Part I: How to Mitigate the Future Risks of a Project
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 through a contract, insurance, and retaining the risk. While risk identification attempts to find potential risks harmful to the business objectives, qualitative and quantitative risk assessment methods can sort out risks and rank them based on the impact of the business objectives. Such impact may be 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. The Modern, integrative management techniques include risk capacity, project portfolio management, Monte Carlo Modeling, and earned value management. Risk capacity is the total value that a business can possess to handle the impact of risk events and uncertainties ably. 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 hinder 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 objectives are changing 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 business 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 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 the check. 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 plans are higher 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 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 the uncertainties require reviews and updates; most project risks occur due to human errors. Internal agents mostly cause motor accidents, unhealthy lifestyles, unethical actions of CEOs, sexual harassment, and job discrimination. 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.