Managing Risks

Risk mitigation is a critical function of every project manager. A well-developed risk management process “attempts to recognize and manage potential and unforeseen trouble spots that may occur when the project is implemented” (Gray & Larson, 2006, p. 1). Risk mitigation begins with project planning. Based on previous experiences, lessons learned, schedule and budget constraints of the assigned project, the project team can identify all the risks, analyze each risk in terms of the severity of the impact, the likelihood of the occurrence, and the degree to which the risk can be controlled. Although a direct relationship between the amount of risk in a project and the opportunity for increased rewards exists, successful businesses take every advantage to minimize the risk in order to maximize the reward. The plan’s impact to cost and schedule must be reflected within the appropriate elements of the integrated cost and schedule control system.

Describe the Situation

Issue and Opportunity Identification

American Bank of Indiana (ABI) generates $280 million in revenue through personal and industrial banking services, card services, loans and mortgages. A regional bank, ABI and its 1,800 employees have been acquired by First American Financial Services (FAFS). As part of the acquisition, ABI is to integrate its service delivery network with that of FAFS (FAFS/ABI, 2008). All components of the two companies are to be integrated, including ATMs, databases, and related software and hardware. Based on lessons learned on past information technology (IT) projects and the recommendations and observations of the Chief Executive Officer (CEO) and the steering committee, the project manager has identified critical risks that must be mitigated in order to implement the project. The project manager can use risk management, project cost and schedule control processes to complete the project on time and within budget.

Best practices for implementing an IT project indicate that “a primary program focus should be staffing positions with qualified personnel and retaining this staff through the life of the project” (Integrated Computer Engineering, 2006, p. 15). However, the project team includes programmers and network specialists assigned on a part-time basis, which could negatively impact the project schedule, cost and quality. To mitigate this risk the project manager can schedule the resources to align with required project milestones within the baseline schedule.

The project implementation team is also inexperienced and lacking in some technical skills. Additional training is required to offset this risk, and project activities, training availability and project milestones must be aligned in the baseline project plan. The cost of the training must also be included as part of the budgeted cost. Thirdly, each bank’s systems are hosted on different hardware and run by different software, which could drive increased network failures. By initiating scheduled downtime for backups and preventive maintenance, and identifying equipment vendors the risk is minimized. However, these activities must be integrated into the project schedule, and the additional costs must be covered by project reserves. A fourth risk to project implementation is the potential lack of necessary network equipment and possible equipment specification changes which could increase cost or drive late hardware deliveries. In order to offset this risk, the project manager can develop a change management and cost tracking system to keep project cost within the management reserve amount. The fifth risk is due to a dependency on FAFS system designers for system design specifications and hardware and software documentation. Because of the amount of integration required, the project manager can schedule meetings with FAFS experts and integrate the meeting dates into the project schedule aligned with FAFS personnel availability. Midway through the project the team is given additional tasks. In order to manage an increase in project scope, the project manager can outsource the testing and integration activities, reassigned team members and use the FAFS staff to develop the application. However, a survey performed by Deloitte Touche Tohmatsu determined that when projects rely on subcontractor effort, 74% of the projects failed due to vendor underperformance, cost overruns, or both (Spangler, 2005, p. 92). In addition to adding the increased scope to the project baseline, the project manager must manage the added project risk due to outsourcing.

Using project control processes to manage the risk and meet the project budget and schedule constraints provides ABI/FAFS with many opportunities. The training initiative gives ABI/FAFS the opportunity to increase the technical competency of the staff and better prepare them to take on