Why Project Risk Management?Review of Chapter 1 of “Identifying & Managing Project Risk”

Taking the advantage of Company’s sponsorship on Project Management Certificate Program, I have been taking 5 of the 7 sessions. The previous one I took is “Risk Management”, the reference book given through that session is very interesting and useful. I plan to read it with a great concentration and review chapter by chapter.

In this very first chapter, author summarizes why project management is needed. In general, without project management, any project will fail for sure. Even with the concepts of project management are implemented, majority of the projects are defined as unsuccessful. As far as I understand, projects are comprehensive, the management team must cover every aspect of the functions, and project manager her/himself must be very experienced and knowledgeable. In reality, it is really hard to form a perfect team to have the projects managed effectively and efficiently.

The formula of “Risk = Loss X Likelihood” implies how difficult the risk can be assessed. Neither Loss nor Likelihood is certain, especially Likelihood is purely based on projection. In most of the cases, Loss is also just roughly estimates. Should risk be uncertain, success of a project would be questionable naturally.

Projects can be managed at either Macro or Micro level: Macro level means a portfolio of projects; Micro level means case by case. Most of the time, project management teams manage projects at Micro Level. Just like what I am currently involved: two weight reduction projects are inter-related, we can’t give any of them up, so they can’t be treated as a portfolio. Both have to be equally handled.

Because of dealing with uncertainties, the theories and concepts of Statistics are crucial to risk management. I plan to take couple of online classes on statistics to refresh my knowledge. If one wants to achieve professional goals thoroughly, experience is just one factor, understanding solid theories and applying them to the real world are the keys, especially when the situations never happened before.

The author raised an example of “The First Panama Canal

Project” to prove the failure caused by bad project management. What I learned from this case is that the feasibility study of a project must be based on experts’ opinions to ensure that the project is technically reasonable. A project without a realistic scope of work estimated in the first place is no way not to be failure because it will drive the cost, schedule, quality out of whack. At this point, I can’t conclude if the feasibility study of our program wasn’t made based on experts’ opinions, but at least, what I can tell is that risks have been popping up time to time, the impact is that scope of work has been expanded, cost increased, schedule delayed.

To apply the concepts in the book to my own life, I figure should I have learned these 20 years ago, I would have avoided more problems and issues while I was on project management role. For example, in 1990, I was hired by a SoCal based engineering company which is a strategic partner of a well-known military contractor. My first business plan was to bid for Shaanxi Agricultural Project financed by The World Bank. It is an overall hundreds millions of dollars project under which there are dozens of sub projects. The one I targeted the first was to supply 1000 Metric Tons LDPE (Low Density polyethylene) to end user. Though sounds like an import/export trading transaction, it was part of the entire project. All the processes and terms followed guidelines stipulated by The World Bank. What I failed at the beginning was not to treat it as a project, didn’t negotiate with the manufacturer seriously. After the company was awarded the contract, the manufacturer refused to supply the LDPE. The delivery schedule and pricing were fixed and very critical, there was no any flexibility to me and this put me into a very difficult situation: either terminated the contract to lose our bid bond of 2% contract value and out of this business, or fulfilled the obligations to provide the same grade product. Long story in short, I did find a trading company in NYC to sell me 1000 MT LDPE produced by ICI (Imperial Chemical

Industries). The result was the product was delivered on time with the higher quality, but the Company barely broke even.

In this case, what I should have done in the first place were:

Learn the bidding terms and conditions in depth; Understand the product technically; Estimate the cost comprehensively, especially add certain % of

risks onto the bidding price Have a recovery plan if anything bad happens

However, after this unsuccessful project had been executed, the end userwasn’t hurt by anything, even received a higher quality product than they paid for. Therefore, a trustful relationship which led me to win several other sub projects in future was established.