Project Identification

Project Identification

Project identification is the first step of any project

cycle. Entrepreneurs need to identify and zero in on
a project that suits their requirements and can help
them attain their goals before spending significant
time and resources on a project. They also need to
study in detail the feasibility of the proposed project
well before they start planning the other steps of
the project cycle. Usually various aspects are
required to be studied before picking a project.

The purpose of project identification is to develop a

preliminary proposal for the most appropriate set of
interventions and course of action, within specific
time and budget frames, to address a specific
development goal in a particular region or setting.
Investment ideas can arise from many sources and
contexts. They can originate from a country’s sector
plan, programme or strategy, as follow-up of an
existing project or from priorities identified in a
multi-stakeholder sector or local development
dialogue. Identification involves:

 A review of alternative approaches or

options for addressing a set of
development problems and opportunities;
 The definition of project objectives and
scope of work at the degree of detail
necessary to justify commitment of the
resources for detailed formulation and
respective preparatory studies; and
  The identification of the major issues that
must be tackled and the questions to be
addressed before a project based on the
concept can be implemented.
Sufficient information on project options must be
gathered to enable the government and financing
agencies to select a priority project and reach
agreements among stakeholders on arrangements
for preparation work, including setting up steering
committees or national preparation teams. The
results of identification work should be summarized
in a report, project brief or concept document, the
format of which will depend upon the government’s
and/or financing agencies’ requirement.
Opportunities in the Environment for Project
Identification

Meaningful indication for a successful project can be

availed from the following one or more sources for
project identification

(a) Five Year Plans

For project identification, the Five Year Plans are

indicative enough to reflect the government’s
intention, including the policy emphasis on the
sectors and—within the sector—particular type of
industries.
(b) Imports and Exports

The industry-wise, and also product-wise, detailed

statistics of imports and exports are regularly
published by the government. These information
indicates the possible venture area—What are the
products, and the volume of such products as
exported to which countries? And similar
information of imports as well.

We can get enough idea from these statistics about

the possible export industry or project to produce
goods for import substitution.

(c) Financial Corporation and Industrial

Development Corporation at State level sponsor
project feasibility reports with the help of reliable
and established consultants for promotion of
industries in the State. Such reports can be a very
helpful guide to generate ideas for the start of a
project.

(d) Departments of SSI and ARI, as mentioned

earlier, prepared about 200 project profiles to help
and guide small industries for investment up to Rs.
5 crores in a project. These projects are industry-
group-wise, and even provide source information of
the required plant and machineries with costs
updated in 1994.

(e) Council of Scientific and Industrial Research

(CSIR)

With their network of laboratories has developed

new processes and technologies along with their
commercial applications. These know-how are
available at less cost and without any foreign
exchange involved and can be useful in considering
a suitable project.

The selection of the process/product know-how can

be made in conjunction with information available
from other sources. For example, the CSIR, Jorhat,
has the technical know-how for the manufacture of
‘micro-crystalline wax’.

It also appears from the import statistics that this

product is regularly imported by many
organizations. Such information and the available
know-how can give ideas of developing a project for
the manufacture of this product provided the
availability of the basic raw material—i.e. ‘crude oil-
tank-bottom- scrappings’—is ensured.

(f) Analysis of industrial information such as

capacity installed, actual productions, market sizes
with its growth can be a source of information to
indicate opportunities.

(g) Trade Fairs and Industrial Exhibitions including

both national and international exhibits, many new
products and processes can be a source of
information and ideas for a project.

(h) Economic and social trend and the various

statistics available in this regard can be analysed to
find some opportunities. The band of affluent middle
class population with the changes in their pattern of
living will indicates the growth of demand for
specific range of consumer durables including
domestic appliances—big and small.

(i) BIFR can provide a list of endless sick units which

are chained by enormous accumulated loss. With
careful analysis, a large number of such units may
be profitably revived by skilled management and
infusion of necessary fund. We have noted earlier
that in such cases financial helps can be availed
from IIBI and banks as well.

Project Selection
Project Selection is a process to assess each
project idea and select the project with the highest
priority.

Projects are still just suggestions at this stage, so

the selection is often made based on only brief
descriptions of the project. As some projects will
only be ideas, you may need to write a brief
description of each project before conducting the
selection process.

