Macrosimulation of project risks

Executive Summary

This report is going to focus on the two major aspect of the project management that are stakeholder management and risk management and critically evaluate their importance in the project. This report will focus on the different tools and techniques of stakeholder management like Ram Matrix, RACI Chart, Power/Interest Matrix, and Communication Plan, and it will focus on the different steps of risk management such as Risk Identification, Risk Analysis, and Risk Mitigation. This report will focus on the effects of the two aspects on the project outcome by using the help of the literature review and case study examples.


Project is defines as temporary undertaken to create a product or service, in which temporary means that every project has a confirmed beginning and confirmed end (Project Management Institute, 1996: cited in Project Management Journal, 2003). Project Management is defined as "the application of knowledge, skills, tools and techniques tools, and techniques to project activities to meet the project requirements" (PMBOK, 2000). Projects are now the most common way to get things done and projects themselves are now often co-ordinate thorough programmes. Any successful manager now needs to be good at planning and managing projects (Maylor, 2005) and should have sufficient knowledge and experience, especially in the kind projects and about the tools and techniques used in that project activities. Project management helps companies and organisation to achieve their goals, objectives based on their vision and strategy (Thruaton, 2009). Project planning takes a time in starting but by doing a good project planning in starting of any project the manager can save a lot of time and can give a better quality and cost efficient project result. Every project brings new challenges to the project manager so there is no single solution for any project but the tools and techniques or methodologies are similar. However some organisation may find it necessary to maintain more than one methodology for information system and a second methodology for new product development (Kerzner, 2003). This report is to focus in depth about the two aspects out of many aspects of project management which are Stakeholder Management and Risk Management by the help of literature review and case studies.

Stakeholder Management

Literature Review:

Stakeholder management is one of the major aspects of project management, stakeholders management is 1 of the s' out of 7's framework of project management which was promoted by McKinsey and Co. (Maylor, 2005). The importance of stakeholder management is not from a long time and has recently realised. By doing stakeholder management a project can finish in time and can give a good outcome. There are various definitions of stakeholder management and views by different authors. Some author states that stakeholders are those individuals or group of individuals that are actively involved in a project, can be affected positively or negatively by the outcome of the project, who have influence over the project and its result and those who have any input in the decision making related to project (Freeman, 1984, Project Management Institute, 2004, Phillips, 2003). Other authors distinguished between influencer and stakeholder. Influencers are those who can influence but they don't have stake and stakeholders have stake but cannot influence in the project. For doing stakeholder management in a project it is necessary to identify the stakeholder first. Stakeholders are both internal and external. Stakeholders can be varying from project to project both internal and external. "Internal stakeholder are defined as project owners in the sense they have overall managerial responsibility and power usually linked to a financial stake and organisation teams or individuals who have a contractual relationship with the project owner" (Chapman & Ward, 2008). Internal stakeholders are mostly top management, accountant, other functional managers, project team members. The other type of stakeholder is external shareholders "who may be positive or negative about a project, who may seek to influence the project through political lobbying, regulation, campaigning or direct action" (Chapman & Ward, 2008).

External stakeholders are mostly clients, competitors, suppliers, environment, political, consumer, customer, local communities, government, regulators, and media. After identifying the stakeholders the project team and project managers have to build a relationship with them so that they can find and manage their power and influence on the project. To identify the influence and power of stakeholders on project, project managers use matrix or charts to solve the problem.

After identifying types of stakeholder project manager should make a responsibility matrix to know there role on the project for that project manager should include responsibility Assignment matrix in the project.

Responsibility Assignment Matrix (RAM):

A responsibility assignment matrix is useful to define general roles and responsibility on projects which includes stakeholders in the project. The figure of RAM below shows that whether the stakeholder are participants or accountable in part of the project and whether they are required to review, provide input or sign off on parts of the project. This matrix is a very simple tool but can be very effective for the project manager to communicate roles and expectations of different stakeholders of and on project (Schwalbe, 2006).


The other chart which is commonly used by the projects managers is RACI chart which shows Responsibility, Accountability, Consultation, and Informed roles of project stakeholders. The figure below shows a RACI charts in which tasks are vertical and group or individual on horizontal. Responsibility(R) stands for those who have to deliver the project or some aspect of it. Accountability(A) stands for the senior managers who have a right to commission the project. Consult(C) stands those whose views have potential impact on the project or they can be affected heavily by the outcome of the project. Informed(I) stands for those people whom to inform about the project status. The R appears only once in the figure and only one group is responsible for different task, A,C and I can be appear number of times for each groups.


