Why is risk mitigation important

If the project is about developing a new product, and competition presents a risk, then one solution might be to accelerate the project, even at some. An example of a risk control method is to monitor technological development on highly technical one-of-a-kind projects. The risk is that the promised scientific development will not occur, requiring use of a less desirable backup technology or cancellation of the project.

Many projects experience high levels of uncertainty in many critical components. Some of these important risks cannot be adequately characterized, so optimal risk mitigation actions cannot be determined during project planning. This is common when uncertainties will be reduced only over time or through the execution of particular project tasks. For example, the uncertainty about the presence of specific chemical pollutants in a water supply may be reduced only after project initiation and partial completion.

Under these circumstances commitment to specific risk management actions during planning makes project success a gamble that the uncertainty will be resolved as assumed in planning.

The following are examples of flexible decision making that can help mitigate risks under conditions of uncertainty:.

Defer some decisions until more data are obtained in order to make better decisions based on better information. Good decisions later may be preferable to bad decisions sooner, particularly if these decisions constrain future options. It may be argued that deferring decisions is never desirable because to do so might delay the project, but this is a fallacy of deterministic thinking.

When uncertainty is high, poor decisions made too early will delay the project much more, or even cause it to be canceled due to resulting budget and schedule overruns.

In these circumstances, deliberately deferring decisions may be good management practice, but it is essential that the project be scheduled such that deferred decisions reduce rather than increase the risks of delays. A flexible policy of delaying decisions should not be equated with simple procrastination or wishful thinking. Decisions should be delayed only when, based on analysis, there are solid reasons to believe that new information will be forthcoming that will affect the decision one way or another.

If there is no such expectation, then the project manager should consider whether it might be cost-effective to acquire more information even at additional cost. For example, an expanded boring program to identify subsurface conditions, an expanded testing program to characterize wastes, or. Restructure the project such that the impact of early decisions on downstream conditions is minimized. Decisions that constrain future decisions and eliminate options should be reconsidered.

Safety factors may be added to buffer the effect of decisions. For example, something may be oversized to provide a safety factor against high uncertainty in requirements, just as safety factors are used in engineering design to provide a margin against uncertainty in loads; the higher the uncertainty, the greater the contingency in the load factor. If a building must be built before the contents are known precisely, then oversizing the building may well be prudent.

These safety factors typically increase project costs, but they may increase them far less than the alternative strategies for mitigating risk or the consequences of an undersized building.

Stage the project such that it is reviewed for go or no-go decisions at identifiable, discrete points. These decision points should be built into the front-end plan. Based on updated information available at these future times, the project may be modified, continued, or terminated.

Termination of the project at a future time will be costly, but it may be far less costly than continuing it in the hope that something good will happen. Change the scope of the project, either up or down, at some future decision points. Changing scope is generally a bad practice in conventional projects, but in high-uncertainty projects midcourse corrections may be necessary responses to changed conditions or improved information, if the scope change is made in accordance with a preplanned review and decision process defined in the frontend plan i.

Analyze and simulate the effects of strategic decisions before making them. These issues typically cannot be decided only on the basis of prior experience, especially when that experience may have been obtained on conventional projects.

A flexible decision-making approach requires that project directors be active and show initiative. If project directors are constrained by organizational culture, bureaucratic restrictions, fear, or self-interest, they will not exhibit initiative or flexibility and are likely to apply rigid management principles to situations that require flexible decision making.

The value of management flexibility increases in direct proportion to the uncertainty in the project. As stated by General Dwight D. An option provides the opportunity to take an action without the obligation to take that action. Options may cost money, but they also add value by allowing managers to shift risk or capture added value, depending on the outcome of one or more uncertain parameters. For example, a contract clause permitting termination of a contract if a critical technology is not developed provides an opportunity but not an obligation to terminate.

An options approach also improves strategic thinking and project planning by helping to recognize, design, and use flexible alternatives to manage uncertainty. Increasing options and decision points is a valid risk mitigation strategy for project owners. For example, the option to terminate a contract can be of value to owners. Delaying commitment to a single strategy or solution by carrying alternative optional strategies until sufficient information becomes available to resolve the uncertainty is an example of the use of options as a form of managerial flexibility.

Another example of an options approach was that used by the Manhattan Engineer District in World War II, in which both an enriched uranium and a plutonium device were developed so that there would be an available alternative; information gained from one was used in making a decision about the other i. This is similar to power plants that can run on gas or oil and switch between the fuels based on their relative price. There are endless ways to approach the development of a risk mitigation strategy.

It can be overwhelming to determine the best, most effective way to mitigate risk. You can accomplish this by connecting risk mitigation activities to respective departments, resources and the people they depend on. The best way to accomplish this is by implementing taxonomy technology. This allows you to view everything through one centralized repository. You want to be certain that the right people are looking at the most relevant information at any given time.

This can be ensured by building a searchable repository of operational and procedural activities. Note that with an ERM software, you eliminate the burden of updating, notifying and tracking risks that are already maintained in another department. There may be misalignments and ineffective controls that are weighing you down.

Automated reporting of key risk indicators can eliminate redundancies and gaps to protect your organization. Protecting your organization is the ultimate goal. To ensure your protecting it to the fullest extent, your top risks and concerns need to be continually addressed.

Our risk mitigation software goes beyond risk-specific mitigation, and helps you eliminate duplication, streamline operations, and achieve heightened business performance. This leaves you entirely vulnerable to the impacts of external forces.

To realize the full potential of your business, start by investing your efforts into risk mitigation. Book a free demo to see how our software can protect and reduce negative impacts against your business. Transfer risk This is when another party agrees to accept the consequences of risk. A common example of transferred risk is insurance. You pay a certain amount, they replace the costs of specified risk events.

Here, too, mitigation involves the balance of cost and risk. The more you cover, the higher your premium. Here is an example of a day-to-day risk mitigation plan. You begin by monitoring the weather. You look outside and see that it is cloudy, so you accept the risk of rain. So you decide to take an umbrella with you. In this way, your umbrella mitigates the consequences — getting wet — once you have monitored, identified and assessed the risk. So, in a risk mitigation plan, you outline the risks, anticipate the consequences, and plan options to moderate the effects.

In much the same way, you can support your supply chain risk mitigation efforts with a risk scorecard for each risk object in your supply network. This allows you to:. Collect your key evaluation criteria in one place Rate business partners, facility locations, or transportation hubs based on indicators within different categories of risk, such as natural hazards or compliance risk Assign weights to the categories See at a glance where the greatest threats exist.

Couple your risk scorecards with your supply chain knowledge. Then you are well on your way to a risk mitigation solution as part of holistic supply chain risk management. And one more thing. When mitigating risk, it is a good idea seek out expert advice. Experts can tell you what's worked in the past, what's easy, and what's hard. For conducting rapid prototyping or changing operational requirements, MITRE SEs can use knowledge in creating prototypes and using prototyping and experimenting see SE Guide article on Special Considerations for Conditions of Uncertainty: Prototyping and Experimentation and the Requirements Engineering topic for projecting the cost and time to conduct a prototype to help mitigate particular risks e.

Implementing more engineering reviews and special oversight and testing may require changes to contractual agreements. MITRE systems engineers can help the government assess these schedule and cost by helping determine the basis of estimates for additional contractor efforts and providing a reality check for these estimates. For related information, refer to the other articles in this Risk Management topic area of the SE Guide. MITRE is proud to be an equal opportunity employer.

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