Selection of projects is based on

(i) Benefits: A measure of the positive outcomes of

the project. These are often described as “the
reasons why you are undertaking the project”. The
types of benefits of eradication projects include:

 Biodiversity
 Economic
 Social and cultural
  Fulfilling commitments made as part of
national, regional or international plans
and agreements.
(ii) Feasibility: A measure of the likelihood of the
project being a success, i.e. achieving its objectives.
Projects vary greatly in complexity and risk. By
considering feasibility when selecting projects it
means the easiest projects with the greatest
benefits are given priority.
Why Do Project Selection?

Often you will have a number of suggested projects

but not enough resources, money or time to
undertake all of the projects. The ideas for
eradication projects may have come from many
sources including: the community, funders, local
and national governments and Non-Governmental
Organizations (NGOs). You will therefore need a way
of deciding on a priority order and choosing a
project.

If your organization has limited experience in

conducting eradications then it is recommended to
concentrate on a small number of projects, ideally
one project at a time, until the people in your
organization have developed the skills and
experience. Grow capacity and build up to
undertaking multiple projects at any one time. Do
the easy projects first. Work towards the most
difficult and rewarding projects. Use the easy
projects to help answer questions/solve issues for
the more difficult projects. Use the best
opportunities to learn.

You may have a mix of straight forward and difficult

eradication projects and do not know where to start.
The Project Selection Stage will assist you by
providing a process to compare the importance of
the projects and select the most suitable project to
undertake.

By following the Project Selection Stage you will

follow a step by step objective method for
prioritizing projects – this can be used to explain to
stakeholders the reasoning behind why you selected
a particular project.

The benefits of completing the Project Selection are-

 A transparent and documented record of

why a particular project was selected
 A priority order for projects, that takes
into account their importance and how
achievable the project is
Who Should Be Involved?

 Agency Management: Set selection

criteria to ensure the selection process
aligns with agency strategies. Selection
processes are often run as a management
initiative before the implementing Project
Manager is assigned.
 Stakeholders: Stakeholder participation
at the start of a project creates strong
community ownership and support, and
increases the chances of a successful
outcome. Stakeholder input should be
included at the ideas stage; consult
widely as you are developing the ideas for
projects as the community will be the
source of many of the best project ideas.
Stakeholders must be informed of the
outcome of the Project Selection Stage.
 Project Manager: Involving the Project
Manager in the Project Selection process
 will help build ownership in the project
and support a successful project in the
long run.
Process of Project Selection

(i) Identification of Projects

The first step of this process, identification, requires

a clearly defined and communicated strategy. The
best option would be to set up a strategy
development process that contains project
identification and project selection as an integral
part (cf. “How to Find the Right Projects” in sub-
section White Papers). In fact, we observe that most
organizations identify investment projects within
their strategy development process, but delegate
the identification of customer projects to their key
account and sales departments.

(ii) Evaluation and Prioritization of Projects

Central part of the project selection process is

evaluation and prioritization of identified projects.
There are a couple of methods available:

 Net Present Value (NPV)

 Internal Rate of Return (IRR)
 Benefit / Cost Ratio (BCR)
 Opportunity Cost (OC)
 Payback Period (PP)
 Initial Risk Assessment
These methods require a certain minimum level of
“planning” for each one of the projects to be
evaluated. We need to know

 Project life cycle duration, in number of

accounting periods,
 Expected project cost per accounting
period,
 Expected project revenue per accounting
period,
 Overall risk values of the projects to be
evaluated.
(iii) Selection and Initiation of Projects

Project selection and initiation is the step that

naturally follows evaluation and prioritization. A
particularly delicate step of project initiation turns
out to be the staffing of project teams. As
mentioned earlier, resources are scarce, and in
most organizations appear to be the most limiting
factor in project selection. If we take in too many
projects we overload our resources, if we do not
take in enough we do not utilize them economically
enough. As discussed in the sub-section Multi
Project Management, having too many staff
members working in multi-tasking mode, i.e. on two
or more projects at the same time, decreases
overall productivity of the organization. On a
medium / long term scale, it seems to be the better
option to initiate projects in a way so that the teams
can focus and work on one project at a time, thus,
avoiding disturbances of one project by the others.
Of course, that needs clear prioritization of the
selected projects, based on evaluation done in the
previous step.

