Project risk management in R&D organizations Research Paper

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[. . .] The different types of risk depend on contract type, vendor history, items or services being purchased, or even the uncertainties of the projects schedule, scope or budget. Potential risks are quite diverse and need proper planning to mitigate on them. For instance, if a company held a close relationship with a vendor who, unfortunately, would not supply the anymore, the PMO must find a way to manage the risk that the company is exposed to in such a scenario.

Some of the potential procurement risks that a company is likely to encounter include:

(1) unrealistic cost and schedule expectations from vendors: the vendors might ending quoting very high costs for the services or even providing ridiculous schedules for them to meet the company’s needs

(2) Manufacturing volume competencies of the vendors: the vendor’s manufacturing capacity might do not be accommodative of the company’s requirements.

(3) Configuration management for improvements and upgrades of the purchased technology: with the ever-changing technology, it is possible to procure technology that will become obsolete in few years thus need for an upgrade.

(4) Potential delays in the shipping and impacts on cost and schedules: some delays are inevitable while others are fabricated.

(5) Questionable past performance for vendors: Since any other vendor is invited to bid, there is great possibility of getting some on board who cannot be trusted

(5) Potential that final product does not meet required specifications.

Risk Management

In project management, risk management forms an integral part, and one of the most challenging parts relates to identifying and managing risks. Risk management within the context of project management is a widely researched area. According to Doloi (2012), project managers must effectively identify, evaluate, and mitigate risks relating to time, cost, and operational aspects. Literature extensively demonstrates that effective Risk Management is a crucial ingredient of project success (Banaitiene, Banaitis & Norkus, 2011; Ryu, Lim & Suh, 2016). More specifically, effective project risk management can lead to improved quality and productivity, reduced costs, as well as greater stakeholder satisfaction.

As defined by Tohidi (2011), risk management is the identification and assessment of risk and mitigating it to an acceptable extent. Therefore, the primary purpose of projects risk management entails the identification, evaluation, and regulation of the risk to ensure that the project is successful. The main steps in risk management include planning, identifying the risk, quantitative and qualitative assessment, and analyzing the risk. The subsequent steps include responding to the risk, monitoring it and recording management process (Hwang, Zhao &Toh, 2014).

Various studies have been done on project risk management in the past few decades and especially in the construction sector. The concept of risk aversion in the procurement sector has also increasingly gained attention from scholars who acknowledge that it is important to remedy the situation to face the global competition challenge (Hwang, Zhao &Toh, 2014). One of the key facts pointed in literature is that allowing risk sharing and reducing risk aversion strengthens the process of project procurement. Risk management in procurement has been identified to be among the key focus zones of modern procurement management practices.

For a project development to succeed, the risk management strategies should be put in place. It must be appreciated that risk management reduces costs. For instance, in construction projects, private customers pay more than public ones depending on the risk management strategies. Overall, it indicates that the supplier assumes the risks that determine the price imposed on them by the procurer.

Procurement Risk Management

Most organizations regardless of their maturity, size or industry have key concerns regarding the management of the growing scrutiny and complexities around risk in their-party relationships. Each subcontracted relationship presents its unique set of risks with which companies are challenged to respond effectively depending on the standards of the specific industry (Amann, Roehrich, Eßig& Harland, 2014). Nowadays, businesses must provide a clear understanding of the inherent risks in their business relationship with outside parties. With appropriate techniques, framework, and tools, the procurement function can work effectively and closely with all areas of an organization to prove to the regulators and partners that third parties are properly vetted and scrutinized throughout the relationship.(Amann et al., 2014). For business leaders to reduce exposure to risk and establish stronger relationships with suppliers, service providers, and delivery party, they should recognize and actively address the third-party issues. Therefore, establishing strong risk management standards requires the involvement of all stakeholders before bringing on board any third party.

Benefits of Risk Management

According to Deng and Low (2013), construction companies should implement project risk management because most of these companies encounter diverse and complex risks. Some of the benefits of project risk management in procurement include that it helps in developing pragmatic strategies, increases comprehension of the risks involved in a project, evaluating eventualities that reflect the risks, increase advantages from a more rational risk-taking, and identifying the most appropriate party to handle the situation. With risk management strategies in place, decision makers can approach risks more realistically. Proper risk management also reduces programmatic and technical risks, averts risks at a minimum cost when identifies earlier enough, and removes unnecessary contingencies.

Subsequently, properly implemented project risk management reduces losses and maximizes benefits, but there should be a significant investment of resources. Once the benefits become convincing, the cost of project risk management can be justified (Zhao, Hwang & Phng, 2014). Failing to establish the risk management strategies results in a delayed decision-making process, and the decisions made based on costs are mostly detrimental to the schedule performance of the project. When a preventive procurement risk management is adopted, the project procurement team can see the risks that are not apparent. Some of the risks cannot be learnt from a textbook, and a comprehensive preventive risk management program provides an in-depth comprehension of any risk. Furthermore, many board members might find it challenging to identify risks beyond their experience and expertise level. However, they can easily discharge their duties when the relevant resources and advisory services are availed.

An effective risk management program during a procurement activity increases the transparency and understanding of the risks. Previous failures of procurement projects were due to the inadequate comprehension of the risk (Zhao, Hwang, & Phng, 2013).With this program, executives can easily learn about any procurement risk and focus on developing mechanisms of mitigating them. The process also enhances accountability regarding the management of the risks. The process also ensures better analysis and reporting of the risks. Previous risks should be well documented as a process of minimizing the possibility of re-occurrence of the same risk. With an emerging risk, the information is quickly gathered and disseminated to the suitable actors to manage the risk. Fundamentally, risk management optimizes the monitoring and control of the risks.

It is important to cultivate the culture of risk management within an organization, which can easily be achieved by formulating a risk management program. As such, all team players assume a consistent philosophy and language regarding risk (Deng & Low, 2013). Therefore, the risk management process would be uniform and effective as key players identify their roles. Ultimately, it enhances decision-making and strategic planning.

Supporting Theories

Risk management is based on the risk management framework. The framework identifies four steps in the risk management process: risk identification, risk assessment, risk mitigation, and risk monitoring (Banaitiene, Banaitis & Norkus, 2011). The model is widely used in diverse organizational settings. The model provides a rather straightforward framework for recognizing project risks and implementing risk mitigation measures.

Risk Identification

Risk identification is a significant stage in the risk management process. This process requires the project manager to think critically, discover the probable risks at every phase of the project. Risk identification requires imagination and creativity thus the experience and skills of others should be harnessed(Renuka, Umarani& Kamal, 2014). Some of the thinking approaches to be employed include brainstorming, interviewing groups, or individuals or check listing. The process should be carefully examined and the project managers should be able to identify the positive risk. Studies indicate that most seasoned project managers place a keen focus on poor quality, over expenditure and late delivery of the project products and but early delivery can also cause significant challenges.

Risk Assessment

The process involves evaluating the risks against risk indicators and establishing the acceptability of each one of them. It is followed by generating alternate routes of action for risks, which fail to meet the acceptability benchmarks (Renuka, Umarani& Kamal, 2014). Therefore, the project manager should classify risk and sort them in order of priority. This process improves the information on and the management of risk.

Risk Mitigation

It is the process of decreasing the extent of risk exposure or occurrence systematically. The ultimate purpose of identifying and analyzing risks is to prepare for the mitigation process. Mitigation entails reducing the possibility that a risk will occur or reduce the effect of the outcome once it occurs. Planning for risk management… [END OF PREVIEW]

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Project risk management in R&D organizations.  (2017, September 14).  Retrieved January 20, 2020, from

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