Project risks

The US Project Management Institute (PMI) defines a project as 'a temporary endeavour
undertaken to create a unique product or service.' The UK Association for Project Management
(APM) similarly defines projects as 'unique, transient endeavours, undertaken to achieve a
desired outcome'.
A 'temporary' or 'transient' nature distinguishes project work from the day-to-day operational
tasks that are carried out in an organisation. A project, by contrast, has a defined start and end
point, after which its activities and structures are disbanded.
'Uniqueness' highlights the fact that each project is effectively a 'one-off', designed to achieve a
particular specified objective, desired outcome or outputs. Many construction projects, for
example, require similar inputs and processes - but the output of one construction project
(Wembley Stadium) is different from that of another (Heathrow Terminal 5).
Meredith and Mantel (Project Management: a Managerial Approach) suggest seven key
characteristics of projects.
 Importance: the task must be important enough to justify the setting up of a special unit
and activity outside the routine structure and processes of the organisation.
 Performance: all project activity is aimed towards a well defined set of desired outcomes,
end results or deliverables. Problems can often occur when changes are made to the
specification during the project that can cause delays and subsequent additional costs.
 Lifecycle with a finite due date: projects progress from a defined starting point to a
defined termination point. They are not 'open ended'.
 Interdependences: projects are complex exercises, in which activities must be carefully
scheduled so that dependent activities can begin on time.
 Uniqueness: projects are 'one-off' activities. Even in the case of a 'repeat' project (such as
building the same model of a house) there will still be differences in the time taken,
resources used, personnel involved, etc.
 Resources: projects are carried out within the parameters of defined resource budgets.
 Conflict: projects are subject to the conflicting goals of stakeholder groups, and
conflicting objectives (time, quality, cost). They also often compete for resources with
'business as usual' functions and functional departments.
Project – related risks
Sadgrove notes that, whatever diverse forms they take, projects have certain qualities in
common: 'a big investment, a complex mix of people and assets, an uncertain outcome, and a
high risk of failure.' Hence the focus of a whole section of your syllabus on the management of
project-related risk!
Certain key risks arise in all projects, owing to the nature of project working
 The definition of a specific desired outcome from the project creates a failure risk: that is, the
risk that objectives and deliverables will not be achieved. In some cases, a project may be
cancelled or terminated before completion, because of emerging unacceptable risks, lack of
resources, changing requirements or insurmountable performance problems.
 The non-routine or one-off nature of projects creates a high degree of uncertainty (that is:
risk), since the particular set of circumstances and challenges has not been met before. This is
particularly obvious in the case of engineering, technology and IT projects which typically
make use of innovative (or experimental) processes and ideas. Uniqueness gives particular
value to the capturing and transfer of learning from one project to another, as a form of risk
management over time.
 The long time-scale and planning horizon of major projects (eg in construction) make them
subject to contingencies: changes in stakeholder needs, circumstances, resource availability,
external environmental factors and so on.
 The complexity of projects (with highly inter-dependent tasks, multi-organisational
participation and multiple stakeholders) makes them vulnerable to risk, because of the
difficulties of managing complexity.
 The multiple stakeholders of projects create a range of risks, including: delays or failure due
to conflict, lack of support or lack of co-ordination between participant stakeholders
(especially client, multiple contractors and suppliers, investors and users, say); stakeholder
resistance to project aims or processes (including external secondary stakeholders, in the case
of major projects such as construction).
 Projects typically have defined time, cost and quality targets, and a key source of project risk
is variance from plan and missed targets. Cost and schedule overruns are very common -
particularly where extra resources and time are required to achieve quality.
 Projects are often subject to changes to client specifications and contracts over time -
especially where client expectations and project scope have not been negotiated, agreed and
 documented in detail in advance of work. This increases the risk of schedule or cost
overruns, contract disputes and so on.
Causes of project failure
Because of their complexity, projects are inherently at risk of overrunning on time and/or cost,
and/or failing to deliver their stated outcomes, and/or having to be abandoned because of
external disruption or resource depletion. Such failures may be traced to some or all of the
following shortcomings.
 Poor project definition by the project's owner (perhaps because of insufficient
consultation with
 stakeholders or their failure to be specific about desired outcomes or deliverables), and
changing
 specifications and milestones ^ Lack of documentation of agreements in a formal project
charter (usually because of haste to get a ^project 'up and running')
 Lack of ownership and personal accountability (especially, lack of senior management
support, leaving room for escalating competition and conflict)
 Inadequately skilled or experienced project personnel
 Inconsistent understanding of required project activities, roles and responsibilities
 Inadequate reporting arrangements and feedback for decision-making
 Inadequate risk assessment in regard to disruption by contingencies and external fact
unproven technology
 Untested assumptions made during the project initiation and planning phases (eg in
regard to the availability of resources, supplier lead times and so on)
 Poor project management, which may emerge in: poor planning (eg unrealistic budget or
illogical sequencing); poor control (lack of review at gates and milestones, lack of a
handling of CQT trade-offs; poor team-building and management of the project team;
appointment of technical specialists as project managers (where they lack the project
leadership and communication skills).
 Lack of project risk management disciplines, such as risk identification and scenario
planning; use of risk registers; allocation of risk accountabilities and ownership; and the
management of and supply chain risks which might affect the project.
Critical success factors for projects
Slack et at (Operations Management) give a detailed list of 'Critical Success Factors' (CSFs) of
project management.
Clearly defined goals: which can include the overall philosophy or mission of the project, and
the commitment to those goals from the project team members.
Competent project manager: a project leader who has the necessary blend of interpersonal and
administrative skills.
Support of top management: commitment that must be communicated to the project t cross-
company projects, there may be nominated senior owners from each organisation the project and
its delivery.
Competent project-team members: the selection and training of project teams who ha-blend of
skills to successfully complete the project.
Sufficient resource allocation: in the form of finance, personnel, logistics etc, which are when
required.
Clearly defined and visibly managed processes, which are appropriate for the scale and the
project.
Good communication channels: between those involved on objectives, status, changes,
organizational conditions and client needs - with timely decision-making supported by clear and
short lines of reporting.
Control mechanisms: put in place to monitor actual events and to recognise deviations from
plan
Feedback capabilities: all parties concerned are able to review the project status and make
suggestions and corrections.
Troubleshooting mechanisms: a system or set of procedures which can tackle problems as they
arise, trace them back to their root cause and resolve them. This enables the active management
of risks and issues.
Project staff continuity: the continued involvement of key project personnel through the
lifecycle. Frequent staff turnover can dissipate acquired learning and damage team morals

