Risks are events that if they occur will cause unwanted changes in the cost, schedule or technical performance of a project. Risk avoidance is one of the risk handling approaches that are available to project managers to handle risks. The other forms of risk handling strategies include risk control, risk acceptance, risk mitigation and risk transfer (Garvey, 2008, p. 166).
According to Gray & Larson (2011, p. 215), risk avoidance is the changing of the project plan to eliminate the risk or condition. It involves completely changing the project plan or the nature of the project to make it impossible for the risk to occur.It encompasses a change in concept, requirements, specifications, and/or practices that reduce risk to an acceptable level. A risk avoidance strategy eliminates the sources of high or possible medium risks and replaces them with a lower risk solution. Such solutions are supported by a corresponding cost-benefit analysis(Newell, 2005, p. 187). However, it is important to note that the risk avoidance strategy cannot completely eliminate a risk, but it greatly reduces the probability of the risk occurring until for all practical purposes, it is eliminated.
The selected article is titled“What Went Wrong at Boeing?” by Denning (2013)and featured in the Forbes website. It focusses at the mistakes and errors that the management of Boeing made in their quest to reduce the development time and development cost of the Boeing 787. The management’s decision to employ various strategies to cut down on the manufacturing costs of the Boeing 787 passenger airplane resulted to the project going overbudget and dragging three years behind schedule. Moreover, at present, all the 787s passenger airplanes have been grounded due to technical problems, further adding to the company’s initial loses.The author attributes this state of situation to the failure of management to put in place various risk management strategies that would have helped in minimizing or completely avoiding these additional costs and time delays in the production of the Boeing 787 airplane.
The failure by the company to produce the Boeing 787s on time was been attributed to failure by the management to address key risks that were apparent before the commencement of the project. The management opted to embrace various risks such as coordination risk, by outsourcing some of the key processes and developments in the production process, innovation risks, by embracing a technology that had not been tested before and was unproven on any airplane, and the risk of outsourcing, Boeing outsourced expertise upto 70percent as a means of reducing costs and the development time.Perhaps the only positive risk management strategy the company was able to successfully achieve is the spread of the financial risk of developing the airplane by outsourcing most of the components and services from its suppliers.
Risk avoidance involves the changing of a project’s concept, requirement to reduce risk to an acceptable level and also elimination of the sources of high or possible medium risks and replacing them with a lower risk solution(Newell, 2005, p. 187). Boeing by choosing to embrace the risks involved in the production of the 787s made them vulnerable to unwanted changes in the cost, schedule or technical performance of the project, which can be reflected in the increased production cost and delay in completion time. Risk avoidance would have involved the company outsourcing to a minimum and changing the specifications of the 787s to physiognomies that the company was accustomed to. Most likely this step would not have completely eliminated the risks, but it would have reduced the probability of failure.
Article 1: “Avoid the Avoid Risk Response!” THE.PROJECT.MANAGEMENT.HUT.
The author Bondale (2013), addresses the concern of which is the best risk management strategy that risk owners should employ in the face of managing risk. He outlines the four available strategies to respond to identified negative risks including as avoidance, transferral, acceptance and mitigation. However, he notes that most managers employ the accept and mitigate strategies.
In this article, he presents a case for the risk avoidance strategy, stating that this strategy has the benefit of completely eliminating specific risks which is ideal especially in cases where the risk severity is extreme. Nonetheless, he notes that the effectivity of this strategy diminishes over the life of the project. That is, it is most effective during the initiation and planning of the project but very costly when done during the execution phase. He concludes by stating that, as is with every strategy there is a cost associated with the avoidance strategy, therefore, it is important to balance the cost of avoidance against the expected financial and non-financial impacts of risk realization.
Article 2: “Managing Risk the Smart Way”. IBM Center fo The Business of Government.
Kamensky (2012) presents a framework for managing risks that was drawn up by robert kaplan and Anette mikes. The article presents a framework that allows company management to discern which risks can be managed through rules-based model and which require alternative approaches such as the risk avoidance, mitigation, acceptance and transferring strategies. The author identifies three categories of risk and the best approach to manage that form of risk.
Article 3:“Political Risk Can’t Be Avoided, But It Can Be Managed”. Forbes. Retrieved
This article by Culp on the Forbes website looks at the inability of organizations to manage political risks through the risk avoidance strategy, and identifies it as one of the few existing risks which cannot be managed through therisk avoidance strategy.He adds that political risks are very grave and organizations make a mistake when they ignore them.
The author states that effective management of political risks is important as it will enable an organization to navigate through new markets and business environments and gain a competitive advantage. Culp goes ahead and provides a three-step process that he maintains will enable organizations identify key political risks, quantify their latent impact on performance, and determine the most apt approach to address such risks.
Article 4:“The Risk of Risk Avoidance”. KelloggInsight. Retrieved from:
The article “The Risk of Risk Avoidance” by Caley (2012) is based on research findings by Dimitris Papanikolaou and Vasia Panousi who conducted research on organizations investment behaviors and decision making on investment opportunities which have a specific level of risk associated with their implementation. The author presents a case against the risk avoidance strategy in risk management stating that organizations and firms miss out on high risk/ high return investment opportunities that could maximize their shareholders profits by employing this strategy. The author adds that concerns about particular project or investment outcomes have a considerable effect on the project manager, and can result to managers shying away from investments that have reasonable risks.
Bondale, K. D. (2013, December 2). Don’t Avoid the Avoid Risk Response! Retrieved July 10, 2014, from THE.PROJECT.MANAGEMENT.HUT: http://www.pmhut.com/dont-avoid-the-avoid-risk-response
Caley, B. A. (2012, October 1). The Risk of Risk Avoidance. Retrieved July 10, 2014, from KelloggInsight: http://insight.kellogg.northwestern.edu/article/the_risk_of_risk_avoidance/
Culp, S. (2012, August 27). Political Risk Can’t Be Avoided, But It Can Be Managed. Retrieved July 10, 2014, from Forbes: http://www.forbes.com/sites/steveculp/2012/08/27/political-risk-cant-be-avoided-but-it-can-be-managed/
Denning, S. (2013, January 21). What Went Wrong At Boeing? Retrieved July 10, 2014, from Forbes: http://www.forbes.com/sites/stevedenning/2013/01/21/what-went-wrong-at-boeing/
Garvey, P. R. (2008). Analytical Methods for Risk Management. Florida: CRC Press.
Gray, C. F., & Larson , E. W. (2011). Project Management: The Managerial Process. New York: McGraw Hill.
Kamensky, J. M. (2012, June 12). Managing Risk the Smart Way. Retrieved July 10, 2014, from IBM Center fo The Business of Government: http://www.businessofgovernment.org/blog/business-government/managing-risk-smart-way
Newell, M. W. (2005). Preparing for the Project Management Professional (PMP) Certification Exam (Illustrated ed.). New York: AMACOM Div American Mgmt Assn.