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Risk management

Project Management meets Packaging - Part III: Risk Management

Eva-Marie Granz, Associate Partner, adensio GmbH, Germany

Every project that we undertake is defined by its uniqueness which also means that there are a lot of concepts and activities in the project which have never been done or tried before. Think for example of all the unknowns in finding new, innovate ways to produce 100% recycled drinking bottles. As we cannot be sure of the outcome of some of those undertakings, it is good practice to include risk management as an important part of managing your project. Risk management is to “identify, assess and control uncertainty during a project and as a result, improve the ability of the project to succeed” (http://prince2.wiki/ Risk, accessed on 27.01.2019). It forces us to think about what could go wrong during the life of our project and how to deal with it in a pro-active way.

Fig 1: Risk register (prior-response) ©adensio GmbH

Positive project risks i.e. project chances should be considered and identified as well. The focus in the following though is on risks which potentially could have a negative impact on project success and how to handle them. 

The typical approach to start off with risk management is to gather all possible risks in a risk register or risk log. This qualitative recording of risks, their uncertainty and their probability of occurrence allows you to get a first overview what you should look out for and also which actions you can take to deal with those risks. Once the risks are identified, it needs to be decided what the response to each of the risks should be in order to reduce the probability of the risk happening:

  • Avoid: e.g. the risk of faulty moulds being installed, needs to be avoided by testing them accordingly before the final installation.
  • Transfer: e.g. the risk of the new manufacturing machine not adhering to updated legal requirements, can be transferred to a specialised subcontractor company who will take full responsibility for this part of the project.
  • Reduce: e.g. the risk of a new company acquisition not being as successful as planned, can be reduced by comprehensive background and financial checks.
  • Accept: e.g. the risk of a modern drinking bottle design being rejected by consumers needs to be accepted.

Each risk can be ranked using a risk score (= probability of occurrence * impact). The aim is to generate a lower risk score per risk after the response action has been applied. It is also advised to assign a responsible person (or at least the lead department) to each risk, so that it is clear who has to organise, update and manage the risk responses and by when. The risk score heat map visualises the development of all risks from prior- to post-response. The heat map is a nice and easy way to initiate discussions and interaction within the project team about possible upcoming difficulties.

Fig 2: Risk score heat map (prior-response) ©adensio GmbH

A proven good way to start off to populate the initial risk register is to conduct a risk management workshop with a wide audience. Every project team member should get the chance to include his / her experiences or gut feeling regarding the upcoming activities and possible negative outcomes or uncertainties that might occur. By including team members from all departments and knowledge areas, a large heterogenous input is guaranteed. If project management processes are already established in the company, lessons learnt records from previous projects can also be used to ensure that all eventualities are considered in the risk register.

Once the risk log is created, it needs to be updated in regular intervals during the project life-cycle. It should be an actively used document which is refreshed and looked at as part of regular project status meetings. A risk register which is only once created at the start of the project and then neglected until the end, does not increase the chances of delivering the project successfully. The risk log review therefore is an iterative process and must take place frequently. New risks may evolve during the life of the project and other risks might no longer exist.

Companies with a higher project and risk management maturity can use quantitative risk analysis, as well as the already mentioned risk log. Quantitative risk analysis applies minimum, maximum and most likely values to calculate, using Monte Carlo method algorithms and based on the law of large numbers, the effect on time and cost of each risk. Various probability distributions such as discrete, uniform or normal distributions can be used to model the risk impacts. While it is perfectly acceptable to use standard lists and log files to create a risk register as explained above, it is highly recommended to invest in a professional risk analysis software tool, once you are considering advancing to quantitative risk discussions. 

Fig 3: Risk register (post-response) ©adensio GmbH

Regardless if you are already simulating various risk impacts in your project or if you are just starting to populate your first risk register, the most important part of risk management is that people are able to read and deal with the provided information in an appropriate manner. There is no need for highly advanced tools and diagrams when the team in charge is not capable of applying the required steps and responses correctly to the current risk situation in the project. Continuous trainings for risk managers are essential to ensure that risk management is getting the required attention and standing that is deserves in each project team.

Fig 4: Risk score heat map (post-response) ©adensio GmbH

Apart from suitable training concepts, it is very important to staff the role of risk manager with experienced people with a good “gut feeling” who are not afraid to trust their instincts and speak up when it comes to evaluating and identifying possible adversities. Risk management unfortunately usually doesn’t get much positive attention as it deals with things that might not run well in the project. Nevertheless, the main aim of it is to dare to look at possible negative impacts on the project and to put aside the rosetinted glasses. By managing obstacles in a project in a pro-active way, you are better prepared should the risks eventually really occur, and you have already thought of ways of how to deal with them. This makes you and your team more flexible during the project’s ups-and-downs. So don’t be afraid to include this rather uncomfortable side of projects in your project management practice, you and your company will benefit from it in the long run.  

Fig 5: Example for software based quantitative risk analysis (Oracle Prime – Risk Analysis youtu.be/iF7-ctswVNg)