subject: Importance Of Risk Management [print this page] In this article Im going to discuss about the importance of the risk management in project management.
First, let us have a quick look in risk definition, then we will move in detail to the importance of risk management.
As per the PMBOK guide 4th Edition,
A risk is an uncertain event or condition that, if it occurs, has an effect on at least one project objective.
Most people often think that the risk is always harmful; however, it is not. If you pay attention to above definition of risk, it says that the risk is an uncertain event or condition, which if occurs has an effect on at least one project objective. This definition does not say that affect should always be negative
Therefore, a risk is not always harmful to the project; sometimes it also brings some fruitful consequences.
A risk can be categorized into two types:
1. Negative Risk or threats
2. Positive Risk or opportunities.
Negative Risks: A risk that if occurs can bring some negative impacts on any project objectives then it is called a negative risk. Negative risks are also known as threats.
Positive Risks: This is a risk that if occurs can bring some positive affect on at least one project objective. Positive risks are also known as opportunities.
Many organizations think that the risk management is a separate job for them to manage. They find it very time-consuming and costly. Project Managers also find them very busy to do risk management job.
Planning risk and managing them is neither a separate plan nor it is managed in a vacuum. Risk management is an integral part of the project planning and helps project managers to complete the project successfully by proactively managing the problem he may face on the project.
It is very important for a project manager to understand the importance of risk management. Unless he understands it properly, he would not be able to implement it fully.
Project failure, delays, cost overruns and after sales defects are few examples of result of not following the risk management in the project.
Your projects success depends on how you carry out the risk management concept in your project. Sometimes it is very difficult to convince the management about the benefit of risk management but once you show them the real benefit of it, surely they will listen to you.
Risk management is proactive instead of reactive. Here, you identify the risks before they happen and take action to deal with them.
Managing the risk before it happens is less costly than the cost you spend once it occurs.
Few example of not following the risk management:
Indian biggest automaker, Tata Motors has recalled 140,000 NANO (worlds cheapest car) cars to replace the faulty starter motor at free of cost to the customers. The exercise to replace this electrical component cost them about Rs 115 million.
Honda Motors also recalled around 60,000 Honda City cars to replace the faulty engine part.
Toyota also recalled its vehicle in the USA after many accidents occurs on some Toyota cars. There was some problem with the braking and pedal system. About 8 million cars were recalled by the Toyota Corporation to rectify the errors, which cost them a lot of money.
From above examples, you will have been guess that how much a risk can be expensive if it is managed after the occurrence of it. Not only you will lose the money but also you will lose your customer trust and your brand establishment.
Hence, following the risk management practice minimizes the chance of happening of risks and consequently cost to company to keep up its product and brand and retain the trust of customer.
