The strategy of risk mitigation, reducing the severity or extent of the probability of risk impact, follows risk identification and risk response strategies which focus on avoiding the risk, transferring it to a third party by means of contract or insurance, and retaining the risk.
While risk identification attempts to find the existing and potential risks that may do harms to the business objectives, qualitative and quantitative risk assessment can sort out risks and rank them based on the extent to which they impact the business objectives from very low (0.1), low (0.3), medium (0.5), high (0.7) to very high (0.9) or critical (1.0). Risk mitigation plan factors in a glut of inputs from traditional to modern risk management tools. Traditional input tools include a risk register, expert judgment, strategies for negative and positive risks, and contingent response strategies. Modern or integrative input tools include enterprise risk management tools consisting of enterprise risk budgeting, portfolio management strategies, risk capacity, Monte Carlo Modeling, and earned value management, to name a few examples. Risk capacity is the total values that a business can possess to ably handle the impact of risk events and uncertainties. This includes equity, investment, and stakeholders or shareholders. An effective and sustainable mitigation implementation plan builds confidence in the project management team to efficiently handle any existing and potential problems that may stymie the achievement of the project objective.
This article highlights sustainable mitigation implementation strategies the goal of which is to improve risk management capability, maximize value proposition, and invest in solutions the make a business more competitive.
Risk Mitigation Plan
Project risks and their impacts on business objective are change continually. What is assessed and branded negligible or moderate today could later metastasize or resurge to wreak severe havoc. The dynamic nature of the probability of the occurrence of risk events, therefore, requires risk mitigation planners to keep a continuous vigil on risks by using new tools such as the Enterprise Risk Management application, Monte Carlo Simulation, and Microsoft Project. Instead of handling risks individually which has proven unsuccessful in fully achieving business objectives, modern risk management tools apply a universal approach to risk mitigation. Branding or ranking risks is no longer a surefire way of successfully mitigating risks; a sustainable risk mitigation plan requires modern and integrative input tools.
Risk Capacity is the combination of all business resources- liquid as well as material assets. Risk capacity also consists of the quality of its assets, management team, and the business reputation in the capital markets. Enterprise Risk Budgeting (ER-B) assesses or re-assesses costs relative to the overall risk profile including capital decisions that may impact dividends, expenditures, acquisitions, and hedging.
Earned Value Management measures various project performance areas including scope, cost, and schedule. It tracks the progress and status of the project and enables reporting actual schedule and cost overrun constraints at any given point in time and allows scope change management to keep the final budget of the project within check. Its metrics can also help project management practitioners to keep the project on schedule and within budget. If the project is underperforming, the mitigation team can reevaluate and take corrective action to remedy the situation.
Monte Carlo Simulation uses various probability distributions to model risks and uncertainties. The model is based on the simple idea that what is put into the system will produce consequences, good or bad. A change in outputs depends on changes that take place within the system. And the stability of the system depends on input functions. In other to run Monte Carlo Simulation in the Statistical Package for the Social Sciences (SPSS) application, for instance, input factors will have to be specified.
The use of portfolio management concepts allocates resources wisely including time, money, employee productivity, and technology. It ensures that the outcomes and benefits of mitigation plan are greater than the costs of managing or mitigating the project risks.
The strategy of sustainability provides a solid base for sustaining business operations, maximizing profitability and increasing a business strength. This is achievable by protecting the environment, investing in people, and running a successful business. In effect, this is what the green project management is about. Companies reduce, redesign, reuse, recycle, and invest in renewable sources of energy to reduce overhead costs and subsequently sell their goods and services at competitive prices.
Any viable risk mitigation planning will also have to focus on endogenous rather than exogenous risk factors but all uncertainties require reviews and updates continually; most project risks occur due to human errors. Motor accidents, unhealthy lifestyles, unethical actions of CEOs, sexual harassment, and on the job discrimination are mostly caused by internal agents. Moreover, stakeholders-including top and functional leaders, contractors, subcontractors, shareholders, and consultants make decisions that impact the day-to-day operation of the business. In other words, poor planning, error in judgment, schedule fallout, poor performance, cost overspent, and low-quality performance are internal weaknesses. To undo or convert systemic weaknesses into sustainable opportunities requires rethinking, changing policies, and, more importantly, changing behaviors. In other words, the success of a mitigation plan depends on the strength of a business risk capacity, a tradeoff between mitigation and profitability, continuous monitoring, updating project management risk documentation, and the total support and engagement of all stakeholders particularly top management personnel.
Risk mitigation implementation team utilizes different specific and appropriate tools to reduce the probability or consequences of risk events to an acceptable threshold. The mitigation implementation process may be costly and time-consuming; it is, however, preferable to have one than manage a project without any mitigation plan.
Risk mitigation implementation should also focus on hiring contractors and subcontractors who are masters of their trade and have the capacity to perform the job. Relocation of business to smaller less expensive or saver location, using design margins, crafting a crisis management and disaster recovery plans, contingency planning, increasing regular audits, and changing terms and conditions of contracts, to name a few examples, are other ways risks can be mitigated. Design margin focuses on achieving business target value by meeting requirements. Some of the strategies of a design margins include creating a master schedule that can handle the riskiest tasks early to allow time for failure recovery; maintaining close focus on critical and near-critical activities; putting the best workers on time-critical tasks; verifying system design and performance through modeling and assessment; organizing the project early and identifying and monitoring the key cost drives; providing contingency reserves in the project budget; maximizing usage of proven technology, and commercial off-the-shelf equipment.
Any mitigation efforts that do not continue to review, re-evaluate and re-rank potential benefits and risks are bound to fail. The benefit ranking must be adjusted based on factors such as meeting technical objectives and staying on schedule. These issues may affect the overall benefits and costs. Risk assessment of each project will be weighted and determined whether benefits and opportunities outweigh the risks. Different risk response strategy may apply to activities or projects with high risk. Risk factors could technical difficulty, resource availability, funding, scheduling constraints, ROI, and the length of the project.
Risks and uncertainties impact business firms positively and negatively. Instead of focusing primarily on threats alone and treating each risk in isolation, Enterprise Risk Management, Microsoft Project or Primavera application, Portfolio management tools, and Monte Carlo Simulation are used to take a universal approach to risk mitigation planning and implementation. Risk mitigation and implementation plan is a dynamic process. A low-ranking risk could become a dangerous one later. The more active stakeholders are engaged in the implementation of a risk mitigation plan, the better the outcomes.
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