Abstract perceived the importance of project risk management

 

Abstract

The study covers about a developed risk management and its
result of a project conducted in Portuguese electric energy organization-
Energias de Portugal Distribution (EDP Distribution). The risk identified was
mainly external and technical sources and the its been rated according to high,
medium and low level. This methodology can be used in future for any other similar
projects.

Key words: Risk management; risk management plan; identify
risk; risk assessment; plan risk response; risk monitoring and control

 

1.     Introduction     

             Due to
globalization challenges, all the projects are frequently under pressure and
the project risk management are main focus of the organization group (PMBoK
Guide 2013). Project risk management are necessary, as it can produce a
systematic procedure which aims to identify and control the risk if it arises
in between the project process, it will contribute to define various project
objectives, improve the project control, and the chance of success of the
project will be increased, communication with the participants will improved
(S.Alhawari,L,Karadsheh,A.N,Talet and E.Mansor,2012)

EDP Distribution is the largest electric energy distribution
in Portugal, perceived the importance of project risk management and have to
settle a goal and implement a risk management methodology in organization for
its pilot project. The objective is to test the risk management developed and
expand to similar projects.    

To obtain the important goals of EDP, an action project has
been identified with the following objectives

·        
A
blueprint of risk management will be adapted as per the project, which must
consists of

o  
Risk
management planning

o  
Identification
of risk

o  
Assessment
of qualitative and quantitative risk

o  
Response
Planning

o  
Risk
monitoring and the control process

·        
Arrange
the necessary templates for risk management procedure

·        
Introduce
a project risk register

·        
Accommodate
the risk management methodology for any similar project in future

EDP Distribution defined as quality and scope as the main
objectives of the project, due to the variation in budget and the schedule is
not acceptable. Therefore, the concern of the project’s risk is that how it
impact the quality of the project’s. The quality of the project is connected to
the infrastructure and if anything happen any particular area, the success of
the project will be more difficult.

2.     Project Risk Management

According to Project Management Body of Knowledge (PMBoK)
guide 2013, the term risk been defined as an uncertain condition if occurs, it
can bring a positive or negative impact on the project objectives. As per PMBoK
risk defines as an uncertainty, there are various differences in uncertainties
and risk, the risk is an event or a situation which may occur by known or
unknown and uncertainty is probably an unknown event which is not known early
(R.Kolisch,2010) It is common that a project manager identify the risk and
uncertainties of a project during the processing time(S.Ward and C.Chapman,
2003)

Risk management support the project to discover the issues
early so it gives enough time to overcome from that without any schedule issues
and within the budget (J. Tamak and D. Bindal 2013)

3.     Distribution of Automation Pilot Project at Batalha

The EDP Distribution automation pilot project’s main
objective was to implement a smart grid on electric grid in a restricted area,
Batalha. It will represent large technical innovation in electric grid. It will
be participation with EDP Distribution and the main suppliers. The main
supplier provide the technological equipment and software support and the
organisation execute the project

4.     Developing the Risk Management  Methodology

According to PMBoK 2013, development of risk management had
certain theoretical foundation and the practice standard used for the project
risk management is from project management institution. PMBoK is one of the
well-known body of knowledge, task execution as a primary focus
(P.Morris,2005).  

4.1 Risk management
plan

The most valuable step in a project risk management is
developing a risk management plan, because it helps to establish the activities
which the project management group must handle the risks and uncertainties
occur during the project. It provides a guide to the team includes the
procedure for the risk, tools and techniques to meet the risk and the templates
for the management team to use while managing the project. Risk management
included the information of the project and risk management, the objectives, a
guide to identify the risk, assess, and plan responses, monitor and control the
risks and also nominate the risk owners where the team have to report if any
medication needed in the risk behaviour, and the documents of risk management
which includes the breakdown structure of risk, templates for the risk plan and
risk register.

The risk register is the most important output of a risk
management plan, it contains all the data related to identified risks,
evaluation both quantitative and qualitative, risk response and the status of
risk while monitoring the risk and controlling it. Risk management is a
continuous process (G.Fernandes etal 2013)) and risk register must be updated regularly
in order to identify any new risks and to control any more risk if occur (PMI
2009).

4.2 Risk Identification

Risk management plan explains the inputs, tools and
techniques to be used and the also the outputs to identify the risks in
project, risk qualitative analysis will also be made along with identification
of potential risk responses, to give a better understanding about the risks.

Reviewing the project documents will allow the team to
understand the reality, management practice, and also can for seen the weakness
and strength of the projects.   