(iv) Review of Projects

After project selection we need to regularly review

projects that are under way in order to find out if
they are still in-line with our strategy. Thus, the first
way of checking them is repeating the initial
evaluation with more accurate estimates as they
become available; the second way is holding regular
project management review meetings in order to
identify major problems on a per-project basis, via
project status reports.

Project Evaluation and Selection Criteria

The project evaluation process uses systemic
analysis to gather data and reveal the effectiveness
and efficiency of your management. This crucial
exercise keeps projects on track and informs
stakeholders of progress.

Every aspect of the project is measured to

determine if it’s proceeding as planned, and if not,
inform how project parts be improved. Basically,
you’re asking the project a series of questions
designed to discover what is working, what can be
improved and whether the project is in fact useful.
Tools like project dashboards and trackers help in
the evaluation process by making key data readily
available.

The project evaluation process has been around as

long as there have been projects to evaluate. But
when it comes to the science of project
management, project evaluation can be broken
down into three main types: pre-project evaluation,
ongoing evaluation and post-project evaluation. So,
let’s look at the project evaluation process, what it
entails and how you can improve your technique.

Three Types of Project Evaluation

There are three points in a project where evaluation

is most needed. While you can evaluate your project
at any time, these are points where you should have
the process officially scheduled.

(i) Pre-Project Evaluation

In a sense, you’re pre-evaluating your project when

you write your project charter to pitch to the
stakeholders. You cannot effectively plan, staff and
control a new project if you’ve first not evaluated it.
Pre-project evaluation is the only sure way you can
determine the effectiveness of the project before
executing it.

(ii) Ongoing Evaluation

To make sure your project is proceeding as planned

and hitting all the scheduling and budget milestones
you set, it’s crucial that you are constantly
monitoring and reporting on your work in real-time.
Only by using metrics can you measure the success
of your project and whether or not you’re meeting
the project’s goals and objectives.

(iii) Post-Project Evaluation

Think of this as a postmortem. The post-project
evaluation is when you go through the project’s
paperwork, interview the project team and
principles, and analyze all relevant data so you can
understand what worked and what went wrong.
Only by developing this clear picture can you
resolve issues in upcoming projects.

PROJECT SELECTION

Project Selection is a process to assess each project

idea and select the project with the highest priority.

Projects are still just suggestions at this stage, so

the selection is often made based on only brief
descriptions of the project. As some projects will
only be ideas, you may need to write a brief
description of each project before conducting the
selection process.
Selection of projects is based on

(i) Benefits: A measure of the positive outcomes of

the project. These are often described as “the
reasons why you are undertaking the project”. The
types of benefits of eradication projects include:

 Biodiversity
 Economic
 Social and cultural
 Fulfilling commitments made as part of
national, regional or international plans
and agreements.
(ii) Feasibility: A measure of the likelihood of the
project being a success, i.e. achieving its objectives.
Projects vary greatly in complexity and risk. By
considering feasibility when selecting projects it
means the easiest projects with the greatest
benefits are given priority.
Process of Project Selection

(i) Identification of Projects

The first step of this process, identification, requires

a clearly defined and communicated strategy. The
best option would be to set up a strategy
development process that contains project
identification and project selection as an integral
part (cf. “How to Find the Right Projects” in sub-
section White Papers). In fact, we observe that most
organizations identify investment projects within
their strategy development process, but delegate
the identification of customer projects to their key
account and sales departments.

(ii) Evaluation and Prioritization of Projects

Central part of the project selection process is

evaluation and prioritization of identified projects.
There are a couple of methods available:

 Net Present Value (NPV)

 Internal Rate of Return (IRR)
 Benefit / Cost Ratio (BCR)
 Opportunity Cost (OC)
 Payback Period (PP)
 Initial Risk Assessment
These methods require a certain minimum level of
“planning” for each one of the projects to be
evaluated. We need to know

 Project life cycle duration, in number of

accounting periods,
 Expected project cost per accounting
period,
 Expected project revenue per accounting
period,
 Overall risk values of the projects to be
evaluated.
(iii) Selection and Initiation of Projects

Project selection and initiation is the step that

naturally follows evaluation and prioritization. A
particularly delicate step of project initiation turns
out to be the staffing of project teams. As
mentioned earlier, resources are scarce, and in
most organizations appear to be the most limiting
factor in project selection. If we take in too many
projects we overload our resources, if we do not
take in enough we do not utilize them economically
enough. As discussed in the sub-section Multi
Project Management, having too many staff
members working in multi-tasking mode, i.e. on two
or more projects at the same time, decreases
overall productivity of the organization. On a
medium / long term scale, it seems to be the better
option to initiate projects in a way so that the teams
can focus and work on one project at a time, thus,
avoiding disturbances of one project by the others.
Of course, that needs clear prioritization of the
selected projects, based on evaluation done in the
previous step.

