The success and failure of project mostly depends on the perceptions of its stakeholders (Bourne and Walker 2008). Project manager needs to manage both the expectations and perceptions of its stakeholders within the capacities and capabilities. Success in project is an ambiguous, inclusive and multidimensional concept and its performance is measured to a specific context (Ika et al. 2010). Due to globalized project environment, there are increasing concerns to managing associated risks in order to fulfill project objectives (Artto et al. 2008). There still lacks addressing of risks arising from organizations involved in project networks (Chapman and Ward 2002, 2003; Ward and Chapman 2003).
In project management context, risk is organized at the highest level of management, with a global vision (Suslick and Schiozer 2004; Aven and Vinnem 2005). It is often scaled as positive (business opportunities) or negative (operational hazards or threats) and can be external risks (customers’ demands, market competition, suppliers, government actions, environmental protections, etc.) and internal risks (products, resources, processes, new technology, etc.). Different approaches are often considered by the manufacturers to mitigate probable risk such as identification, scaling, ranking and prioritization. These mitigation plans are stored in the knowledge base that is made available for future use (Miller and Waller 2003).
With respect to project-based risk management perspective, it is important to quantifying associated risks in terms of their detrimental effects on projects performances. This quantification allows defining the possibility of deviation in the results from the expected goals. It also helps managers to estimate quantitatively the potential risk level of a project before necessary resources are allocated. In order to quantify the risk, it is necessary to collect assessment information to build a risk estimation model for project-based business. The manager has to make significant effort to align risk with the organizational strategic decision in order to steer the project. At the same time, risks that are confronted during the course of the project can be managed most expeditiously with clear top management commitment. In order to have successful risk management effort in projects, upper management must communicate to the affected project units, motivate movement and step in to resolve differences that caused risks.
Various risk management frameworks with their contributions
From the literature review, it is noticed that extensive works have been done to managing risk in project business; however, little researches are done on quantifying risks associated in managing projects. From this literature review, it is also revealed that quantification of risk factors is not widely used due to lack of knowledge and requirement of extensive effort. This research gap is explored within the scope of this research, wherein identification, analysis, quantification and management of identified risks in oil and gas industry project are highlighted through Monte Carlo simulation and RiskyProject Professional™ software.
Many construction projects fail to meet deadlines or they exceed the assumed budget. This scenario is particularly common in the case of innovative projects, in which too late identification of a high risk of delays and exceeding the assumed costs makes a potentially profitable project untenable. A high risk level, far exceeding the level of risk in standard non-innovative projects, is a characteristic feature of the realization phase of innovative projects. This is associated not only with greater complexity of the design and construction phases, but also with the problems with application of new technologies and prototype solutions, lack of qualified personnel with suitable expertise in specialized areas, and with the ability to properly identify the gaps between available and required knowledge and skills. This paper discusses the process of effective risk management in innovative projects on the example of the realization phase of an innovative, energy-efficient and sustainable building of the Laboratory of Intelligent Building in Cracow - DLJM Lab, from the point of view of DORBUD S.A., its general contractor. In this paper, a new approach to risk management process for innovative construction projects is proposed. Risk management process was divided into five stages: gathering information, identification of the important unwanted events, first risk assessment, development and choice of risk reaction strategies, assessment of the residual risk after introducing risk reactions. 18 unwanted events in an innovative construction project were identified. The first risk assessment was carried out using two-parametric risk matrix, in which the probability of unwanted event occurrence and its consequences were analysed. Three levels of risks were defined: tolerable, controlled and uncontrolled. Risk reactions to each defined unwanted event were developed. The following risk reaction types were considered: risk retention, risk reduction, risk transfer and risk elimination. Three-parametric risk matrix was developed to make it possible to assess risk after implementing risk reactions. The possibility of implementing risk management was inversely proportional to the probability of unwanted event occurrence and its contribution to the project outcome. Introducing this risk management strategy allowed to significantly reduce the risk of the innovative construction project. It proved to be an effective tool to reduce risk to an acceptable level. It had a significant contribution to carrying out the project within the assumed time, budget and quality standards.
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