Johnson and Scholes(1999, cited in Verweire & Berghe, 2004 and lecture slide, 2010) identified the power/matrix to map the different types of stakeholder see below figure 3. It is important to detect gaps between the current stakeholder and future stakeholder expectations and to study the actual quality of the relationship with these different stakeholders.

Secondly, in the early phases of a project, stakeholders will have a difficult time reaching agreement on deliverables because of competing goals and interest. This produces conflict, which project managers may tend to avoid or accommodate, instead of engaging in collaborative problem solving to attain good outcomes (Antonioni, 2009). "It is often specific events which trigger off the formation of stakeholder group. For this reason it is helpful to speculate in the degree of the unity or diversity between the various groups if faced with a number of possible future events, this process can be very helpful during strategic analysis in uncovering potential alliances or rifts which may be significant when thinking about future strategic choices" (Johnson & Scholes, 1999, cites in Miller & Wilson, 1998).

Communication Plan:

Communication plays an important role in projects, so each and every project should include communications management planning. Communication plan is a document which gives guidance to the project team to communicate at a rite time with the stakeholders and to keep them inform time to time. The communication plan varies with the needs of the project. The communication plan should address few of the following such as Stakeholder communication plan, Information to be communicated including format, who will receive the information and who will produce it, Suggested methods or technologies for conveying the information, Frequency of communication, Escalation procedures for resolving issues, Revision procedures for updating the communications plan (Schwalbe, 2006).


Example adapted from the article in Financial Times (1996, cited in Maylor, 2005) was about the construction of a new airport terminal building at Jersey Airport which started well. The main was to complete the construction before spring, in time for the tourist come in summer. The design was approved by all the necessary authorities, and contractor was appointed to carry out the work. After the completion in time everyone was happy with the new facility till the time few problems arose. First, the Air Traffic Controllers (ATC's) which is one of the stakeholders of the project complained that they were being dazzled by the sunlight reflected from the roof of the new terminal building. A further complaint was that the new building affects the accuracy of the airport wind speed indicator when wind is in certain direction. While the new site for the indicator was being sought, the ATC's had to advise the pilots to use their own judgement. This case study shows us that importance of having a process for identifying, working and communicating with all stakeholders, which has to analyse at the initial stage of the project.

Another example from personal experience of Bundi Tractors Private Limited, when the company was doing sales very good for the products they know that later they can face problem providing the service of the products sold. Service capacity of the existing plant was already equal to full. The company decide to construct a new service station to reduce the work load and to give a better service to the customer within same time. The service engineers and the employees were also facing problem form the existing service station so the company bought a land and hired the sub contractor for the construction. During the construction the company came to know that the land was under agricultural land and it has to be converted in commercial from government before using it as a service station which also become one of the stakeholders, including customers, workers, consumers and top-management, in the project. So the project managers look into the matter carefully and map the power of the government as a stakeholder and communicate the problem with all the top management of the company, the project manager ask them to convert the land into commercial land so that the project can finish in time and ready to use for the company. As the result the project finished in time and the station was ready to use for organisation and was converted into commercial land.

Literature Review:

Risk Management is again on the major aspect of the project management. It is defined or called as an art and science of analyzing, identifying, and responding to risk throughout the life of the project and for the best interest of meeting project objectives (Schwalbe, 2006). "Project risk management, as one of the key disciplines of project management, is defined as the systematic process of identifying, analysing and responding to risk as project-related events, or managerial behaviour, that is not definitely known in advance, but that has potential for adverse consequences on a project objective" (Project Management Institute, 2004 cited in Kutsch and Hall, 2009).

Communicate and Consult

Risk management consist of four steps which are identifying the risk, assessing the risk either quantitatively or qualitatively, choosing the appropriate method for handling the risk, and then monitoring and documenting the risk which goes step by step for the better result of the project, project manager should do the risk management at the start and after every stage in the project so that later on they don't face any problem which contains the overall cost of the project, quality of the project, and the time limit for the project to be completed.

To identify what could go wrong in the project and development project at any given point of time during the life of project is risk identification. Identification of risk and uncertainty in the project is to be done, before they can be acted upon to mitigate (Ahmad et al, 2007). Risk identification can be done with the following steps

Checklists- where crucial points are examined for symptoms of potential risk situation (Ahmed, 2007), usually evolve over time through collective experiences and contributions from various functional experts (Ward, 1999).

Influence diagrams - Owing to the visual display, cause-and-effects of risk situations are described and can be used for identifying risk situations before they eventuate.

Cause-and-effect diagrams - which means the breaking up of the root causes of any problem into detailed sources (Russell and Taylor, 2000).

Fault trees and Event trees- A technique used to break down the chances of failure in the system into source events is performed by this where as "graphical representation is of potential consequences arising from a failure where possible consequences are generated and broken down from an initial event" (Kumamoto and Henley, 1996).

Risk Analysis:

After identifying the risk events, if further analysis is required then it needs to be determined whether the risk information can be acquired through qualitative and quantitative means. There are two parameters to measure risk- risk probability and risk consequence (Chapman and Ward, 1997). One or more aspects of the project are cumulatively affected by the risk events and if the risk events are bunched together they can be mitigated easily. The bunched risk events can be dealt at the higher level in the long run rather than handling one particular risk event at a time, where the project is likely to be micro-managed. Because the techniques which have been mentioned earlier, applied for project analysis, can also be applied for risk analysis such as- Fault tree analysis, Event tree analysis and Estimation of system reliability and sensitivity analysis and simulation.

Estimation of system reliability:

It includes the analysis of smooth functioning of a technical system. Hence, cumulative effects on the critical components of the project are determined as the system reliability.

Sensitivity analysis and simulation -

A baseline for the project metrics is generated as a precursor to a what-if analysis and then project conditions are manipulated to determine their effect on the project metrics. This leads to an understanding of the system response to changing project situations. Simulation is used as an extension to the sensitivity analysis (Berny and Townsend, 1993). In simulation, a system model is constructed to reflect actual processes with project parameters and constraints. Then, the values for the risk parameters and constrains are randomly selected in a predefined range (Ahmed, 2007). It's a flexible technique which requires a statistical analysis of a problem.

Risk Mitigation:

When risk events eventuate; the risk mitigation actions are initiated and which can be seen as initiation of contingency plans, this process is known as a reactive approach or a feedback approach however a proactive approach or a feed forward approach is the process when any occurring risk event results in initiation of actions such as insurance. "A combination of these two approaches is applied to risk management to avoid risk, reduce the likelihood of risk, reduce the impact of risk, transfer risk, or to retain the risk" (Kartam, 2001). A project manager should draw a risk mitigation framework, as shown in figure 7, to establish a risk structure that will facilitate the subsequent functions in the risk management process.


This case study is about the Packer Telecom. The rapid growth of the telecom industry forced the Packer's executive, that risk management must be performed on all the development projects. If the company is late in the market to introduce the new product they can lose the market share to the competitors. Another problem Packer Telecom was facing was the amount of money spends on R&D department which was around 15 to 20 percent which as compare to other industries was high. From the R&D department only small number of projects that started out in conceptual phase ever reached the commercialization phase. Management said that the problem is from a lack of effective risk management (Kerzner, 2003). In the case study it critically states that the company is not doing the effective risk management before starting any project in R&D department by which there most of the projects is failed or not in the commercial phase. By which they are spending a lot of time and cost on those projects.

Four friends want to start a business about to launch a mail order toys and games business. They were in development stage of their business plan and they have done their business planning. They got a letter from the capital investors that their business plan presents a credible opportunity but they have to do risk analysis on the project before starting the business. They started to identify the key risk elements that could face the business during their start up phase which is the day they received the funding and day one of the trading. What are the risks? They found the lot of possibilities and then they considered the effect of the possibilities on the project. They made a table which they note the problems. In the table they used likelihood (given a range from 1 to 5 for each possibility) and severity (given a range from 1 to 10 for each possibility) and by multiplying both they got the risk priority number (RPM) from which they assign the ranking for it and through the RPM they come to know about the major risk which can affect the project (Maylor, 2005). From the case study it been critically states that how much important is risk management for any project, in the starting the project no one knows that there are a lot of risk can occur in the project life and project and can effect it cost, quality and time of the project even it can affect the outcome of the project.


This report focused on the importance of project management on the project outcome. In this report it critically evaluates the importance of the stakeholder management and risk management on the overall project management and how the project outcome can be affected by these two aspects. This report clearly shows how project managers can use the different tools and techniques to identifying the stakeholder, mapping their power and interest of the project and to identify the risks, analysis of risk and controlling the risk. In this reports literature review is used for explaining the tools and techniques and two case studies successful and successful were illustrated as an example for the impact of these aspects.


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