 

Project
description    

Risk
management scope and objectives

Risk activities

Responsibilities
and functions

  Risk management documents

Project objectives

Thresholds

Identification

Risk owners

Risk breakdown structures

External dependencies

Prioritization of project  objectives

Qualitative evaluation 

 

Risk register

Stakeholders identification

Unacceptable threats

Quantitative evaluation

 

Templates

 

Selection criteria

Response plan

 

 

 

More opportunities

Monitoring control

 

 

 

Probability and matrix scale

 

 

 

                                   Table 1  project risk management plan information   

 

Identify
risk 
 

ID

Description

Classification

Phase expected to occur

Frequency of occurrence

Qualitative
Analysis
 

Probability

Impact

Cost

Matrix  
Probability x Impact

Prioritized risk

Chronogram

Scope

Quantity

Total

Quantitative
Analysis
 

EMV

Risk decision trees

Plan
risk response 
 

Risk possible results

Risk owners

Entities involved in risk

Type of action to risk response

Preventive

Risk response

Avoid /explore

Plan risk response

Mitigate

Contingency

Transfer

Corrective

accept

Risk
monitoring and control
 

Monitoring and control status

Risk audits

Risk management learned lessons

                                         Table
2  Structure of project risk register

Input

Tools
and techniques

Output

Reviewing all documents of the project
Like record of meetings, contracts
description of projects etc.

Brain storming meetins

Risk register
Risk breakdown structure

                                  Table 3. Input, tools and
techniques and output of risks

 

A brainstorming discussion will require for preparation with
both participants and meetings moderators. An agenda will be prepared before
the meetings with full explanation of the purpose and listed the set of
objectives to be achieved. The agenda will be given to all members before the
meetings, so they will be prepared with the ideas and will share them during
the meetings and clarify the doubts themselves and each others. An audio or
video recording of meetings will be carryout for future consulting as much as
needed and to prepare risk register template. To improve the process of risks
identifying and the consequences, a decision tree analysis will be recommended,
the tool will help to think about the consequences that may occur as a result
of the risk and it will also bring out any secondary risk which possibly occur.

Risk breakdown structure will organize the identified risks
as per the level in terms of the source such as external, technical, commercial
and project management, and all the collected information must recorded in the
risk register.

4.3 Qualitative risk
analysis

As mentioned in the earlier section, a qualitative analysis
will always accompanied in parallel to indentified risk, and probability impact
matrix (Pxl matrix) is recommended. Every risk will be classified with
subjective probabilities as per the occurrence probability and the impact over
the project objectives via matrix, which result in rating the risk as low,
medium and high. The level of risk will be identified as colour code green for
level low, yellow for moderate and for high will be red.

Probability scale used, risk impact scale and PxI matrix
defined are presented in below tables

Occurrence

Very low

Low

Moderate

High

Very high

Probability

0.1

0.3

0.5

0.7

0.9

                                                          Table
4 probability scale used in the pilot project (PMBoK2103)

  

Project objective

Very Low

Low

Moderate

High

Very high

0.05

0.1

0.2

0.4

0.8

Cost

Irrelevant increase

<5% cost high 5-10% cost high 10-20% cost high >20% cost high

Chronogram

Irrelevant delay

<5% delay 5-10% delay 5-10% delay >20% delay

Scope

Unnoticeable scope
reduction

Less scope areas
affected

Relevant area are
affected

Unacceptable
reduction

Not suitable final
product

Quality

Imperceptible
degradation

More demanding

Require quality
reduction and need authorization from client

Reduced quality
Client won’t
accept  

Worthless final
product

 
                                                             Table
5. The pilot project impact
scale

 Probability

Impact

0.05

0.1

0.2

0.4

0.8

0.9

0.05

0.09

0.18

0.36

0.72

0.7

0.04

0.07

0.14

0.28

0.56

0.5

0.03

0.05

0.10

0.20

0.40

0.3

0.02

0.03

0.06

0.12

0.24

0.1

0.01

0.01

0.02

0.04

0.08

Colour code

Between

0.00

And

0.05

 

Between

0.06

And

0.14

 

Between

0.15

And

1

 

                                   Table 6.
Probability x impact matrix for the pilot project

   The
localization of the risk level in the matrix will help the project management
team to know the type of response they have to consider while doing the risk
planning response and will reduce the level of risk impact on the project or
even they can avoid the risk completely with the overcoming plans (table 7).

Colour
code

Project impact

Monitoring

Response

 

High

Urgent attention

Preventive / avoid

 

Moderate

Regular risk
revision

Contingency:
mitigate or reduce

 

Low

Control

Corrective mitigate
/accept

                                       Table 7
The project risk impact Vs risk response

The project management team must have always a backup plan for
each risk identified; sometime one response won’t be enough, if the first plan
doesn’t achieve the suspected result the backup must bring out to fulfil the
result.

