Project Management Risk

Introduction

This chapter presents the Project Management application class of the method. It is applied in a PERT-CPM Project Management scenario to manage the risk of a project to build a power plant.

A project is a combination of activities that must be finished in a certain sequence in order for the project to be completed. The activities are interrelated in a logical order so that some activities cannot start before some others are completed. A project activity is a task that requires resources and time to be accomplished. In the past, the project planning used Gantt charts to define the start and finish of all the activities in a horizontal time scale.

Project management has evolved into a structured and efficient methodology as a result of the development of Critical Path Method (CPM) and Project Evaluation and Review Technique (PERT) in 1956–1958. CPM and PERT provided for an analytic approach to project planning, scheduling and control and were subsequently combined into one method, PERT–CPM.

Project management using PERT–CPM has three stages (Taha 1987, Chapter 12):

• 1.

  Planning: Determine all project activities and estimate associated time for completion. Define also all activity interrelations and create the project network diagram.

• 2.

  Scheduling: Determine the critical paths of the project, i.e. those activities that will delay the entire project if they are delayed. For the activities, which are not part of the critical paths, define the amount of slack or float times that can be used when non-critical activities are delayed, or when limited resources need to be efficiently used.

• 3.

  Control: Regularly analyse and report project progress by using the project network diagram and associated time lines. If required, update the network diagram reanalyse, and define a new schedule for the unfinished part of the project.

The PERT–CPM method is presented at an introductory level in Baker, Eris and Irwin (1964). A comprehensive coverage of using the PERT–CPM method for project management, including planning and control can be found in Punmia and Khandelwal (2002). The PERT–CPM method is also discussed in Sharma (2006).

Project management and risk are the subject of many scholars published works. For example, Burke (1999) published an effective project management fact-based book presenting many aspects and issues that are based on the author's practical experience in the field. The project management techniques are introduced by practical examples that help with understanding the empirical application of these techniques.

Akintoye and MacLeod (1997) discuss risk analysis and management in the construction industry, based on a survey of the industry’s general contractors’ project management. The questionnaire was about the industry's perception of risk associated with its activities and the extent to which the industry uses risk analysis and management techniques. The conclusion was that risk management is essential to construction activities in minimising losses and enhancing profitability. Construction risks are generally perceived as events that impact project objectives of cost, time and quality.

There are many other published works about project management risk. An approach to project risk management is published by Barkley (2004), for example. This approach considers risk as a result of poor project selection, poor business planning and poor company culture, rather than a narrow project and task-specific or process issue. This book offers a new perspective on project risk that focusses the risk management on: i) the business and enterprise at a wide level; ii) good business and project planning, and good management practices; and iii) building a healthy culture that recognises that risk is a result of bad planning.