Thursday, 17 February 2022

How to minimize project risks




Why is it that even a perfectly planned and day-by-hour project often doesn't go as intended? The culprit is some unforeseen circumstances, unexpected events that eventually either lead to a delay in the implementation of the project, an increase in its cost, or nullify the entire project. Such events are called project risks, and they are all impossible to predict. Nevertheless, identifying the most likely and significant of them can significantly increase the likelihood of successful implementation of the conceived project. This article is devoted to the identification and management of risks of absolutely any project.

Preparation


Any project is associated with risks - this fact was known to Larisa Emelyanova, who was engaged in sewing evening dresses. Not so long ago, she began to notice that calls began to come to her office not only to order evening toilets, but also to sew wedding dresses, which she had not done before. When about 6 clients called her on this issue in a month, she realized that this was most likely not an accident, but a pattern. So she decided to start sewing wedding dresses too. This occupation was completely new for her, so Ms. Emelyanova approached the manufacture of the first wedding dress as a separate project.


Since the sewing of the wedding dress was of great importance to her, she did not want any trouble to interfere with its successful implementation. That is why Larisa began preparing for the project, in addition to planning work, drawing up a project schedule and its budget, by identifying possible risks.

I must say that at this stage, absolutely all possible risks that can only come to mind (within reason) are taken into account, since the assessment of the probability of risk situations will be made at the next stage.


To identify risks, it is convenient to use the Ishikawa diagram. This diagram is a type of cause-and-effect diagram that identifies factors that affect the outcome of a project. Thus, on the right, the possible result is indicated, and on the left, on each branch of the diagram, the factors affecting it are indicated, and each branch represents a separate type of influencing factors. In our example, Larissa indicated "project failure" as the result, and she divided the risk factors into several categories, depending on the source of risk

Further, in each category, Larisa identified possible, from her point of view, risks. For example, she attributed to the risks of the supplier possible defects and delays in the delivery of goods.

Prioritizing


After the work done, all risks must be ranked according to the degree of probability: the higher the probability that the risk is realized, the higher its assessment will be. It is convenient to rank risks in a table, such as in Table 1. Both 5-point and 10-point scales can be used to assess risks. However, when applying a 10-point scale, the result will be more accurate.

  • Ishikawa Diagram to Identify the Risks of a Wedding Dress Project
  • Figure 1. Ishikawa Diagram to Identify the Risks of a Wedding Dress Project
  • Larisa assessed the risks as follows. She knew that she would have to work with a new fabric supplier, as the existing suppliers did not have special fabrics for wedding dresses and veils in the range. This meant that the risks of attracting a supplier would be great – after all, she had never worked with him. However, the supplier was a foreign company that had been operating in the market for quite a long time, so Larisa estimated its risk at 7 points out of 10.


As for the risks to the performer, she knew that the dress would be sewn by herself, and, given her 15 years of experience in this field, Ms. Emelyanova assessed her risks at a minimum.



Larisa had known her fiancĂ©e for 4 years – she was one of her regular clients. She always paid for the order on time, never abandoning it, so the risks to the client were assessed as low.

As for the risks associated with changes in the external environment, it was difficult to predict in this area: the economic situation in the American Federation is relatively stable, but, as Larisa believed, everything can happen, so she estimated the risks in this area a little higher.


After analyzing the risks, Larisa identified the most important of them – the risks associated with the new supplier. Now it was necessary to develop anti-risk measures.

Preparing for unpleasant surprises


Assessing the risks does not mean being ready for them. For each risk, it is necessary to develop anti-risk measures, and first of all - precisely for those risks. The onset of which is most likely. It should be noted that one of the most important criteria for the development of anti-risk measures is that:

  • the cost of these activities should not exceed the effect of them;
  • anti-risk measures should not cause new, its great risks;
  • the development of anti-risk measures should not become an end in itself: new actions generate new risks, and it is impossible to develop a strategy for responding to absolutely all risks;

anti-risk measures should not disrupt the timing of the project.
There are several options for anti-risk measures:

  • aimed at avoiding risk
  • aimed at minimizing the negative consequences of risk
  • Usually, both types of measures are developed for each risk.


So, having identified the most significant risks of her new project, Larisa began to develop anti-risk measures. At this point, she also recorded any ways that came to her mind to avoid the risks associated with the new supplier.



Thus, Larisa chose the best ways to respond to 2 risks: supplier defect and delivery delay. These activities were:

  • acceleration of dress making, work more than 8 hours a day;
  • agreement with another supplier;
  • adding to the contract the conditions for the rapid replacement of defects.
  • Inclusion of anti-risk measures in the project plan
  • Now that the anti-risk measures had been selected, it remained to include them in the project work plan, both in terms of their duration and their cost. The project sequence will now look different (see Table 4).


Since the introduction of the developed anti-crisis measures does not increase the cost of the project, it will affect only the timing of the project. So, and Table 4 in parentheses shows the number of days for which, according to Larisa's forecasts, the project may be delayed due to the implementation of anti-risk measures.

Initial work plan for the project


Work plan taking into account anti-risk measures

  • Choose a dress model.
  • Take measurements from the client
  • Choose and agree with the client on the material of the dress
  • Select a supplier
  • Conclude a contract with a supplier
  • Order material from a supplier
  • Check the received material
  • Sew a dress
  • Make a fitting
  • Adjust the dress
  • Make a final fitting
  • Choose a dress model.
  • Take measurements from the client
  • Choose and agree with the client on the material of the dress
  • Select a primary supplier and a backup supplier (+2 days)
  • Discuss the condition of quick replacement of defects in the contract and conclude a contract with the main supplier (+1 day)
  • Make a conditional deal with a spare supplier (+1 day)
  • Order material from a supplier
  • (If the supplier delays the deadlines) order the material from a spare supplier (+1 day)
  • Check the received material
  • Notify the supplier about the marriage (+1 day)
  • Accept new material and pass the defective material back to the supplier (+1 day)
  • Sew a dress (- 2 days, if you work 10 hours a day)
  • Make a fitting
  • Adjust the dress
  • Make a final fitting


So, in the case of the implementation of both risks, the project will drag on for only 5 days (taking into account the acceleration of the process of sewing a dress). If such terms suit the client, the project is accepted for execution. If 5 days are critical for the client, then Larisa will have to look for ways to speed up the work on the project, for example:

  • sew a dress in case of a supplier's delay, working not for 10, but for 12 hours. Then Larisa will save 1 day;
  • choose a dress model and take measurements from the client in one day, then Larisa will save another 1 day
  • it is possible to select several possible suppliers before the start of the project, then it will be possible to reduce its duration by another 2 days

As a result of such actions, the project will be delayed in the worst case for 1 day. If it is possible to start the project earlier, then it is advisable to start it with a margin of 2-3 days, then with a high probability the project will be completed qualitatively and on time, despite the risks.


As for the financial result of the introduction of anti-risk measures, Larisa easily calculated the effect of their introduction. If the project had been carried out without them and the risks associated with the supplier had been realized, Larisa could have lost an order of 10,000 dollars, and also, quite possibly, would have to pay the client a penalty. If we take into account that on average Larisa fulfilled 3-4 such orders per month, then the failure of the project would lead to a loss equal to ? monthly revenue. Given that Larisa spent almost nothing on the introduction of anti-risk measures, the benefits of introducing these measures were obvious. In addition, a satisfied client could tell about the new dress to friends, which would lead them to Larissa, and she would receive an additional number of orders. Therefore, the effect of anti-risk measures can be much more significant than the acceleration of the probability of loss of 10,000 dollars.

Brief recommendations


It is not necessary to develop many anti-risk measures for every possible and impossible risk on the project. Otherwise, you will receive a huge list of works on the project, increasing the period of its implementation by 2 times minimum. This diverts attention from the main goal of the project, focusing resources on preventing possible negative consequences.



The Pareto 80/20 principle could not be more appropriate when assessing risks and developing measures to prevent them. So, when developing anti-risk measures, you should choose those 20% of the risks that have an 80% impact on the success or failure of the project, and develop anti-risk measures on these risks. At the same time, from the entire list of measures, only 20% should again be chosen, which prevent 80% of the risks.

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