Abstract
Risk management is an integral part of the project management process, and project failure is an area of concern in many organizations. This chapter explains and discusses a new maturity model for assessing and managing project risk in the automotive industry. The research design was two-fold. First, a case study analysis in a major German automotive company was undertaken to develop the maturity model. The approach was qualitative and inductive, using data provided by in-depth interviews. Second, this model was applied in two major projects currently underway in the company – one involving implementing a cloud-based ERP system and the other the program management function responsible for product development and launch. The model adds to existing risk management maturity models and is unique to the automotive industry. It can be used by risk and project managers and can be adapted to other industry sectors.
TopIntroduction
The significance of managing risk has come to the fore in recent years in the context of cybersecurity and the rapid growth of the associated risks to organisations and society at large (Olakunle & Win, 2022). However, project risk management has been a fundamental discipline in most industry sectors for several decades, and can be defined as the process that dynamically minimizes risk levels by identifying and ranking potential risk events, developing a response plan, and actively monitoring risk during project execution (Zwikael & Ahn, 2011). Although risk management has become a significant element of some of the most widely deployed industry standard methodologies, there is no universally agreed method for managing risk. Yet, as a recent industry report notes, “risk management has never been more important. Projects are under more pressure to deliver, and the costs of failure are higher than they have ever been” (Project Management.com, 2019, p.8). Application of integrated risk management methods can support early risk identification and assessment, thereby improving project outcomes and avoiding delays and cost overruns (Zayed, Amer, & Pan, 2008).
This research focuses on the development and application of a new maturity model for the assessment, monitoring and management of project risk capability in the automotive industry, specifically in a European context. Following this brief introduction, the next section explores relevant literature in this field, followed by a detailed explanation of the research methodology employed. Section 4 then presents the maturity model as built and verified, but also applies the model to two in-company projects. This provides an illustration of how the model can be used, in a manner that can be built upon by other researchers and practitioners. The final section draws together key themes covered in the chapter and assesses the contribution to research and practice.
Key Terms in this Chapter
Risk Appetite (or Risk Treatment or Risk Propensity): Reflects an organisation’s attitude and strategy towards risk. It encompasses how risk is managed and whether exposure to risk should be reduced, or the impact of risk should be mitigated, transferred, externalized or accepted.
Risk Identification: Involves the detection and classification of all known and - as far as is possible - unknown, risks, thus producing the foundation upon which the overall risk management process can be established.
Risk Assessment: Is the stage in the risk management process at which each identified risk is assessed for its probability or likelihood of occurrence, and its potential impact on either the project phase or the entire project.
Risk Allocation (or Risk Ownership): Involves allocating responsibility for managing project uncertainty to appropriate project parties. These allocations are fundamental because they can strongly influence the motivation of parties and the extent to which project uncertainty is assessed and managed by each party.
Enterprise Resource Planning (ERP): An integrated software package that supports all main business functions. Examples include SAP, Oracle, Infor and Epicor.