People risks in projects

Meredith and Mantel point out that 'meeting schedule and cost goals without compromising
performance appears to be a technical problem for the project manager. Actually, it is only partly
technical because it is also a human problem - more accurately, a technical problem with a
human dimension'.
Resource constraints
According to TOC, a five-step plan is required to deal with constraints.
 Identify the constraint - obviously!
 Exploit the constraint - this means making a virtue of the problem. For example, if the
constraint is a certain type of machine, try to ensure that a back-up machine of the same
type is available in case of breakdown.
 Subordinate everything else to the constraint - it is pointless having everything else in top
condition if the constraining factor is active. Therefore it is necessary to focus on the
constraint, and make it the point around which schedules are based.
 Elevate the constraint - this means increasing the flow through this part of the system, in
effect removing the constraint.
 Repeat the process.
Risks in product development and re-design projects
Lock (in Project Management) argues that 'development programmes aimed at introducing
additions or changes to a company's product range are prone to overspending on cost budgets
and late completion'. He highlights the risks of:
 Starting the project without an adequate project specification. To counter this, it is
essential to begin with a detailed specification, covering expected performance, quality
and reliability standards, styling guide-lines, size and weight limits, expected costs,
expected commercial returns and time frame (with defined milestones).
 Introducing ill-thought out changes when the project is already under way. Tight control
over progress, and in particular over proposed changes, is essential. Changes should not
be introduced without adequate consideration from a dedicated 'change committee'.
Risks in process and systems development projects
As we have mentioned already, the output from a project is not necessarily a tangible product.
Many 'projects are concerned with improving or re-designing operational processes,
implementing new systems or technologies, or integrating existing systems (eg when introducing
enterprise resource planning or ERP). Such projects clearly present a range of operational and
technological risks.
We discussed risk mitigation measures for the introduction of new technology and systems in
Chapter 3. One of the key risk mitigation measures is to either pilot test the new system (prior to
wider roll-out) or to run the new system alongside the old system for a period (parallel running,
or 'ramp up, ramp down'), in order to ensure that the new system functions as it should do.
Minimizing risk in major projects: a process overview
Here are some of the key elements in project risk management (in addition to the discipline of
risk identification, assessment and mitigation)
Project specification: establishing an agreed statement of project objectives (cost, time and
quality deliverables); scope (the boundaries of project tasks, outcomes and responsibilities); and
strategy (the approach that will be taken to meet project objectives)
Project management plans: Objectives, schedules, cost budgets, health and safety and
environmental policies, quality management plan, risk management plans (using the risk
management cycle and a project risk register) and so on.
Project control: Monitoring end-of-stage reviews, milestones (key stage targets), gates (decision
points at which each stage of work can be ‘passed’ or ‘failed’ for progress to the next stage),
corrective action and/or plan adjustment – plus post-completion audit and review, and capture of
learning for the future.
Tools and techniques, such as budgetary control, variance reporting, Gantt charts and network
planning and control techniques such as critical path analysis.
Allocating project risks
Risk ownership in projects
As part of the risk management process the project manager should appoint an owner of each
risk (as discussed in Chapter 2). It is the risk owner's responsibility to monitor the risk and
update the risk management team regularly. Details of any changes to an existing situation
should be formally recorded in the project risk register, with updates in control activity as
required. The project manager has overall responsibility to monitor the risks and to ensure that
procedures are being followed.
The following checklist on assignment of risk ownership should be used.
  Have owners been allocated to all the various parts of the complete risk process and have
the future risks been catered for? For example, suppliers may be tasked with ownership
of assessing risk as part of their contracts (as discussed later in this chapter).
 Are the various roles and responsibilities associated with ownership well defined?
 Do the individuals who have been allocated ownership actually have the authority?
 Have the various roles been communicated and understood?
 Are the nominated owners appropriate?
 In the event of change, can ownership be quickly and effectively reallocated?
 Are the differences between benefit and delivery risks understood?

