1.4 Added value project risk management

“Our IT project was doing fine, good people and almost on schedule. Unfortunately I overlooked a strategy change from the corporate headquarter that made our entire project obsolete.”
-Project manager of a bank.

The question what the added value is of risk management, is a legitimate one, and it is asked on a regular basis. Nobody is waiting for a new methodology that demands extra time and effort in the hustle and bustle of everyday working life. The answer tot the value-add question is simple: good risk management is very profitable.

Figure 1.3 shows schematically how the profit margin of a project increases with risk management. The project team can better exploits opportunities for additional revenue. An example is adding an extra product feature, which increases the sales price or makes the product interesting for a new market segment. Reducing costs is due to the elimination or reduction of project threats. An example is the termination of a cooperation with a bad supplier.

Risk Management increases the sense of reality of in projects. The project manager incorporates risks in the plans and budgets. This gives insight in the expected effects of risks in advance. A supervisor who approves projects, is thus enabled to make trade-offs between risks and project revenues. This can be confrontational, as a manager probably had a shorter lead time and a smaller budget in mind. A quick confrontation with the project risks, however, offers the opportunity to stop or alter risky projects in time. This gives a company a large advantage, as this might mean resources become available for other useful activities instead.

Figure 1.3: Added value project risk management
You earn money with risk management, because you prevent unnecessary costs and generate
additional revenues.

A company usually carries out multiple projects concurrently. Risk management helps to ensure the success of these projects. This ultimately results in a higher profitability for a company. Risk management also enhances the capacity of a company to conduct innovative and complex projects. This will improve the reputation and competitiveness of the company. Increased predictability, openness about and control of project risks will lower stress of project staff. Firefighting and working overtime to resolve unexpected issues and crises in the project, will decrease. Project risk management will thus make a vital contribution to a company with a culture where trust and open discussions on uncertainties are important.