Managing risk within projects

How much of your day do you spend fire fighting – dealing with those unexpected problems that arise out of nowhere and always appear serious at first glance?

If you think about that some more, then you can see a common thread behind spending all that time is risk and, therefore, how to manage that risk. This is particularly important within supply chain management when items purchased can quite often be business critical.

An article in the Supply Management magazine mentioned risk management and highlighted the failure within organisations to manage risk properly: “The great thing about not managing risks is that project failure comes as a complete surprise, rather than being preceded by a long period of worry and depression”.

So how can organisations manage risk affectively to reduce the number of ‘fires’? You can never eliminate them completelybut you can minimise them through effective risk management.

Professional project risk management is all about diligent research and homework, and should draw on input from as many colleagues as possible. That homework should include:

1. Identifying all the potential risks that could impact on your project, which is where you need the input of other areas within the business to identify all the possible risks. It is often those people at ground level, on the shop or factory floor that have the best understanding of the real risk. Proper documentation of these will identify business critical risks before they materialise.

2. Assessing each risk identified in terms of its level of impact. In other words, if the risks identified were to happen, then how much disruption would they cause? Yes, this can be a subjective exercise but it is important to grade each risk, to provide ameasure of its impact on the business.

3. How likely is each risk to occur? This is meant to be a separate exercise from the point above, leading to two grades being assigned to each risk. Ultimately you end up with a list of potential risks that vary between ‘very high impact’ and ‘very high likelihood’ which represent a serious concern, to ‘very low impact’ and ‘very low likelihood’, i.e., not really worth worrying about.

4. Deciding on a course of action for each risk identified. This is arguably the most crucial step in managing risk. There’s not much point going through the above steps and identifying all the potential risks if you don’t put in a plan of action of how to deal with one should it occur. This is akin to contingency planning.

Research and planning in this way won’t stop the need to fire fight but at least when the fire starts you should already know how to fight it.