Categorizing Risks in Seven Large Projects-Which Risks Do The Projects Focus On
Categorizing Risks in Seven Large Projects-Which Risks Do The Projects Focus On
Categorizing Risks in Seven Large Projects-Which Risks Do The Projects Focus On
ABSTRACT
INTRODUCTION
here are numerous publications that show that projects often fail to
meet their cost or schedule target or provide intended benefits, and
there are numerous solutions to solve that problem. One of the early
approaches to improve this was to focus on success factors. Pinto and
Slevin (1987) were among the first to publish success factors. Their ten success factors include project mission, management support, schedule/plan,
client consultation, client acceptance, personnel, technical aspects, monitoring, communication, and feedback. A couple of years later, Duffy and
Thomas (1989) published a study giving the main causes of unsuccessful
projects. The most important were part-time project management, inappropriate organization, inadequate definition of scope, poor planning and
change order control, and risk not identified. It is interesting to note that the
study by Duffy and Thomas has risk as an important factor, whereas Pinto
and Slevin do not mention this in their list. Recent thinking focuses significantly on risk (Maytorena, Winch, Freeman, & Kiely, 2007; Miller & Lessard,
2001; Moynihan, 1997; Simister, 2004). Risk management is considered by
many to be the essence of project management.
Hetland, Sandberg, and Torsy (2005) have studied 44 capital projects
and suggest a new understanding of project-specific uncertainties and offer
a proactive communication strategy that will outwit attackers attempts to
escalate cost deviations. A recent study of mega-oil sand projects in Canada
(Jergeas, 2008) points in the same direction as it highlights overly optimistic
original cost estimates and schedules. Some practitioners have started to
look at volatility as an expression of uncertainty in projects (Costa Lima &
Suslick, 2006).
Today, risk is considered to be a major factor influencing project success,
and Project Risk Management is an important activity in any capital project.
Project Risk Management is also one of the nine Knowledge Areas in
the Project Management Institutes (PMIs) standard A Guide to the Project
Management Body of Knowledge (PMBOK Guide; 4th ed.; 2008a). It is also
part of most maturity models including PMIs Organizational Project
Management Maturity Model (OPM3; 2008b). In 2009, PMI published the
Practice Standard for Project Risk Management. Several authors have published Project Risk Management approaches (Chapman & Ward, 2003; Gareis,
2005; Hartman, 2000; Kerzner, 2006; Morris & Pinto, 2004). The classical
approach to Project Risk Management normally contains four to six steps.
The underpinning idea is to identify risk factors, evaluate and analyze them,
and finally try to manage them. The analysis may be purely qualitative or
quite sophisticated quantitatively.
KEYWORDS: risk management; uncertainties; strategic and operational risks; risk categories
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Research Questions
In this article, a simple categorization of
risks/uncertainties is used, where a distinction is made among operational,
short-term, and long-term strategic
risksbeing risks to project objectives
at different levels. Within such a categorization, many authors have claimed
that the uncertainty is at its largest in
early project stages and that the strategic risks are of greater importance
in the earlier phases of the projects, and
the operational risks in the later phases
(Christensen & Kreiner, 1991; Jaafari,
2001; Samset, 1998). However, Miller
and Lessard have given indications
(2000) that in large engineering projects
that were studied, there was also typically a greater impact from strategic
risks in longer periods of the later stages
of the projects.
So what is the case with the projects
that may be observed today? Do we find
that the projects are struggling with
strategic risks even in the late implementation phase, or are only operational risks found in this phase? Are
there other factors influencing the
dominance of operational risks than
just the project phase? And how are the
Risk Categories
It is possible to construct an abundance
of different risk categorizationsand it
has been done. The obvious, pragmatic
approach is to sort the risks in groups
based on common features. For example, risks are sorted by organizational
areas, technical areas, or contract areas.
So-called risk-breakdown structures
(Hillson, 2004; PMI, 2008a) may also be
used as frameworks for such classifications. Our assertion to the majority of
such classifications is the following:
The selection of categories often seems
to be based on a tradition (e.g., the
organization or professional area) of
how to organize ones world. Or they
may have a more operational purpose
for the risk reduction in a given project,
as discussed by Hillson (2004, pp. 130 ff).