(iv) Review of Projects

After project selection we need to regularly review

projects that are under way in order to find out if
they are still in-line with our strategy. Thus, the first
way of checking them is repeating the initial
evaluation with more accurate estimates as they
become available; the second way is holding regular
project management review meetings in order to
identify major problems on a per-project basis, via
project status reports.

Project Rating Index

The Project Definition Rating Index (PDRI) is a
methodology used by capital projects to measure
the degree of scope definition, identify gaps, and
take appropriate actions to reduce risk during front
end planning. PDRI is used at multiple stages in the
front end planning process. As a project progresses,
identified gaps will continue to be addressed until a
sufficient level of definition (measured using the
PDRI score) is achieved for the project to
successfully proceed to detailed design and
construction.

Poor scope definition is recognized as one of the

leading causes of project failure, resulting in cost
and schedule overruns, and long term operational
issues. As a result, front end planning is one of the
most important process in the construction and
operation of a capital asset. The PDRI methodology
is proven to reduce risk in capital project delivery by
promoting rigorous scope definition and a
collaborative review process during front end
planning. Using the PDRI methodology will help your
project teams improve scope definition, become
better aligned, and provide transparency on
identified gaps. This helps to equip all project
stakeholders to better mitigate risks identified in
PDRI reviews, predict potential issues, and
overcome costly problems down the road.

PDRI Structure

The PDRI methodology supports a comprehensive

assessment of scope definition. Templates are
organized in three sections for systematic
assessment of the:

 Basis of project decision – the business

objectives and drivers
 Basis of design – processes and technical
information required
 Execution approach – for executing the
project construction and closeout
Each section is broken down into categories and
elements. The element is the lowest level of the
index where the assessment of scope definition is
conducted.

There are three industry-validated PDRI templates

that are each focused on a specific industry sector.

(i) Industrial Projects

The Industrial template is targeted for projects that
provide an output in terms of assemblies, sub-
assemblies, chemical compounds, electricity, food
or other marketable goods. Examples include power
plants, chemical plants, oil & gas production,
refineries, water and waste treatment, and
manufacturing facilities.

(ii) Building Projects

The Building template is designed for commercial

building projects. Examples including offices,
schools, medical facilities, institutional buildings,
warehouses, parking structures and research
facilities.

(iii) Infrastructure Projects

The Infrastructure template is targeted for projects

that involve linear construction with extensive
public interface and environmental impact
considerations. Examples include railways,
highways, pipelines, transmission and distribution
and canals.

Market and Demand Analysis Techniques

Companies use market demand analysis to
understand how much consumer demand exists for
a product or service. This analysis helps
management determine if they can successfully
enter a market and generate enough profits to
advance their business operations. While several
methods of demand analysis may be used, they
usually contain a review of the basic components of
an economic market.

Market and demand Analysis is conducted to know about the aggregate

demand for the product or service and the market share that the
proposed project will enjoy.

Market and demand Analysis involves the following activities : –

(A) Situational analysis and specification of

objectives →

A situational analysis must be done to know about –

(a) The preferences and purchasing power of customer

(b) Action and strategies of the competitors

(c) Practices of middle man

 Specification of objectives helps the organization to move towards a
particular direction. The objectives to be focused on are:

(a) Potential buyer

(b) Total demand

(c) Break up of demand

(d) Type of distribution channel

(e) Prices and warranties

(B) Collection of secondary information →

Secondary data is gathered in some other context and is already

available in market. It is not conducted by researcher himself. A
researcher may use the following sources :-

 Census survey
 National sample survey reports
 5 years plans
 India year book
 Economic survey reports
 Political survey reports
 Annual survey of industries
 Annual bulletin of export and import
 Stock exchange directory
 Monthly bulletins of RBI
 Publications of advertising agencies
 Industry potential surveys
Once collected, this information is evaluated to judge its reliability,
accuracy and relevance to the project.

