Difference between avoiding, accepting risk

The Differences between Avoiding and Accepting Risk

INTRODUCTION Risk is something that is cannot be neglected in project. Project managers or project team must be able to differentiate types of risk that will benefit the project and also the type of risk that can cause harm to the project. When encountered with risk, project team or project manager must be able to response rightly based on types of the risk. There are many type of response development method can be used which response is appropriate to specific event. They include mitigating risk, avoiding risk, transferring risk as well as accepting risk. There are many definitions that can describe risk. One of the definition is it is an uncertain event or condition that has positive or negative effects on project activities if it happen [7]. Another word that can be used to describe risk is that risk is and unavoidable event that can cause delays, excessive spending, and unsatisfactory project results, safety or environmental hazards and even total failure [5]. Therefore, in order to manage risk, risk management process is needed. Risk management is considered as a tool for managers to deal with the complexity and uncertainty that may occur in project [2]. Risk management can be defined as a systematic approach to setting the best course of action under uncertainty by identify, assess, understand, act on and communicate risk issues [1]. BODY TEXT Through risk management, risks are not something that can fully avoided by the project team. It is something like a reduction of the negative deviation prom plan [4]. Risk management had a purpose for the team to be preparing for any risk and to take measures when dealing with unexpected and undesired event [5]. There are many approaches that have been used for risk management. Some of approaches that has been used include, (1) threetiered process which consists of identification of risk, evaluation or assessment and procedure to dealing with them [2], (2) five-step process for managing project risk which consists of identify risk, analyse risk, prioritize and map risk, resolve risk and monitor risk [6]. Under the procedure to dealing with risk and resolve risk, there are two method that can be used as a way to deal with risk which are avoid the risk and accept the risk. Risk is something uncertain in a project because it not happened yet and it may not happen at all. Nonetheless, when it is happen, project manager must be able to react according to plan. By avoiding risk, project manager choses to eliminate the risk or make opportunity certain [4]. To avoid risk, project manager will have to not undertake the activity that might cost the risk to happen [1]. The best thing to react to risk if we know that it will give us negative impacts is to avoid it. If it can be prevented to happen, it will not cause any harm to the project [3]. It is impossible to avoid all risk. However, some risk can be avoided before the project start [7]. Some risks are too large to be transfer, avoid and mitigate. Therefore, accepting the risk is the best alternative to use in order for the project manager and the team to be able to

handle it [7]. But when even accepting the risk is a choice, the project manager and the team should at least look at the alternatives and absolutely knows the impact of it if the risk is accepted [3]. It is also said that accepting risk is the process where no action is taken with regards to the risk or the opportunity [4]. Opportunity is once again mention because we know that risk can have a negative or positive impact to our project. However, to accept risk, it is best for the project manager and the team to be able to manage it. Resource requirements also heavily needed if this strategy is to be used [1]. DISCUSSION For a project manager and the team to avoid or accept risk, there must have strong reasons to select which way of managing risk will works for the situation. Not all risk can be avoid nor accept. Before making any decision on ways to handle risk, the risk must be analysed and evaluate first. After analysing and evaluate, project manager and the team may treat the risk appropriately. However, before treating it there are several factors to consider like whether the likelihood of the risk occurring can be reduce through preventive maintenance, quality assurance and etc. and whether the consequences of the risk can be reduce when it happen through contingency planning and many other ways. Avoiding risk is more applicable for a risk that the project team knows about the consequences of it. If the risk will seriously harm the project or the team or the cost of the project, it is best to be avoided before it happening. For instance, if the project team has a project to demolish an old building in the heart of Petaling Jaya city which is close to resident area, the team should avoid taking risk to use an explosive demolition method which will cause serious problem to the resident like health problem from the dust that result from the explosion. The other reason for project team to avoid risk is because it is uncertainty. For instance, high risk may cause a very big loss if it is fail to be handled but it may have a high profit when it can be controlled. This uncertainty risk is usually will be avoided since the fail of handling it can cause serious harm and big loss to the project. Another reason to avoid risk is when the risk is naturally happen which when it happen the team definitely cannot avoid it. For example, weather like rainy season. For example, if the team is having a project to level hills, rainy season is something that the team wants to avoid because it can risking the employee and will directly causes loss when any accident happen. However, when the risk cannot be avoid, transfer or mitigate, accepting and managing it is the appropriate response to the risk. The project manager and the team should see it in the positive side. Instead of seeing it causing loss (which definitely it will do), the risk may offer opportunities to the project. This is because, it is said that great unforeseen opportunities are often comes from risk taking. The higher the risk, the higher the potential of the value of the risk should be, high profitability can be expected from the activity with a high risk of loss. Moreover, by accepting and taking risk positively, will make the team more prepared for the next project. The project manager and the team will have more confident to handle the same risk in the future. Risk will force every team player and the leader to learn which later

will leads to the internal growth for the team as well as the company. In addition, embracing risk-taking will help the project manager to overcome fear of failure. CONCLUSION Risk management is very important in project management. It can improve decision making process in the team. By carefully following steps to manage risk, the team should be able to make decision whether to avoid, transfer, mitigate or accept and manage the risk. However, the way how risk should be risk must lead to the positive way. For example, if the risk to be accepted and managed, there will be certain loss that the project team have to handle, however, the loss should leads the project into a more profitability way. Managing risk will also support the team to improve knowledge. Managing risk will also developed opportunities for future activities to be more in controlled manner so that maximum profit can be gained from the activities. REFERENCES [1] Heinz-Peter Berg (2010), Risk Management: Procedures, Methods and Experiences, (Vol. 1) [2] Bernd Carsten Stahl, Yossi Lichtenstein, Anita Mangan, The Limits of Risk Management – A Social Cosntruction Approach, Communications of the International Information Management Assiciation, Volume 3 Issue 3 [3] Jennifer Greene, Andrew Stellman (2013), Head First PMP - A learner’s Companion to Passing the Project Management Professional Exam (Third Edition), O’Reilly School of Technology [4] James Catmur, Stephen Rogers, Rodolfo Guzman, Paolo Dutto, Project Risk Management – An Executive Concern, Energy & Utility Viewpoint; Arthur D Little (2013) [5] Tzvi Raz, Aaron J. Shenhar, Dov Dvir (2002), Risk Management, Project Success and Technological Uncertainty, R&D Management 32, 2 2002 [6] Preston G. Smith (2002), Managing Risk Proactively in Product Development Projects [7] Larson, E.W. and Gray C. F. (2011), Project Management – The Managerial Process (Fifth Edition), McGraw-Hill International Edition.