Rethinking Risk Management
The pandemic was the ultimate shock to the system for organizations, redefining how project leaders proactively plan for risks of any scale. But the need for teams to prepare for the unexpected persists. Amid geopolitical unrest and supply chain disruptions, concerns that organizational blind spots could knock projects off course remain front of mind.
According to the World Economic Forum’s The Global Risks Report 2022, 42 percent of business and government leaders believe volatility and surprises will reign over the next three years. And those threats can have long-term consequences.
Case in point: The European Space Agency says the planned 2022 launch of its first Mars rover will likely be delayed by at least four years after it suspended relations with Russia’s Roscosmos space agency, a project partner, because of Russia’s invasion of Ukraine. The postponement will also force scientists to wait for the mission’s ultimate payoff: critical research data. Meanwhile, supply chain barriers have slowed the launch of solar farm projects in South Africa. Potential project backers retreated amid the rising costs of shipping photovoltaic panels, putting on hold plans to build out more sustainable energy in the region.
“The approach to risk management has changed all over the world,” says Mohamad ElHelaly, PMI-PBA, PMI-RMP, PMP, projects and operations director, Concrete Plus, Cairo.
Aware that any single event can have a cascading effect on budgets, timelines and bottom lines, project leaders must anticipate and plan for myriad scenarios—at home and abroad—and must be more proactive than ever. “Don't wait to implement risk management until things go bad,” ElHelaly says.
Here’s how project leaders are rethinking risk management in a world of volatility and uncertainty.
Reducing the Element of Surprise
To reinforce risk management, project leaders need to shore up processes, flag gaps in assessments and facilitate workshops. Such steps will help teams get ahead of any worst-case-scenario events—and limit the possibility that any project will devolve into an endless cycle of playing catch-up.
“The more emphasis on risk management, the easier it will be to manage risks when they materialize,” says Ernest Seto, PMI-RMP, PMP, project manager, Linde Engineering, Munich. “Even if a risk that was not identified materializes, a team that focuses on risk management will have the mindset, the methodologies and experience to react to risks.”
Teams must now spend more time on front-end project planning and building more robust risk registers by evaluating the range of threats—from the unknown to the unimaginable. For Seto, that means expanding the number of stakeholders who provide risk review feedback. For instance, involving suppliers, partners, customers and supply chain consultants helps him dig deeper into risk analysis and refine the risk exposure assessment.
“Risks like the pandemic or climate-related events are difficult to manage, since they are unknown-unknown risks,” Seto says. “But there is always a way to minimize exposure to those risks, like spending time on drafting solid contracts and purchase orders that may provide protection.”
When pursuing projects abroad, Seto says engineering, procurement and construction (EPC) contractors are more likely to partner with local construction companies that have better knowledge of the area and access to local resources and personnel. The companies might share risk in the form of a joint venture or consortium agreements. In those types of partnerships, EPC contractors can minimize risk exposure. Beyond those pacts, project leaders can minimize price escalation risks by drafting careful, detailed agreements—for instance, signing letters of intent with contractors or suppliers during the project proposal phase.
“We may add contingency for the procurement of certain goods that may be impacted by a new COVID-19 wave and to our delivery time schedule,” Seto says. “We also spend more time ensuring our contracts include all necessary clauses to be protected as part of a risk response plan.” In that scenario, project leaders might also consider change of contract models from a lump-sum payment to cost reimbursed.
Other organizations and teams are adjusting their processes, too. To mitigate the impact of pricing volatility, project leaders at Clune Construction have established strict windows for clients to accept contract proposals. Chris Redpath, managing director, Clune, Chicago, says he adds contract language that builds in relief for unforeseen circumstances, such as shifting regulations or new requirements related to potential health threats.
“We’re including additional clarifications regarding schedule, commodity pricing and costs that could impact schedules due to supply chain and/or labor issues,” Redpath says.
There’s also a need to drill down on existing risk mitigation efforts, says Yasir Masood, PMI-RMP, PMP, project and risk consultant, GleeYM, Toronto. Masood develops risk register supporting documents like mind maps, influence diagrams and decision trees. He also performs “What if?” analyses to assess different scenarios, particularly unknown risks.
“My goal is to keep the risk register simple and easy to understand by all stakeholders,” says Masood, who served on a committee this year to update PMI’s Risk Management Professional (PMI-RMP)® certification exam. “People try to add information to the risk register, and it creates confusion, particularly when the risk register is reviewed by the top management and people who are not directly involved. So my goal is to keep it simple and to the point so everyone in the organization can understand the language and context.”
Get Risk Management Certified
Advance your career and learn how to manage risks successfully by upskilling and earning your PMI-RMP certification.