(C) Conduct of Market Survey →

Secondary data does not provide comprehensive information. It has to

be supplemented with collection of primary data. Primary information is
 gathered through market surveys specially for a particular project.
Market surveys may be census survey or sample survey. In a census
survey the whole population is considered while in a sample survey a
sample of population is observed to gather relevant information. They
are conducted to gather information regarding –

 Total demand
 Growth of demand
 Income
 Buying motive
 Purchase plans
 Unsatisfied needs and attitude of people towards products and
services
 Characteristics of buyer
Steps in Sample Survey →

(i) Defining the target population – The researcher must carefully

choose the target population that is to be surveyed.

(ii) Selecting the sample scheme and size – It may be a census

survey or a sample survey.

Probability sampling (Every sample has an equal chance to be selected)

OR Non-probability sampling ( No equal chance, some are preferred
some are not) method may be used.

(iii) Developing the Questionnaire – A questionnaire may be

Structured or Unstructured with Open end questions (give a statement or
view) or close end questions (yes/no,multiple choice). After developing
the questionnaire a pilot survey is done to look for any
mistakes/difficulties.

(iv) Recruiting and training the field investigators – Investigators with

good knowledge of the product and good technical knowledge must be
recruited and proper training must be provided to them.

(v) Obtaining the information according to questionnaire – The

Investigators take personal interviews, telephonic interviews and mail
the questionnaires to the sample population to collect responses.
 (vi) Scrutinizing the information gathered – The Information gathered
may be inconsistent and the responses may be biased. Therefore the
information gathered is analysed and scrutinized to eliminate irrelevant
and unwanted data.

(vii) Analysing and interpreting the information – A statistical

analysis using Parametric and Non parametric methods is done to
analyse and interpret the information.

(D) Characterization of Market

The market for the product or service is described in terms of the

following factors based on the information collected through market
surveys and secondary sources. These factors are :-

i. Effective demand in the past/present and future

ii. Breakdown of demand
iii. Methods of distribution and sales promotion
iv. Types of consumer
v. Listing of supply and competition
vi. Government policies
vii. Price

(E) Demand forecasting →

It refers to estimation of future demand for a product or service.

Forecasting methods may be broadly divided into three categories i.e.
Qualitative methods, Time series projection methods and causal
methods :-

Qualitative Methods →

(i) Jury of executive opinion method → It involves soliciting the

opinions of a group of Managers on expected future sales and
combining them into a sales estimate.

Advantages

i. It considers a variety of factors

ii. Cheap method for developing demand forecasting
Disadvantages

i. The managers may be bias

ii. The reliability of the technique is always in question
(ii) Delphi Method → It is used for eliciting the opinions of a group of
experts with the help of mail survey.

Steps →

(a) A Group of experts are sent questionnaire and asked to express their
views.

(b) The responses received are summarized and another questionnaire

based on this response is sent back, not revealing the identity of the
experts.

(c) The process is continued till a reasonable agreement emerges.

Time series Projection Method → It involves analysis of historical time

series.

(i) Trend Projection Method → It works on a linear relationship

Yt = a + bt

Where Yt = demand for a year

t = time variable

a = intercept of relationship

b = slope of relationship

(ii) Exponential smoothing method → In this method forecasts are

modified in the light of observed errors using relationship –
 Ft + 1 = Ft + d et

Where Ft + 1 = forecast for the year t+1

d = smoothing parameter

et = is the error in the forecast for the year t

(iii) Moving Average Method → In this method forecast for next period
is equal to the average of sales in several preceeding years.

Casual Method → It uses the phenomenon of change in one parameter

due to the change in another parameter to develop a cause effect
relationship which can be converted into quantitative method.

(i) Chain Ratio Method – Under this method the potential sales of a
product may be estimated by applying a series of factors to a measure of
aggregate demand. It uses a simple analytical approach for estimating
demand. Its reliability depends upon the ratio and rates used in the
process, one ratio leads to another.

(ii) Consumption level Method – It is used for products which are

directly consumed. Consumption level is estimated on the basis of
elasticity co-efficient for a product.

