Risk management
Risk management plays an important role in project implementation as it ensures any adverse events or challenges faced are either prevented in advance or handled efficiently in case they occur. Ensuring that enough resources are allocated to risk management is, however, of key importance as it means enough resources will be available to other key project activities that will actually increase the chances of the project being implemented successfully.
Podean, Benţa, and Mircea (2010) analyze risks in terms of the monetary value they are likely to have on a project. Hard risks are ones that are likely to have a major financial impact on the financials of a project, and as a result, they should be given priority in risk management. On the other hand, soft risks are ones that have a marginal effect in terms of finances but can still impact the success or failure of a project. Project managers should, therefore, pay more attention to hard risks, as they have much more serious implications on project success than soft risks. The time and resources allocated to the management of soft risks should be significantly less than those allocated to the management of hard risks.
According to Carbone and Tippet (2004), a risk quantification process needs to be carried out to identify risks that are worth managing. The failure mode and effects analysis is identified as a reliable method that can be used to analyze risks and determine which ones should be managed by an organization. Project managers should first determine a risk score for each risk that they may face in the course of implementing a project. The risk score is usually based on the likelihood and impact that a risk is likely to have on the operations of an organization. After determining the risk score, a risk quantification process should be carried out that will identify the value associated with each risk that the project faces. Quantification provides a much more accurate analysis of the losses that will be faced due to a specific risk. The use of risk scores and risk quantification provides a much more reliable method of risk analysis that can enable managers to identify key risks that they should focus on.
A quantitative risk analysis is also identified as one of the most effective methods that can be used by firms to analyze risks and identify ones that are critical to their operations. Quantitative risk analysis provides meaningful information on the financial loss that can be suffered as a result of specific risk and how this will affect the success of the project and the reputation of key stakeholders (Pinto, 2019). Instead of simply analyzing the likelihood of a specific risk, a quantitative analysis can provide managers with more detailed information that can enable them to efficiently allocate resources that are to be used in risk management.
Categorizing risks also enables project managers to allocate resources much more efficiently to risk management activities. Categorizing risk as either high or low risk can enable project managers to allocate resources much more efficiently to risks that actually matter and ones that will have a major impact on the success of a project. Resources that are allocated to risk management can, as a result, be minimized to ensure that more resources are allocated to project activities that actually matter.