder
Adverse public opinion/ media intervention
Natural disasters
Storms, flooding, tempests
Pollution incidents
Transport problems, including aircraft/vehicle collisions
Ecosystem (flora, fauna) disturbance
Inadequate design
Professional negligence
Human error/ incompetence
Infrastructure failure
Operation lifetime lower than expected
Residual value of assets lower than expected
Increased dismantling/ decommissioning costs
Safety being compromised
Performance failure
Residual maintenance problems
Scope “creep”
Unclear expectations
Breaches in security/ information security
Lack of inadequacy of business continuity
Risk Assessment
Risk assessment is the process of assessing the impact and probability of identified risks.
Risk Probability is the likelihood that a risk will occur. Risk impact is the effect on project elements if the risk event occurs. For example, major damage to a building is relatively unlikely to happen (low probability), but would have enormous impact on business continuity. Conversely, occasional personal computer system failure is fairly likely to happen (high probability), but would not usually have a major impact on the business.
Impact should be considered under the elements of:
● Scope
● Timescale
● Quality of deliverables
● Benefit
● People/ resources
During the Project Initiation Phase, the risks that might affect the project must be identified and their characteristics must be documented in the Risk Log or Risk Register.
The Risk Log/Register is a document that needs to be created during the preparation of Project and be refined at the next phases of the Project Management Cycle. The Risk Register is a control tool for the Project Manager providing a quick reference to the key risks facing the project, what monitoring activities should be taking place and by whom.
Risk identification is an iterative process. The risks identified and registered in the Risk Log during the preparation of Project , are evident, normally concerning availability of resources, impending or mooted legislation, dependencies with other projects and their results. These risks should be refined during the Planning Phase when the Project Plan is being created. Generally, there should be a check for any new risks every time the Risk Log is reviewed, at least at the end of each stage. The Project Steering Committee has the responsibility to continually check external events for external risks.
Risks Identification
Techniques to be used for the identification of possible risks during the Project Initiation Phase are being presented below:
- Performing structured review of the Business Case Document as well as the project’s approach recorded in the Project Fiche.
- Performing brainstorming. The project design team usually performs brainstorming, although a multidisciplinary set of experts can also perform this technique. Under the leadership of a person who plays the role of the facilitator, these people generate ideas about possible project risks.
- Risks can be identified by interviews of experienced project managers or subject –matter experts. The appropriate individuals have to be identified, the design team briefs them on the project and the interviewees based on their experience identify risks
- The design team uses as a guide an almost standard checklist of possible risks, which is usually developed based on historical information and knowledge that has been accumulated from the implementation of different scale and type projects. Since it is impossible to build an exhaustive list of risks, care should be taken to explore items that do not appear at a standard checklist if they seem relevant to the specific project.
Checklist category : Risk identification
A-[size=1][font=Times New Roman] [/font][/size]Strategic/ Commercial risks
Under performance to specification
Management will under-perform against expectations
Collapse of contractors
Insolvency of Funding Source (applicable only in case of Private contribution in the funding)
Failure of suppliers to meet contractual commitments, this could be in terms of quality, quantity, timescales or their own exposure to risk
Insufficient capital revenues
Market fluctuations
Fraud/ theft
Partnerships failing to deliver the desired outcome
The situation being non insurable (or cost of insurance outweighs the benefit)
Lack of availability of capital investment
B - Economic/ financial/ market
Exchange rate fluctuation
Interest rate instability
Inflation
Shortage of working capital
Market developments will adversely affect plans
C - Legal and regulatory
New or changed legislation may invalidate assumptions upon which the activity is based
Failure to obtain appropriate approval, e.g. planning consent
Unforeseen inclusion of contingent liabilities
Failure to achieve satisfactory contractual arrangements
Unexpected regulatory controls or licensing requirements
Changes in tax structure .
D - Organisation/ Management/ Human factors
Management incompetence
Inadequate corporate policies
Inadequate adoption of management practices
Poor leadership
Key personnel have inadequate authority to fulfil their roles
Key personnel have inadequate time to deal with the project due to heavy workload
Poor staff selection procedures
Lack of clarity over roles and responsibilities
Vested interests creating conflict and compromising the overall aims
Group interests given unwarranted priority
Indecision or inappropriate decision making
Lack of operational support
Inadequate or inaccurate information
Health and safety constraints
E- Political
Change of governmental policy (national or international)
Change of government
War or disorder
Adverse public opinion/ media intervention
F - Environmental
Natural disasters
Storms, flooding, tempests
Pollution incidents
Transport problems, including aircraft/vehicle collisions
Ecosystem (flora, fauna) disturbance
G - Technical/ Operational/ Infrastructure
Inadequate design
Professional negligence
Human error/ incompetence
Infrastructure failure
Operation lifetime lower than expected
Residual value of assets lower than expected
Increased dismantling/ decommissioning costs
Safety being compromised
Performance failure
Residual maintenance problems
Scope “creep”
Unclear expectations
Breaches in security/ information security
Lack of inadequacy of business continuity
Risk Assessment
Risk assessment is the process of assessing the impact and probability of identified risks.
Risk Probability is the likelihood that a risk will occur. Risk impact is the effect on project elements if the risk event occurs. For example, major damage to a building is relatively unlikely to happen (low probability), but would have enormous impact on business continuity. Conversely, occasional personal computer system failure is fairly likely to happen (high probability), but would not usually have a major impact on the business.
Impact should be considered under the elements of:
● Scope
● Timescale
● Quality of deliverables
● Benefit
● People/ resources
End of Page
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