(iii) End user Method – It is suitable to estimate demand of

intermediate products and it involves following steps –

 Identifying the possible uses of product

 Identifying the consumption co-efficient of the product for various uses.
 Projecting the output level for consuming industries
 Deriving the demand for the product.
(v) Leading indicator method – There are Leading variables which
change ahead of other variables called lagging variables. For e.g.
Change in level of urbanization used to predict change in demand for
cars.

(vi) Econometric method – It involves estimating quantitative

relationships derived from economic theory.
(F) Market Planning →

In order to penetrate the market and achieve pre-determined objectives

an appropriate marketing plan must be developed covering all aspects
related to product, price, place and promotion. It involves the following
steps:-

Market Identification

The first step of market analysis is to define and

identify the specific market to target with new
products or services. Companies will use market
surveys or consumer feedback to determine their
satisfaction with current products and services.
Comments indicating dissatisfaction will lead
businesses to develop new products or services to
meet this consumer demand. While companies will
usually identify markets close to their current
product line, new industries may be tested for
business expansion possibilities.
Business Cycle

Once a potential market is identified, companies will

assess what stage of the business cycle the market
is in. Three stages exist in the business cycle:
emerging, plateau and declining. Markets in the
emerging stage indicate higher consumer demand
and low supply of current products or services. The
plateau stage is the break-even level of the market,
where the supply of goods meets current market
demand. Declining stages indicate lagging
consumer demand for the goods or services
supplied by businesses.

Product Niche

Once markets and business cycles are reviewed,

companies will develop a product that meets a
specific niche in the market. Products must be
differentiated from others in the market so they
meet a specific need of consumer demand, creating
higher demand for their product or service. Many
companies will conduct tests in sample markets to
determine which of their potential product styles is
most preferred by consumers. Companies will also
develop their goods so that competitors cannot
easily duplicate their product.

Growth Potential

While every market has an initial level of consumer

demand, specialized products or goods can create a
sense of usefulness, which will increase demand.
Examples of specialized products are iPods or
iPhones, which entered the personal electronics
market and increased demand through their
perceived usefulness by consumers. This type of
demand quickly increases the demand for current
markets, allowing companies to increase profits
through new consumer demand.

Competition

An important factor of market analysis is

determining the number of competitors and their
current market share. Markets in the emerging
stage of the business cycle tend to have fewer
competitors, meaning a higher profit margin may be
earned by companies. Once a market becomes
saturated with competing companies and products,
fewer profits are achieved and companies will begin
to lose money. As markets enter the declining
business cycle, companies will conduct a new
market analysis to find more profitable markets.

Project Risk Management: Introduction

Risk is inevitable in a business organization when
undertaking projects. However, the project manager
needs to ensure that risks are kept to a minimal.
Risks can be mainly divided between two types,
negative impact risk and positive impact risk.

Not all the time would project managers be facing

negative impact risks as there are positive impact
risks too. Once the risk has been identified, project
managers need to come up with a mitigation plan or
any other solution to counter attack the risk.

Project Risk Management

Managers can plan their strategy based on four
steps of risk management which prevails in an
organization. Following are the steps to manage
risks effectively in an organization:

 Risk Identification
 Risk Quantification
 Risk Response
 Risk Monitoring and Control
Step 1: Risk Identification

Managers face many difficulties when it comes to

identifying and naming the risks that occur when
undertaking projects. These risks could be resolved
through structured or unstructured brainstorming or
strategies. It’s important to understand that risks
pertaining to the project can only be handled by the
project manager and other stakeholders of the
project.

Risks, such as operational or business risks will be

handled by the relevant teams. The risks that often
impact a project are supplier risk, resource risk and
budget risk. Supplier risk would refer to risks that
can occur in case the supplier is not meeting the
timeline to supply the resources required.

Resource risk occurs when the human resource

used in the project is not enough or not skilled
enough. Budget risk would refer to risks that can
occur if the costs are more than what was budgeted.

Step 2: Risk Quantification

Risks can be evaluated based on quantity. Project
managers need to analyze the likely chances of a
risk occurring with the help of a matrix.

Using the matrix, the project manager can

categorize the risk into four categories as Low,
Medium, High and Critical. The probability of
occurrence and the impact on the project are the
two parameters used for placing the risk in the
matrix categories. As an example, if a risk
occurrence is low (probability = 2) and it has the
highest impact (impact = 4), the risk can be
categorized as ‘High’.

