Risk Management: More Important Now?

See why risk management matters all the time.

Budget cuts and resource reduction continue to dominate executive boardrooms. Even with recent indications of the recession bottoming out in some countries, spending less money is the new mindset.

As the effects of the financial crisis are felt on projects, project managers consider risk management more critical than ever.

They advise colleagues to be proactive, adaptive, and to review risks more frequently throughout the project lifecycle, no matter what the economy is doing. However, risk management on the portfolio level needs special attention during an economic crisis.

Dmitri Ivanenko, PMP, wrote in his 27 April blog post, Working With Risk on Voices on Project Management blog “…risk management must be an integral part of any organization's project management methodology.”

An Integrated Process
Arpat Omur, PMI-RMP, PMP, a project and risk manager at Pegasus TSI, which provides engineering and design services and on-site construction management, located in Tampa, Florida, USA, and a project risk trainer for post graduate students in Istanbul, Turkey, echoes that sentiment and does not see risk management as something project managers should ramp up during tough financial times.

“Risk management is totally integrated in the project execution plan … and cannot be considered an independent management process,” he says.

“Project risk is addressed and reviewed in every level of project meeting, on a continuous basis, and in the natural frequency of these meetings,” he adds. “If it is not planned and implemented in this manner, the risk management will not go beyond an ineffective paper exercise.”

“The absence and improper implementation of project risk management, and resulting overruns … often result in increased costs for the consumers or the company absorbing unacceptable losses,” he says.

Risk at the Portfolio Level
One area where project managers agree that special attention be paid during the economic crisis is risk management at the portfolio level.

“When the market changes, there must be a new planning effort. Priorities must be reviewed at the portfolio level,” says Fabíola Sékula, PMP, a Brazil-based planning coordinator, who currently works as a resident architect.

Senior management teams, CEOs and company boards are paying more attention, albeit in a different fashion, to risk mitigation and management. Instead of looking at risk on a project-by-project basis, they look at risks that affect the entire business, she says.

“This interest in the management of risk at the top of the business needs to be aligned with project and program risk management to create an enterprise-wide approach … CEOs and executives recognize this and encourage it across their organizations,” says David Hillson, Ph.D., PMP, director, Risk Doctor & Partners, Hampshire, England.

He reasons that projects contribute to value creation for the business, so project risks can affect business value.

“The organization needs to have an integrated approach to managing risk across the business from top-to-bottom,” Dr. Hillson says.

Mr. Omur agrees that addressing portfolio level risk management is very appropriate for corporate results, but that it usually describes a different objective than project risk management.

“Where project risk management’s objectives are to exploit the opportunities, and mitigate and control the threats, portfolio risk management looks at the corporate picture and uses risk management to optimize the use of company funds and resources, thus introducing other sets of threats for the individual projects,” he says.

“Let’s call it risky times or call it the future, conducting project business without properly implemented risk management has already become an impossibility,” Mr. Omur concludes.

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