Case Study: Risk Management Plan
A risk management plan is crucial for organizing and optimizing any activities. The reason is that it allows addressing all sorts of risks in a systematic way and contributing to the team’s sustainability. Using risks management techniques is a useful approach to specifying the major areas of concern as well as their negative impact on the financial and other aspects of the plan. Although the exact quantitative probabilities cannot be always determined, one can rank risks according to their significance and potential impact. This paper examines the challenges experienced by team members working on a satellite development project. The potential negative issues that could be experienced in the absence of the risk plan are analyzed. The paper also justifies and assesses the value of the risk plan in light of the system of assessing the optimal level of risks management for the project being proposed. The corresponding conclusions are formulated. In general, the correctly implemented risk management techniques may contribute to the project’s sustainability and the team’s competitive potential.
If the team did not have the risk management plan, it could experience substantial problems both in the short and long run. In the short run, the team could invest its scarce resources non-rationally. As risks were not assessed, they would orient only to those spheres that could generate the highest possible returns. In the long run, ignored risks could result in unprecedentedly low returns and even losses. As the team had very limited resources, it was likely to leave the industry being outperformed by other firms. Thus, the absence of the risk management plan could lead to highly negative consequences for the team (Browning & Ramasesh, 2015). Such a situation could be a critical factor preventing long-term business success.
The team should always be able to determine the major impacts of risks. If it is possible, presenting risks in the precise quantitative form would be of great assistance to the team members. In this way, risks can be computed, calculated, and compared with one another. Moreover, the team may even construct complex statistical and other models relying on the assessed levels of risks (Dixit, Srivastava, & Chaudhuri, 2013). However, one cannot always identify the extent and detrimental effects of risks accurately, especially on an ex-ante basis. In such cases, the proper classification of the risks might facilitate the development of potentially successful mitigation strategies.
First of all, the likelihood of desired and undesired potential events ought to be determined. The team may present the issue in a form of probability scale where they are ranked from “very likely” to “very unlikely” (Browning & Ramasesh, 2015). As a result, the tool will allow detecting the level of risks associated with every negative event. The team may orient to presenting them in financial terms for future comparison and optimization. The risks can be ranked from “severe” to “low” (Browning & Ramasesh, 2015). All team members should be aware of severe risks because they influence the team’s performance directly. In relation to low risks, they can be dealt with only by those members who are responsible for specific operations. The changes that affect the distribution of risks need to be explicitly communicated through making corresponding adjustments in the electronic presentation system that may be developed. This approach will economize resources and time for all team members.
In order to be financially successful, any team should have an opportunity to evaluate the actual and expected value of risk plans. The following key aspects have to be evaluated: time, efforts, costs, and resources needed for developing a specific plan. Furthermore, the factor of time ought to be analyzed from the perspective of each team member and the project in general. Other things being equal, the plan that requires less time is preferable in comparison with others. Therefore, those alternatives that require much time may be excluded from consideration from the start. Time is also very important because consumer preferences tend to change constantly, and even effective innovations can lose their positions over time (Mathur, Jugdev, & Fung, 2013). In addition, team members have to economize both physical and mental efforts of all people involved. The role of the latter ones is especially valued nowadays as all entrepreneurial decisions require non-standard solutions.
Team members can present their efforts in monetary units in order to calculate the expected costs, revenues, and profits correctly. The situation may constitute a difficult process since some elements of the project can be implemented with the help of the efforts of several individuals. In this case, it is reasonable to assess the marginal impact of a given team member through determining the difference between the total product and that obtained in the absence of his or her contribution in the teamwork (Mathur et al., 2013). The efforts should be distributed in a way where all of them generate equal marginal labor product. This circumstance will lead to the maximum total output under the existing resources restrictions.
The project team needs to be highly concerned with the amount of average and total costs. On the one hand, this indicator ought to be below the ultimate market price for the team’s products and services. On the other hand, the difference between the total revenues and costs should be maximized. For this reason, the introduction of new and innovative technologies is to be regular. At the same time, team members have to utilize only those resources and factors of production where the prices for them are not higher than their expected discounted marginal product. Otherwise, the team could suffer marginal losses.
