Risks Abound, Now Manage Them
Steve Callahan | April 28, 2014
The heart of risk management consists of identifying and analyzing exposures and then taking the necessary steps to minimize risk. While a variety of methods can be used to manage the multitude of risks inherent in a business as complex as insurance, a foundational component—the project risk management plan—is often neglected.
Without a well-thought-out risk management plan, even the best-managed projects can’t effectively anticipate and mitigate potential risks. Instead, risk management becomes an ad hoc process occurring reactively or, worse, retrospectively after it is much too late to avoid a negative impact on the project.
Given the vast range of opportunities offered by newer technologies, escaping the burden of legacy-bound environments has become critical to successful competitive differentiation. The ability to integrate social media, big data, analytics, and mobile computing alone has become table stakes, challenging companies to successfully deliver on complex projects facing limited funds, short timeframes, and little room for error.
Managing the risk involved in these projects has moved from informal and reactive to a defined process that is integrated into the implementation methodology and governance practices. Completely eliminating risk is all but impossible, thus, the emphasis shifts to the timing of risk identification. The earlier problems can be identified—or better yet, predicted from leading indicators—the quicker corrective action can be taken to reduce negative impact.
So what are the predictive indicators that can be used to identify and address risks early on? An extended review of successful and unsuccessful projects identified the following as the most common warning signs of approaching problems:
- Inadequate Specifications
- Changing Requirements
- Inadequate Change Control Management
- Inexperienced Personnel
- Unrealistic Estimates
- Subcontractor Misrepresentation/Underperformance
- Poor Project Management
- Lack of User Involvement
- Expectations Not Properly Set
- Poor Architectural Design
A structured process incorporating the ranked assessment and constant monitoring of the most likely and impactful risks from the above list is critical from a project scope, cost, and schedule basis. More often than not, projects with insufficient risk monitoring and inadequate contingency planning will take a turn for the worse.
Underestimating or even ignoring risk at any point during the project, whether internal or external, usually has a materially adverse impact—sometimes resulting in outright project failure. Project managers must continuously monitor and analyze known risks while developing an appropriate contingency plan to address the emergence of unknown risks.
Obviously, intentional risk management is an integral part of the project quality assurance effort targeted at minimizing the major sources of rework, schedule, and cost overruns, as well as performance and quality degradation.
There is a strong correlation between the level of risk management in a project and the level of success. Without a structured system for identifying and managing risks, the level of risk tolerance (where reward exceeds the risk) decreases significantly. Applying risk management rigor to a project will improve its outcome.
To incorporate effective risk assessment and governance practices, all project management plans should include these six inputs, sourced from the PMBOK manual:
- Project Scope Statement: a general overview of the project scope, the deliverables and framework for the degree of risk management needed;
- Cost Management Plan: a definition of risk budgets, contingencies and financial resources needed to address risk potential;
- Schedule Management Plan: how schedule contingencies will be reported and assessed;
- Communications Management Plan: the information shared among the project members and stakeholders and protocol on sharing information and risk responses;
- Enterprise Environmental Factors: factors influencing the plan including attitude toward risk and organizational risk tolerance; and
- Organizational Process Assets: including risk categories, risk statement formats, roles and responsibilities, and authority levels.
Determining which risks may affect the project, documenting their characteristics, assessing their impact, and ranking them accordingly is an iterative process that requires realigning existing risk profiles while incorporating new ones as they arise. The primary output of this process is the development of a risk register, documenting a qualitative and quantitative risk analysis, along with risk response planning. The risk register also provides a strategy to manage risks which include mitigate, avoid, accept and transfer.
An investment in project risk management, which typically ranges from two percent to four percent of your project costs, compares favorably with potential cost overruns and lost opportunity costs, which can reach more than 50 percent of the project costs. Taking the necessary time to develop a comprehensive project risk management plan is essential for overall project success. It’s simply a matter of good insurance.
Steve Callahan is a practice director at The Nolan Company, a management consulting firm specializing in the insurance industry. He can be reached at firstname.lastname@example.org
- Legacy Systems Are Dead. Really? Don't Count On It.
- Now Accepting Nominations for the 2019 ITA Bridge Awards
- It's time to register for ITA LIVE!
- Registration is Now Open for ITA LIVE 2019!
- What to Expect from a Digital Experience Platform Implementation
- ITA Pro Magazine September Edition is Now Available
- It's National IT Professionals Day
- Save the Date for ITA-LIVE 2019
- OneShield Software and UrbanStat Work Together to Improve Real-Time Analytics and Risk Decision-Making
- ITA LIVE 2019 - SAVE THE DATE!
- Insurance Technology Association Announces New Editor-in-Chief
- August 2018 Edition ITA Pro Magazine is Now Available
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- Appointment of Wendy Aarons-Corman as CEO of OWIT Global
- 360Globalnet Connecting with Insurer Community as AAIS Associate Partner
- Agero Names George Horvat as Chief Operations Officer
- FRISS Joins Duck Creek Partner Ecosystem to Provide Risk and Fraud Detection Solutions to Property & Casualty Insurers Worldwide
- Nationwide Announces New Tech Partnership to Improve Safety for Long-Haul Truck Drivers
- Global Investments in Insurtech: Digitalization Taking Hold
- Lucens Group Announces Corporate Name Change to Claimify to Reflect Commitment to its Software Platform
- The Co-operators Drives Innovative Claims Process with Guidewire InsurancePlatform Cloud-Based Predictive Analytics System
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA LIVE 2019
The tide is up! It's time to register for ITA LIVE 2019, our annual educational and networking conference! Our theme is "The InsurTech Revolution: Cutting Through the Hype." and we'll be bringing in a torrent of industry thought leaders, amazing insight and wonderful perspectives on the world of insurtech and its impact on the insurance landscape.
ITA LIVE 2019 will present real-life examples of true startup technologies that are helping insurers gain real advantage -- and a competitive edge -- in the marketplace. We’ll highlight the more successful InsurTech partnerships, while offering case studies that demonstrate exciting innovation and cutting-edge techniques impacting all aspects of the insurance ecosystem.
Ride the wave to LIVE 2019. Sign up today! We look forward to seeing you in May, 2019!
BLOGS AND COLUMNS
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE