Understanding Risk Management via 6 Real Life Case Studies
Risk Management is the process of identifying, analyzing, prioritizing and taking actions to minimize monitor & control the probability or impact of unfortunate events or to maximize the realization of Opportunities. Risk Management Strategies is one of the most important knowledge areas in Project Management.
We as Project /Program Managers apply Risk Management in our decision making more often that we realize it.
Case Study 1 – The Avoidance Risk Management Strategy
A company – let’s call it Company X was preparing to bid for a new business. After analyzing the RFQ – Request For Quote the Sales Analyst identified that the company would be exposed to risks in the form of negative revenue in case Company X was not able to meet the terms and conditions laid out in the RFQ.
Later it was found that the although the bid was for $1 M annual revenue, if Service Level Agreements were not complied on this particular account then, Company X would have to pay $100K in Service Credits. After much deliberation & jostling around it was decided not to bid for this Business.
This decision was a form of Avoidance Risk Management Strategy. This is the process by which you reduce the risk exposure by avoiding or eliminating the activities.
Case Study 2 – Risk Transfer Strategy
Hurricane Andrew caused a loss of $15.5 Billion in U.S in 1992. There were many insurance companies that were said to have gone insolvent during this crisis.
To protect themselves from large obligations of such proportions, Insurers transfer portions of their risk portfolio to other parties by some form of agreement. This concept is known as Reinsurance.
Reinsurance is a form of Transfer Risk Management Strategy. Risk transfer is a risk management and control strategy that involves the contractual shifting of a pure risk from one party to another.
Case Study 3 – Risk Management with Mitigation
A Trader A is bullish on the stock market and buys a Call Option for a scrip for a good strike price.
Trader A is knowledgeable in risk management and wants to protect his traded amount in case the stock market crashes.
Trader A also buys a Put for a lower amount in the same scrip just in case the stock market crashes. Now if the stock market goes up, the trader will make money from his call, if the stock market goes down the trader will make money from his put.
No!! I am not implying you will always make money in the stock market! Please don’t start to login into your demat account.
What I am trying to imply is that the trader has used Mitigation as a Risk Management Strategy.
Case Study 4 – Mitigation as a Risk Management Strategy
A Program Manager is setting up a Data Center for a client. During Due Diligence it is found out that the client wants to build skills and capabilities to operate the data center. The data center needs to be operated optimally to ensure there is no loss to an expensive equipment at the data center.
The Program Manager proposes that his Technical Engineer stay on site for a duration of 3 to 4 weeks to coach the client’s engineers on operation of Data Center. This will ensure the client’s team builds capability to operate and manage the data center.
The Program Manager just used a Mitigation Risk Management Strategy to ensure his program was safe while being handed over to the client
Case Study 5 – Accept as Risk Management Strategy!!!
Some people just get lucky!!!
The following story is truly hypothetical. Any similarity to actual persons living or dead or purely coincidental
The Project Manager was asked to set up a Business Unit in Eastern Europe. The existing team a service desk unit was based out of Malaysia. He now had to make a couple of Subject Matter Experts fly from Malaysia to Europe and train the new team being set up at that place.
Visas for a travelling staff to Europe is often tricky and laden with a lot of paperwork. The PM estimated he could get someone in Europe in 25 days time. He got the Subject Matter Expert to apply for a European visa.
Upon application to the embassy it was found out that Malaysian nationals did not require a schengen visa and they get a visa on arrival. The Project Manager flew the Subject Matter Expert to Europe on the 3rd day of receiving the Project and fast tracked the entire project.
This is an example of Accept Risk Management Strategy.
Case Study 6 – Accept Risk Management Strategy
A company – let’s call it Company X was preparing to bid for a new business. After analyzing the RFQ – Request For Quote the Sales Analyst identified that the company would be exposed to risks in the form of negative revenue in case Company X was not able to met the terms and conditions set forth by the company that was inviting a proposal. Later it was found that the although the bid was for $1 M annual revenue, if Service Level Agreements were not complied on this particular account then, Company X would have to pay $100K in Service Credits.
After much deliberation & jostling around it was decided not to bid for this Business. This is where the Story Changes!! The head of operations analyzed the opportunity and accepted the risk. He promised to set up processes that will ensure that Service Level Agreements will not be breached and he will improve the client’s business by means of six sigma methodologies.
The above is an example of Acceptance as a Risk Management strategy. There are big organizations that are happy to accept $100k revenue risks while there are small organizations for whom this may be a big risk exposure.
If you are seeking advise on handling positive risks do visit the below section for some case studies:
If you are seeking information on mistakes in Project Management. The following section may interest you: