Risk Mitigation and Contingency Plan for the Product - Assignment Example

Risk mitigation and contingency plan for the product By + Introduction Every project has an objective that it seeks to meet. However with the future being uncertain, there is always a possibility that the expected outcome will be different from what the actual outcome of a project would be after its completion. This is the risk component of any project (Dinsmore, 2011). Project developers should identify ways of mitigating the negative outcomes of the projects. There are different ways that can be used to mitigate project risks. The main strategies are risk avoidance, risk sharing, risk transfer and risk reduction (Horcher, 2005). The paper looks at these strategies together with a contingency plan for the product we seek to develop. Risk avoidance This strategy seeks to completely eliminate the risk of a project to level 0. With this strategy minimum allowable risk is zero (Darity, 2008). In other words risk avoidance will imply that the developers avoid undertaking the project if it has been identified to have a component of risk in it. The strategy is rarely used in risk mitigation because almost all projects to be undertaken have a risk component in them. If the strategy is employed to mitigate risk in the product, the developers will have to avoid the development of the product since it has inherent risks. Some of the inherent risks include; the power failure on the leds, the small switches failing to work, risk that the product wouldn’t gain market approval among other risks. Thus since the developers aim to go ahead with the entire project cycle, this mitigation strategy wouldn’t be advisable. Risk sharing Risk sharing as another mitigation strategy used as a suitable way of reducing the possible negative outcome inherent to developing a product. It is one of the most common strategies employed in risk management. Risk sharing according to Bolton and Harris (2010), is defined as a risk management strategy which aims at reducing risk exposure by ensuring that the risk component in a project is first identified. After identification, the burden of possible loss is spread among several entities, units of enterprises or other partners critical to the particular project development. This risk management method is also called risk retention. The technique is a way of self-insuring the risks taking into consideration a multiplicity of entities. In developing the product that seeks to increase the safety of those riding bikes in the urban areas either at night or in the early morning hours, risk sharing as a method of mitigating risk suggests the need to look for other entities that might be interested in the objectives being achieved. These entities will include bikes manufacturing firms, state officials charged with ensuring road safety or strategic investors. When these are identified, the project idea is brought to their attention with the possible risks and benefits also explained to them. The different entities are persuaded to assume some part of the risk. The spreading of risk ensures that the project proceeds through other phases in project development cycle. Risk reduction This risk mitigation strategy is one of the cheapest methods and the most commonly used method to deal with the risky nature of projects. In the method both the hazard and the peril incidental to a project are identified. The term hazard and risk are at times used interchangeably; it is critical to distinguish between the two. Risk as earlier stated is the possibility that the expected is not the actual outcome, whereas hazard is what has the potential or capability to make the expected outcome and the actual outcome differ. It has the potential to adversely affect the expectations and turn a positive outcome into a negative outcome (Smith, 2004). A peril refers to a situation where someone or something (in this case the project) is eminently or greatly in danger. a peril means that the project is highly expose to risk. After the project’s hazards and perils are identified, the next step will involve finding ways that can eliminate the hazards and reduce the perils. The risk mitigation strategy thus will have to critically examine the product that the project aims to develop and the possible risky parts enumerated. The developers will then try to establish the events or happenings that have a likelihood of increasing the identified risks. Efforts will then be channelled at ensuring that the possible causes of the risk are eliminated or reduced to the possible minimum level, since the strategy identifies that projects have inherent risks in them. The strategy comprises both relative risk reduction (where after the risk reduction strategy is employed as the preferred mitigation method, the end result will have some risks but at a smaller scale than was the case before employing the method) and absolute risk reduction (where the end result is that all inherent risky components in a project will be eliminated) (Todinov, 2007). In our project’s case, the hazards will be power whose failure will imply our project fails to achieve its objectives and lack of user education on the operations of the product. If the developers concentrate on ensuring that the sources of power for the switch button and that the potential users of the product are well educated, risk of the product not meeting its intended target will be minimised. Risk transfer This risk mitigation strategy involves the involvement of an independent party. It’s a strategy that involves transferring the risk either wholly or partly to an independent party referred to as the insurer. With insurance, the independent party -after being paid a consideration referred to as premiums -assumes the risks inherent to the product (Atkins et al, 2008). Risk transfer as a method of managing risk implies that the product developers will have transferred the inherent risks responsibility that was initially theirs to the insurer after payment of premiums (Banks, 2004). This method although might appear the best on the surface is not commonly practised by many project developers and implementers. The reason for this is that many of them shy away from paying premiums annually for a risk that at the end of a year might not occur. If the risk fails to materialise the developers of the product cannot go to an insurance firm and claim the money paid. Furthermore they are required to pay annually. Another reason is that after the risk materialises, the period between receipt of compensation and verification of the finer details of the insurance contract might be exceptionally long. In the case of the project under consideration, an appropriate insurer will have to be identified. The insure will then come and establish the risk inherent to this product development. After that appropriate premiums will be discussed based on the nature of the product, the prevailing market premiums and other consideration. The insurers will then assume the risk while the insured (product developers) will continue with the project life cycle without fear of the uncertain future. CONTIGENCY PLAN This is fall back plan in the event that the product which the project cycle aims at developing fails to meet or proceed as per the expectations (Broder & Tucker,2012).. Contingency plans can be inserted at each phase of the product development cycle or at the end of the entire project.in our product case for example, a contingent plan will include the use of batteries as source of power in the unlikely circumstance that the rechargeable electric power source fail. References Atkins, D., & Bates, I. 2008. Concept of insurance. In Insurance. London, U.K.: Global Professional Publishing. Top of Form Bottom of Form Banks, E. 2004. Risk transfer. In Alternative risk transfer integrated risk management through insurance, reinsurance, and the capital markets (3rd ed., Vol. 2, p. 65.) Chichester, England: Wiley. Top of Form Bottom of Form Bolton, P., & Harris, C. 2010. The dynamics of optimal risk sharing. Cambridge, Mass.: National Bureau of Economic Research. Broder, J., & Tucker, E. 2012. Risk analysis and the security survey (4th ed.). Waltham, MA: Butterworth-Heinemann. Top of Form Bottom of Form Darity, W. 2008. International encyclopedia of the social sciences (2nd ed.). Detroit, Mich.: Macmillan Reference USA. Top of Form Bottom of Form Dinsmore, P. 2011. The AMA handbook of project management (3rd ed.). New York: American Management Association. Top of Form Bottom of Form Horcher, K. 2005. Essentials of financial risk management. Hoboken, N.J.: Wiley. Top of Form Bottom of Form Smith, K. 2004. Distiction between risk and hazard. In Environmental hazards assessing risk and reducing disaster (4th ed., Vol. 2, pp. 15-17). London: Routledge. Top of Form Bottom of Form Todinov, M. 2007. Risk-based reliability analysis and generic principles for risk reduction. Amsterdam: Elsevier. Read More