Operation Management Paper

In Risk Management (2010), Kremjlak defines risk management as “an organized method for identifying and measuring risk and for selecting, developing and implementing options for the handling of risk”. Risk consists of an unknown probability that a problem will arise in the future. There are four aspects of risk management: risk planning, risk assessment, risk handling, and risk monitoring (Kremjlak, 2010). Risk planning consists of the initial phase of developing and documenting a strategic risk plan (Kremjlak, 2010). Risk assessment involves identifying and analyzing potential risks throughout the life of the project (Kremjlak, 2010). Risk handling includes the mitigation of the risks identified through “risk avoidance, risk control, risk assumption, or risk transfer” (Kremjlak, 2010). Finally, risk monitoring ensures identified risks are mitigated and new risks are identified and controlled through the project (Kremjlak, 2010). In conclusion, risk management takes part of many methods, techniques and applications to reduce the impact of risk on a project. Risk management is a key practice in project management to tie project results to business goals and compete better in their markets.

In comparing literature to practical approach, the oil and gas, commercial millwork, commercial construction and event planning industries were looked at.

In the oil and gas industry, the impacts of risk are usually large and can cause a lot of damage to the companies finance and corporate image. This is because the size of projects from a drilling rigs offshore or onshore to a refinery, all involving technical equipment, with a large number of people and a large amount of capital. A Monte Carlo simulation is a technique used to predict and help manage the effects of risk on a project. Common project risks in oil and gas include labour shortage, political and regulation risk, and the fluctuating price of oil. The oil and gas industry is lacking skilled risk management professionals as project risk management is coming into demand in the recent times.  

Commercial architectural millwork is a facet of the construction industry that entails the production of wooden cabinetry and furnishing in commercial setting such as office buildings, schools and hospitals. A milling company creates architectural drawing, carries out the production of the pieces outlined in the drawing and concludes with onsite installation and finishing work. There are very few risks associated with the drawing and production of furnishings because personnel can be thoroughly trained and production occurs in a highly controlled environment. A single project manager will oversee the entire project from conception to completion. Most risk occurs externally, the most prevalent of which are scheduling with contractor and the changing demands of owners.  A general contractor who is undertaking a larger project contracts Mill working companies, therefore, risk mitigation is largely done through writing strong mutually beneficial contract to bind both parties. If unforeseen problems do arise it is essential to deal with them as quickly as possible and make up for additional costs after the fact.

        In the commercial construction field, the most emphasized component is the technical experience of the project manager, as well as the tools and processes used to identify, analyze, and manage risks. For example, a model called the construction risk management system (CRMS) is developed to help contractors identify project risks and systematically to analyze and manage them. Formal procedures and evaluations are also in place to establish a formal risk management process within a project team or organization. High risk areas in this industry are design and scheduling, which are be managed through standards established for communication, monthly reviews on budget and schedule, as well as having team members follow operation and safety procedures on site.

The multifaceted industry of corporate event planning thrives on producing the clients’ vision and ensuring that the client is happy with the final product. Risk management in this industry is crucial in order for an event to be successful. As the project planning timeline is fixed with a set event date and budget, risks need to be mitigated in order to reach this deadline. The event planning industry has three distinct phases for risk assessment and mitigation: pre-event planning, during the event, and post event analysis (Schachner, 1994, 29). The majority of the risks that need to be mitigated are in the pre-planning phase. These risks deal with insurance, contract clauses, and exit strategies. The two greatest risks involved in corporate event planning deal with financial risk and more explicitly staying on budget and solidifying sponsorship funds. As the event planning industry continues to grow, risk management will increasingly become prominent and imperative to the event planning process.

Diagram.1 Iron Triangle

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We found that within an industry there is usually a similar balance between cost, time and quality for all project undertaken by a firm. However across different industries cost, time and quality were given different levels of importance. In event planning the timeline cannot be extended; clients provide the event planner with a specific date that they would like to hold their function and everything must be completed by that time. Cost is also finite, as the client will provide the event planner with a budget that they cannot exceed. Therefore quality is often sacrificed in event planning in order to accommodate time and cost. In commercial millwork quality is the most important aspect, followed closely by time. Cost is often sacrificed in commercial millwork when problems arise, because through contracts these costs are made up by the general contract that hires the mill working firm. In the commercial construction industry quality and cost are the most prevalent aspect of a project. Quality cannot be lower to the point where work becomes unsafe and firms must maintain the profitability of their projects, especially in large projects where numerous stakeholders are affected. This causes time to be sacrificed in order to meet cost and quality requirements. In the oil and gas industry quality is of the utmost importance because accidents can quickly cause damages that far exceed the original budget of the entire project. Time is also significant in order to remain competitive with other firms. Consequently oil and gas projects often go over budget in order to maintain the quality and time constraints. These findings showed that while all project must maintain cost, time and quality, there are often different balances within different industries.