Therefore it will implicitly be organized
according to what in our close surroundings we regard the risk to be a risk
against. Or it will be organized according
to who or which area is the most affected. However, for our study, this pragmatic view of risks should be replaced by a
more generic view, requesting a more
generic categorization.
The purpose of this study is to investigate the contribution from Project Risk
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The Study
Method and Subject of Study
For this study, a combined approach
was chosen, using both qualitative and
quantitative data-collection methods
(Creswell, 2003; Flyvbjerg, 2006). An
introductory interview for each project
provided insight into their differences
and similarities. Data were collected
from the risk registers in the projects
over a period of six months. Follow-up
interviews were conducted with selected persons in order to give better
insight into specific aspects brought to
light through the data analysis.
The main data source for this article
was the reports with data extracted
from the project risk registers. This has
been supplemented (to some extent)
with information from the interviews.
The projects studied may all be characterized as engineering and construction
projects, and they are all large projects
(i.e., projects with total costs of 100 million euros [M] or more).
The projects studied are in different
project phases, varying from one that
has not yet made all decisions on conceptual choices to one that is close to
takeover and start-up of production.
For the study, all identified risks
were categorized according to their
possible impact to the projects or the
organizations objective levels: operational, short-term strategic, and longterm strategic. A set of criteria was
established, making it possible to categorize the risks based on the information in the risk register.
84
Results
The study was based on an extract of all
the seven projects risk elements, both
open and closed, as they occurred in
their risk registers at the end of
September 2008. Based on the descriptions given in these registers and the
criteria for the categories given in previous sections of this article, the risk elements were categorized. A summary of
the results is presented in Table 1.
Table 1 is based on a total of 1,313
risk elements registered in the seven
projects from April 2005 until September
2008. In all projects, the operational risks
are dominating the totals. This is particularly true in Projects B, D, and G
(9698%). In all projects, the long-term
strategic risks are making up a negligible
fraction (02%, overall 0.5%).
Discussion
There are a number of possible
explanations as to why so few strategic
risks are identified, and in some projects almost none:
Strategic risks do not occur at this
stage.
Long-term strategic risks are not the
projects responsibility.
Strategic risks are mainly the asset
owners responsibility.
Strategic Risks Do Not Occur at This
Stage
Many issues have been resolved at earlier project stages. Most of the strategic
Type of Risk
Project
Operational
Short-Term Strategic
Long-Term Strategic
81%
19%
0%
98%
2%
0%
89%
9%
2%
96%
4%
0%
86%
14%
0%
88%
11%
1%
97%
3%
0%
Sum
90%
10%
0%
Conclusions
For this study, all identified risks were
categorized according to their possible
impact to the projects objectives. An
operational set of criteria was established, making it possible to categorize
the risks based on the information
in the risk register.
In a study of 1,313 risk elements
identified in seven large projects, operational risks were making up a dominating part of the total number (90%).
Some possible reasons for this have been
discussed, and will be further explored in
forthcoming studies. Though strategic
risks are not commonly regarded as the
projects responsibility to manage, it is
in the asset owners interest that projects contribute in identifying strategic
risks. This is brought about by the fact
that such risks may present major
threats or opportunities for project success.
Further Work
Further studies based on the data gathered in this study should be focused on
how risks of different categories are
handled in the different projects studied, and at different stages of the projects. Further studies will also be made
regarding the involvement of actors
outside the project team, in particular
representatives from the project owner
(and company management).
Other investigations should be
made on the relation to project (budget)
sizea number of risks per million
spent factor may give some insight
into the risk management in the different projects. Number and type of risks
identified should also be related to the
duration of the projects.
All projects in the organization studied here are performed according to a
structured decision process model. In
this model, the projects at certain welldefined decision points are evaluated
to determine whether they should be
further developed or whether all further
development should be stopped. A further study focusing on number and type
of risks identified, relating this to the
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