4.4 Quantitative risk
analysis

 According to risk
management plan quantitative analysis is not mandatory in all risk identified
in the project, it will be carried out if the risk are classified in the matrix
above 0.14 and the risk been owned by the EDP Distribution representative. If
the project supplier is the risk owner, although the risk is under high rate,
the supplier is the responsible, because of that EDP distribution won’t take
any action in the qualitative analysis concern. In otherwise, even of EDP
Distribution prefer to do quantitatively asses the project risk they won’t have
the needed information. While doing the quantitative risk analysis the EMV
(Expected Monetary Value) must be evaluated for every action.

The figure 1 (Joana Pexoto et al 2014) gives an example for
decision tree technique while conducting the quantitative analysis of the
project risk,, the final client/the customer 
expectations for a sub product functionally, which have a qualitative
evaluation of 0.15 and EDP Distribution was the risk owner. The goal for this
risk defined as the maximization of satisfaction of the customer in minimum
cost in technical changes. A scale varies from 1-10 represent satisfaction of
the customer; the cost will be in euros and converted to common scale using
equation (1) mentioned.

 x 10

               

A global score will be evaluated by equation (2)

                         Global Score = 60% x
customer satisfaction +40% x cost

Figure 1 pilot project risk 1

The EMV was 8.56 and the solution when considering the
objective is to make a small technical changes and this corresponds will cost
of €20000. This type of analysis helps the organization to take
decision to meet if any risks occur and also to evaluate how much to spend to
overcome the risks. The value used will be estimated and must analyze further
if the risk occur.

4.5 Plan risks response
  

In all risks a risk response plan must be identified in all
circumstance. Risk response plan must have information mentioned below and must
be attached to the risk register of the project, with one record of response
for every individual risk:

·        
A
Risk ID and description

·        
Assumptions
of the risk like causes of the risks

·        
Possible
result of risk on scope, costs, quality and schedule

·        
Risk
responsibility is to identify the risk owner and also the entities within the
risk occurrence and response

·        
Intervention
action

·        
Communication
moments must be defined 

·        
Risk
and response interaction: identify the secondary risks which may occur as a
consequences of reaction to the primary risk

 

 

4.6 Risk monitoring and
control

The risk monitoring and control have inputs, tools and
techniques and outputs. The inputs includes risk register and plan risk
response documents, the tool and techniques include risk audit and the output
consists of risk register and lesson from the report

The risk audit will evaluate how the risk management being
carried out and if it’s adequate to control the risk in the project and is able
to handle it every time it occurs while project work carrying on.

5. Risk management
result of the Pilot Project

    While implementing
the methodology, twenty-one risks been identified in the project, including
twenty primary threats, five secondary threats and one opportunity. After the
risk identified a risk breakdown structure will developed, giving the project
management team a sense of risk which may occur during the project process.
Major part of the risk identified had external sources, which indicates the
team where they have to give more attention. The technical source risk was an
expected so when the project started new use of technical components been used,
mainly the automated equipments and software settings needed to manage and
control smart grid functions.  

Quantitative analysis will rate the risk as high, medium and
low impact on project. Frequent risk monitoring and controlling and need close
supervising. Table below shows the indentified project risks on probability
impact matrix

 

                                                                          
Consequence

Probability

VL

L

M

H

VH

VH

 

 

1.1

 

14

H

 

 

3,4,15

14.1

 

M

 

 

7.2,8,9,11,12,16,7

2,71,10,13

6

L

 

9.1

 

5

1

VL

 

 

 

 

 

                                        Table.8 PxI Marix project risks by ID number

According to the above table the project management team must
prepare the non avoidable plans and backup plans for the nine high risks which
have high impact on the project on the red zone and give urgent attention, so
it can be avoided or reduced with a minor impact on the project. The team must
have periodic assessment and analysis for the eleven risks which are moderate
impact on the project but still need mitigation plan for those risks. The risk
on the green zone is having a very low impact on the project, and does need
frequent monitoring and control. Risk 7.1 is the subcontracting risk teams are
not able to meet the target date of the project and ended up in adding external
force, which result in crossing the deadline and extra work by explaining the
project to another team and which leads to financial increase or the budget go
high.  

In quantitative analysis, it’s been identified that EDP
Distribution representatives are responsible for three risks, one is commercial
activities and the others are technical origin, risks. In section 4.3 is a form
of commercial risk.

In risk response planning various plans were established in
that fifteen preventive was response plan with one opportunity, ten plans to
mitigate the project risks impact or probability, two plans to transfer
responsibilities and another eleven to meet the risk occurrence. In short the
EDP Distribution committed to reduce the risk and its impact on the project
through investing the prevention and the mitigation plans as response towards
the risk occurrence.

6.    
Conclusion

    This report presents the risk management methodology of a
pilot project under execution. During the evolution and the risk management
revision process, the changes have proven to be more effective towards the plan
and altogether brought the gradual increase in risk management assessment,
monitor and control factors. During the risk monitoring and control stage,
should have collected more data about the risk and its management plan will be
improved gradually the risk the management plan and will establish the
confidence on the risk management practices within the project management team.