Step 3: Risk Response

When it comes to risk management, it depends on

the project manager to choose strategies that will
reduce the risk to minimal. Project managers can
choose between the four risk response strategies,
which are outlined below.

 Risks can be avoided

 Pass on the risk
 Take corrective measures to reduce the
impact of risks
  Acknowledge the risk
Step 4: Risk Monitoring and Control

Risks can be monitored on a continuous basis to

check if any change is made. New risks can be
identified through the constant monitoring and
assessing mechanisms.

Risk Management Process

Following are the considerations when it comes to

risk management process:

 Each person involved in the process of

planning needs to identify and
understand the risks pertaining to the
project.
 Once the team members have given their
list of risks, the risks should be
consolidated to a single list in order to
remove the duplications.
 Assessing the probability and impact of
the risks involved with the help of a
matrix.
 Split the team into subgroups where each
group will identify the triggers that lead to
project risks.
 The teams need to come up with a
contingency plan whereby to strategically
eliminate the risks involved or identified.
 Plan the risk management process. Each
person involved in the project is assigned
 a risk in which he/she looks out for any
triggers and then finds a suitable solution
for it.
Project Risk; an Opportunity or a Threat?

As mentioned above, risks contain two sides. It can

be either viewed as a negative element or a positive
element. Negative risks can be detrimental factors
that can haphazard situations for a project.

Therefore, these should be curbed once identified.

On the other hand, positive risks can bring about
acknowledgements from both the customer and the
management. All the risks need to be addressed by
the project manager.

An organization will not be able to fully eliminate or

eradicate risks. Every project engagement will have
its own set of risks to be dealt with. A certain degree
of risk will be involved when undertaking a project.

The risk management process should not be

compromised at any point, if ignored can lead to
detrimental effects. The entire management team of
the organization should be aware of the project risk
management methodologies and techniques.

Enhanced education and frequent risk assessments

are the best way to minimize the damage from
risks.

Types of Project Risk

Complex projects are always fraught with a variety
of risks ranging from scope risk to cost overruns.
One of the main duties of a project manager is to
manage these risks and prevent them from ruining
the project. In this post, I will cover the major risks
involved in a typical project.

1. Scope Risk
This risk includes changes in scope caused by the
following factors:

 Scope creep the project grows in

complexity as clients add to the
requirements and developers start gold
plating.
 Integration issues
 Hardware & Software defects
 Change in dependencies
2. Scheduling Risk
There are a number of reasons why the project
might not proceed in the way you scheduled. These
include unexpected delays at an external vendor,
natural factors, errors in estimation and delays in
acquisition of parts. For instance, the test team
cannot begin the work until the developers finish
their milestone deliverables and a delay in those
can cause cascading delays.

To reduce scheduling risks use tools such as a Work

Breakdown Structure (WBS) and RACI matrix
(Responsibilities, Accountabilities, Consulting and
Information) and Gantt charts to help you in
scheduling.
 3. Resource Risk
This risk mainly arises from outsourcing and
personnel related issues. A big project might involve
dozens or even hundreds of employees and it is
essential to manage the attrition issues and leaving
of key personnel. Bringing in a new worker at a later
stage in the project can significantly slow down the
project.

Apart from attrition, there is a skill related risk too.

For instance, if the project requires a lot of website
front end work and your team doesn’t have a
designer skilled in HTML/CSS, you could face
unexpected delays there.

Another source of the risk includes lack of

availability of funds. This could happen if you are
relying on an external source of funding (such as a
client who pays per milestone) and the client
suddenly faces a cash crunch.

4. Technology Risk
This risk includes delays arising out of software &
hardware defects or the failure of an underlying
service or a platform. For instance, halfway through
the project you might realize the cloud service
provider you are using doesn’t satisfy your
performance benchmarks. Apart from this, there
could be issues in the platform used to build your
software or a software update of a critical tool that
no longer supports some of your functions.

Risk Analysis
Risk analysis is the process of identifying and
analyzing potential issues that could negatively
impact key business initiatives or critical projects in
order to help organizations avoid or mitigate those
risks.

Benefits of Risk Analysis

Organizations must understand the risks associated

with the use of their information systems to
effectively and efficiently protect their information
assets.

