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Executive Risk Awareness—Critical for Project Success

Following the 2010 BP Deepwater Horizon oil rig explosion in the Gulf of Mexico, a U.S. investigation commission credited the disaster to project management failures that crippled “the ability of individuals involved to identify the risks they faced and to properly evaluate, communicate, and address them.” This scenario is an all too common problem in today’s project management environment.

One of the biggest challenges organizations face is communicating project risks to executives. When embarking on a new project, executives want to be aware of cost and schedule risks and potential scenarios that might exist to buy-down risk. However, there is a divide between the risk information available to the executive office and the project. The overarching question then becomes, why does this communication gap exist and how can it be alleviated? We believe that risk professionals want to communicate the salient points of project risk to executives, but have not been provided with the right solution to distill complex scenarios into intelligent action.

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Best in class, project risk management software provides the capability to analyze a list of global risks and force rank them based on likelihood to occur and impact to the project, so executives can make timely and informed decisions to help mitigate the effect of the uncertainty that risks bring to a projects’ schedule and cost.

Following Deepwater Horizon, a number of investigations took place in order to discover what was behind one of the biggest modern day disasters. As documents surfaced, safety audits and risk reports warned that the plant was “in complete decline,” presented “an intolerable risk situation,” and posed potential for “a major site accident.” Although the audits showcase that some BP individuals may have been aware of the situation, this also poses as an example of how risks are mismanaged and poorly communicated to project decision-makers.

Another obstacle with risk analysis lies in qualitative risk assessment. Executives assess the impact of a risk based on a probability scale, but it’s difficult to make a decision from qualitative data. Rather than assessing the probability of a risk, an executive needs to know the quantitative impact—how will this risk impact the project schedule and budget in the long run?

The case of BP’s oil rig disaster is a large-scale example of how ineffective risk analysis can impact a project and provides insight into how executive risk awareness is critical towards project success. Effective communication from the ground level to executives must take place to ensure the right people are informed about the right risks on a timely basis. Scenario planning also has to be apart of risk analysis—measuring the best case and worst-case scenarios for identified risks.

Project managers and risk analysts must be able to provide executives with current, accurate data in order for project stakeholders to see which risks are a priority and make decisions based from a quantitative perspective.

Is reporting risk to executives something you've seen be a struggle in your projects? It can happen easily, but it doesn't have to. 

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