Seeking Smart Solutions
Project leaders with an eye toward innovation are also turning to tech to identify and mitigate risks. By leaning into unbiased data that can establish clear patterns, teams are able to proactively flag problems and gain confidence that they’re planning for the right threats.
For instance, Aecom uses drones and waterborne aircraft to assess flooding risks in the United Kingdom. The tools help the engineering firm gather data more quickly and more frequently so teams can map out risks in advance. At Boeing, advanced analytics help teams flag potential safety issues during all phases. Teams capture data on everything from manufacturing to an aircraft’s lifetime performance.
“A holistic look at the data will reveal correlation and causation, rather than a needle-in-a-haystack approach,” says Vishwajeet Uddanwadiker, vice president of aerospace safety analytics, Boeing, Seattle. “It is about identifying the right signals in the midst of the noise. We combine systems engineering and domain knowledge with advanced analytics to model safety risk.”
Automation tools are also a gamechanger. They not only help teams generate more data on possible risks, but also free up more time for project leaders to make strategic decisions. For example, Halliburton uses AI and machine learning to generate repeatable models and gain insights to map out risks for its oil and gas industry initiatives.
AI and machine learning can be particularly helpful to assess risks for supply chain interruption and during infrastructure or environmental projects, Masood says. But he cautions project leaders to not blindly follow bots—they need to balance those insights against human input and analysis.
“Projects are for people and managed by the people,” Masood says.
While it’s good that AI and other tech tools are being used to maximize productivity and improve projects, many people who are change-averse get biased and try to find ways to make the technology fail, resulting in cost overruns and delays Masood says. Beyond that, AI can’t account for valuable feedback from major stakeholders who have the power to apply pressure that can either delay or stop a project. Software can help teams select a route for a pipeline or railway based on available data, but AI-driven decisions can be rejected or changed based on feedback from community members as well as government and regulatory bodies.
“Therefore, balance is important between people and AI while decision making,” Masood says.
Expanding Expectations and Accountability
To ensure risk awareness runs deep and wide among all stakeholders, project leaders need to make sure the entire project ecosystem keeps an eye on the risk radar. That’s an important evolution, and it turns up the pressure to forge diligence across all stakeholders so they can anticipate surprises.
Keeping cross-functional teams aligned on risk management requires strong communication with industry partners at all levels, Redpath says. Manufacturers and suppliers can help identify expected lead times and potential issues and draw a clear picture of the process. Knowing where these vendor parts originate and conducting occasional site visits helps project leaders gain clarity and verify progress.
“Armed with this information, we can provide clients with regular updates, flag potential issues and set expectations. If necessary, we can also look for alternatives with fewer supply chain variables,” he says. “It’s our goal for all of our staff to have a constant pulse on the market.”
Another way Redpath’s teams hold clients accountable is by imposing and enforcing strict deadlines on decision-making. “This does put added pressure on the client to provide timely direction and answers to the team but ultimately benefits their schedule,” Redpath says.
There are other considerations, too. Project leaders must ensure that any risk management structure won’t stifle the organization’s need to increase agility and keep pace with innovation.
“Being agile and innovative needs to be part of risk management since it combines the available knowledge of the past and present to create a better future and overcome uncertainty,” says Nahlah Alyamani, program manager, Saudi Post and Logistics, Riyadh. “It needs to happen on a wide scale across the organization to be absorbed by project teams.”
One way to merge risk and agility? ElHelaly says risk registers should be living documents, constantly being amended with new information, and that risk management updates should be a bullet point in every project meeting “even if just for five minutes.” By adjusting the risk analysis, project leaders and their teams will be able to pivot and respond to limit the impact. “Proper risk management includes agility,” says ElHelaly.
The need for agility extends to external stakeholders, including customers, suppliers, clients and partners. That’s why project leaders must ensure that partners recognize the likelihood of major disruptions and understand the need to actively identify and review risks.
“Everybody is taking risk management more seriously,” ElHelaly says. “We may consult our suppliers about how they see the market situation and risk in their specific field, or we may invest more in getting studies of price development from expert consultants.”
With project leaders constantly bracing for the unexpected, project planning must include robust risk management that will empower teams to flex on demand and mitigate unwanted impacts to budgets and schedules.
“It’s time to develop a culture and mindset of risk management across your project teams and organization—and ensure you have experienced project managers or a risk manager who can lead the risk processes,” Seto says. “It’s also important to tailor risk management to your organization and projects to achieve balance and deliver value.”
Photo of Ernest Seto, PMI-RMP, PMP, Linde Engineering, Munich
Photo credit: Enno Kapitza