Risk analysis can help an organization improve its

security in a number of ways. Depending on the
type and extent of the risk analysis, organizations
can use the results to help:

 Identify, rate and compare the overall

impact of risks to the organization, in
terms of both financial and organizational
impacts;
 Identify gaps in security and determine
the next steps to eliminate the
weaknesses and strengthen security;
 Enhance communication and decision-
making processes as they relate to
information security;
 Improve security policies and procedures
and develop cost-effective methods for
implementing these information security
policies and procedures;
  Put security controls in place to mitigate
the most important risks;
 Increase employee awareness about
security measures and risks by
highlighting best practices during the risk
analysis process; and
 Understand the financial impacts of
potential security risks.
Steps in Risk Analysis Process

The risk analysis process usually follows these basic

steps:

(i) Conduct a risk assessment survey: This first

step, getting input from management and
department heads, is critical to the risk assessment
process. The risk assessment survey is a way to
begin documenting specific risks or threats within
each department.

(ii) Identify the risks: The reason for performing

risk assessment is to evaluate an IT system or other
aspect of the organization and then ask: What are
the risks to the software, hardware, data and IT
employees? What are the possible adverse events
that could occur, such as human error, fire, flooding
or earthquakes? What is the potential that the
integrity of the system will be compromised or that
it won’t be available?

(iii) Analyze the risks: Once the risks are

identified, the risk analysis process should
determine the likelihood that each risk will occur, as
well as the consequences linked to each risk and
how they might affect the objectives of a project.

(iv) Develop a risk management plan: Based on

an analysis of which assets are valuable and which
threats will probably affect those assets negatively,
the risk analysis should produce control
recommendations that can be used to mitigate,
transfer, accept or avoid the risk.

(v) Implement the risk management plan: The

ultimate goal of risk assessment is to implement
measures to remove or reduce the risks. Starting
with the highest-priority risk, resolve or at least
mitigate each risk so it’s no longer a threat.

(vi) Monitor the risks: The ongoing process of

identifying, treating and managing risks should be
an important part of any risk analysis process.

Risk Mitigation Strategies

Risk Mitigation

All organizations face risks. These risks may be

internal, such as inaccurate sales projections or
insufficient protection of valuable assets such as
inventory. Risks may also be external, such as the
risk of a natural disaster or an economic crisis.
Whatever the cause, managers of organizations
should be attentive to potential risks and how they
can protect the organization from these risks.

Protecting an organization from the impact of risk

events by using different techniques is called
mitigating risks. Mitigation techniques aim to lower
the potential impact of a risk and decrease the
likelihood of the risk event from occurring. There are
four primary mitigation techniques that may be
used and together form the TARA framework:
Transference, Avoidance, Reduction/mitigation, and
Acceptance.

Transference

Transference is a risk mitigation technique that

involves transferring all, or some, of the risk to
another party. Take a minute and think if you can
come up with an example of risk transference in
your personal life. When do you transfer or share
risk with another person or company?

Did you identify insurance, such as automobile

insurance or health insurance? Think about what
that insurance provides. In exchange for a fee,
insurance companies will help you deal with the
impact of a risk, such as a car accident or injury.
This is exactly what companies and organizations
can do with some of the risks they face. Through
purchasing insurance, organizations can share
exposure to certain risks with an insurance
company.

Avoidance

Sometimes, the management can decide that the

potential impact of a certain risk is not worth
accepting. If the management does not want to deal
with the risk, they can simply avoid it. However,
note that avoiding the risk is not always an option.
As an example of avoiding risk, imagine a large
company that wants to expand their operations into
a volatile region of the world. While they may be
able to lower costs or access a new market, they
know that operating in a volatile region may include
risks to their business, their employees, and their
brand. After weighing the costs and benefits, if the
company decides that the risk is not worth the
potential reward and therefore does not expand,
they are avoiding the risk. Avoidance occurs
whenever something is not done because of the risk
involved.

Reduce

This means to reduce the risk exposure probably by

carrying out the activity in a different way. For
example, this strategy is suitable when the risk does
not have significant impact but likely to occur. This
is to reduce the likelihood of occurrence by using
different method to carry out the activity. However
if reduction cannot be done, company might have to
accept the risk if it does not have significant impact
or avoid it if otherwise.

Accept

This means to accept the risk and do nothing. For

example, this strategy is suitable when the risk has
a low impact and low probability of occurrence. This
is because the risk is not really a matter even if it is
realised.