Contractor relationships
Subcontracting and integrated project management are crucial factors in procurement for
construction projects, in particular: enabling the prime contractor to access specialist expertise
and incorporate specialist components (such as lifts or air-conditioning systems). An integrated
project team approach is commonly used, bringing together multiple, integrated supply chains
into one supply team (the primary or first-tier contractor) - which is then integrated with the
client-side project team. This structure supports the management of the kinds of complex supply
chains often employed in major construction projects.
Supply chain relationships are also crucially important, to support project working, co-ordination
and co-operation over lengthy, complex projects. The UK's National Procurement Strategy
argues that: 'Construction spend is the biggest single area of local authority external expenditure
[especially on roads]. It follows that getting the procurement of construction, repair and
maintenance right is likely to bring huge benefits. Benefits such as getting the job done right first
time, and delivering it free of defect and dispute, also add real value. Many authorities have
discovered that the best way they can secure those benefits is by developing long-term
relationships with their contractors and the whole supply chain.'
Contract strategies
Once a decision has been made that a project is to be undertaken, a key issue to be addressed
right at the outset is the overall management strategy. Should the client attempt to perform all or
most of the work using internal resources, or should it rely on external contractors? In
construction and engineering projects, for example, Peter Marsh (Contracting for Engineering
and Construction Projects) identifies a range of options including: full turnkey, partial turnkey,
client co-ordinated and management contracting strategies.
In a full turnkey approach, the external contractor takes entire responsibility for the project
(design, engineering, procurement, construction, commissioning, testing, staff training and so
on). Having specified its requirements and monitored progress, the client merely has to 'turn the
key' to commence operation.

Projecting partnering
Here are some other options for structuring a project, accessing resources and sharing risks.
 Joint ventures and consortia. A joint venture is a formal arrangement by which two
independent companies establish a new company which they jointly own (eg through
shareholding, asset holding and profit distribution agreements) and manage. Their other
businesses remain separate from this new, shared venture for the purposes of commissioning
or undertaking a project. Where more than two companies enter this arrangement, it is called
a 'consortium'. Joint ventures are often used to overcome barriers to entry in international
markets, as well as pooling resources and expertise for major construction and infrastructure
projects.
 Private public partnerships (PPPs). In the UK, public-private partnerships (PPP) are
schemes in which 'private sector firms and public authorities share capital and expertise, in
various structured ways, with a view to building and operating major capital and
infrastructure assets. Such structured partnerships have been used to create national
infrastructure such as the Channel Tunnel, the London Olympics facilities, as well as smaller
projects such as hospitals, schools and barracks.
 A Private Finance Initiative (PF1) typically means that a private consortium raises the
capital to design and build a public sector project. It is also contracted to maintain the
buildings while a public authority uses them: eg providing cleaning, catering and security
services. Once construction is complete, the public authority begins to pay back the private
consortium for the cost of the buildings and their maintenance, plus interest. The contracts
typically last for 30 years, after which time the buildings belong to the public authority.
The advantages of a PPP scheme for the public sector are claimed to be as follows.
 It can lower public sector costs (owing to the way service charges paid to the private
sector operator are accounted for) - and can enable projects to be undertaken without
having to cover capital costs from tax revenue.
 It can secure higher levels of capital expenditure and cashflow, owing to the potentially
higher budget (and debt) capacity of the private sector partner. This may enable the
public sector to undertake more large-scale projects than if they were prioritised under
conventional public capital funding methods. It cantap into the creativity, expertise and
existing capacity, capability and technology of private sector organisations, allowing
higher levels of service to be provided to the public (supporting the objectives of the
public sector partner) - especially where service levels are secured by appropriate KPIs,
or where the private sector partner is putting its own capital at risk.
 It can therefore represent excellent value for money, especially if the private partner has
already invested in the required equipment, technology and so on.
 Overall, a PPP scheme can enable a public sector body to complete projects, upgrade
facilities and improve public services much faster than would otherwise be possible.
According to healthcare think tank the Kings Fund, for example, the physical condition
of most hospitals is now 'vastly improved' thanks to such partnerships.