In any case, the major principle that should be used while selecting and adjusting the plan is comparing the expected marginal revenues and costs (Spalek, 2014). If the expected revenues exceed costs, the plan can be adopted. When the situation is reversed, it has to be revised as better alternatives exist in the market. The marginal analysis can be also applied to all major elements of the project rather than only to the project in general. Although all issues related to the project management are significant, the critical path requires the major attention due to that it is the longest sequence of operations to be completed in order to realize the whole project within the time allocated to its implementation. Some delays are possible in other elements of the overall project implementation while any deals in the critical path result in the inability of the team to complete the project on time (Pene & Stok, 2014). Therefore, the selected method should allow for dealing with this problem properly.
Thus, the critical path method seems reasonable to use for scheduling and coordinating all project activities. This option is optimal because this method orients to critical path requirements from the start rather than addresses it as a complementary or secondary issue. The project manager needs to develop a list of all activities that should be completed for the realization of the project. The next issue to specify is the duration of every activity. Moreover, the sequence and relationships between all operations should be determined (Pene & Stok, 2014). Finally, logical issues and existing restrictions should be introduced in the model. In this way, the team may construct the entire set of activities. On this basis, the longest acceptable path can be determined. Team members have to verify and control closely all activities that correspond to this path.
In order to ensure that the project meets the necessary requirements and the selected critical path is correct, several additional approaches can be used. First, team members may consult with the experienced independent experts in this field. The experts can make reasonable suggestions about the potential risks and threats that are not mentioned in the plan. Second, the team can organize an additional analysis of risks with the help of available statistical and economic methods. They can assign the expected probabilities to different events and calculate the anticipated outcomes. The estimated positive or negative effects can be multiplied by the probability, and the ultimate expected result can be obtained (Pene & Stok, 2014). For example, if the team expects that it can suffer from $1,500 of losses with the probability of 30%, the expected result is equal to ($1,500) * 0.3 = $450. In the same way, the estimated results may be compared in all alternative paths, and the optimal solution can be determined.
The level of risk should be adjusted when any changes in the external environment occur. Adjusting the appraisal of risks is possible on the basis of the observed trends and extrapolating them into the future. For example, if risks in a given industry tend to increase around 5% per year, the assumption that this trend continues to exist in the future allows making reliable predictions (Wu & Passerini, 2013). Moreover, as all team members are aware of the major risk factors with the help of the electronic system, they can make their independent estimations and inform other team members if they believe that some risks are under- or overestimated.
Drawing upon discussion, the only way of determining the optimal level of risks for the project is by comparing the expected results with the corresponding probabilities for all available alternatives. The option with the highest possible outcome should be selected. Correspondingly, the level of risks that relates to such an option may be optimal in this case. However, some additional considerations ought to be taken into account. In particular, new project teams should not be involved in highly risky projects in the majority of cases because the lack of experience often does not allow assessing the existing risks properly. Therefore, such teams need to participate in more reliable projects first and then assess the expected risks and benefits of more risky alternatives.
If the team working on the satellite development project was virtual, this circumstance could pose some problems since the communication between members would become more difficult. Nevertheless, modern technologies allow solving these problems effectively. The expected impact could be negative if the optimal response strategy was not developed, and neutral, if the actions of team members are well-balanced (Wu & Passerini, 2013). In order to maintain the team’s current goals, the two aspects should be considered. First, one of the factors is the creation of the well-developed virtual environment reflecting all risks and corresponding corrections made by all team members. Second, the functions of all team members, especially in the context of the critical path, ought to be distributed correctly.
In conclusion, a variety of issues and challenges requires being addressed properly in order to implement effective risk management plans. One of the major difficulties is associated with the correct assessing of risks ex-ante. As the external business environment is always uncertain, there is an ultimate need to assess the expected probabilities in relation to the major classes of risks or at least classify them properly. The major attention should be paid to investigating the critical path of the project whereas any delays in this context will result in the global problems with the timely realization of the project. If the proper virtual environment with all information about risks is created, and the responsibilities of all team members are distributed correctly, even virtual teams may perform their functions successfully.