Risk Management In Overseas Projects – An Organizational Approach

Risk-Management

The world of business is continually shrinking: we work in an environment with real-time audio visual communication with colleagues on the other side of the world and online translation tools. Even small and medium sized companies can operate internationally with outsourcing agreements and partners overseas, which means that project managers in organizations of any size face the challenges of managing international projects.

And that means far more than just calculating that when it’s 9 am in Addis, Ethiopia, it’s 11:30 am in Bhubaneswar, India. International projects come with two main challenges: the people you are working with won’t necessarily work in the same way as you, and the people you are working for won’t necessarily want the same things.

Challenges faced in International Projects

Complexity heightens the importance of effective management, but poses challenges for the tools and approaches used most widely to manage international projects. Overseas projects, like any other projects, are risky. Besides the typical risks that domestic projects face, overseas development projects have unique risks and are observed to have a high possibility of loss/failure.

For an international project the challenges are two fold:

  1. Technical
  2. Non-Technical or Cultural

While the challenges associated with the technical part are similar irrespective of whether they are for a national or an international project, the challenges associated with the non-technical part deserve special attention and leadership skill sets.

Some of the important challenges are:

  1. Understanding and cementing out the project scope (SOW)
  2. Implementing a disciplined approach to engineering (from the conceptual stage to detailed engineering)
  3. Developing a realistic project schedule.
  4. Implementing an appropriate quality assurance (QA) and quality control (QC) scheme
  5. Determining the Health, Safety and Environmental (HSE) issues & requirements and integrating them in well-planned project execution strategy.
  6. Understanding and managing risk factors associated with international projects
  7. Selecting and managing the sub contractors.
  8. Understanding the in-country rules, regulations and requirements

In a nutshell, areas with increased risk in non-domestic projects are:

 Cost increase √  Foreign exchange fluctuations
√  Health and safety √  Teaming / culture
√  Schedule √  Price fluctuations
√  Quality √  War
√  Labour availability / disputes √  Logistics
√  Scope uncertainty √  Taxation
√  Unforeseeable conditions √  Local laws, customs and language
√  Design change √  Environment
√  Regulatory change Weather and climate
 

How it affects the Project and Organization

  1. Increased cost
  2. Delays in project completion
  3. Reduced performance
  4. Non-compliance with applicable laws and regulations, the contract, and/or with internal policy and regulations
  5. Suspension and/or cancellation.

Risk Management process for International Projects

  1. The continuous identification, characterization, and assessment of risks to the project objectives.
  2. Assign responsibility for individual risks to competent “risk owners”.
  3. Assess vulnerability to specific risks in terms of magnitude and probability.
  4. Identify and develop options for treating risks.
  5. Prioritize and implement risk treatment options based on company policy and project strategy.
  6. Systematic post-action review to ensure that risk treatments are effective.
  7. Report on the status of total risk and individual risks to the appropriate management level at each stage.

All of these treatments fall into one of four broad categories

  • AVOID: by not participating in a particular contract.
  • TRANSFER: through risk allocation in the contract or through insurance.
  • REDUCE: implement measures to reduce the effect or frequency / probability of the risk.
  • RETAIN: accept the risk and establish a contingency.

 

risk-management-1

Integrated Risk Management Model/Method for Overseas Projects (CSM Context)

  1. Risk management should begin at the project inception stage with the establishment of the Project Team and the appointment of a Risk Manager.
  2. The Risk Manager and the Project Team continuously review the project to identify risks.
  3. Identified risks are assigned a Risk Owner, an expert either from within the Project Team or external to the project, who analyses the risk and develops treatment options.
  4. The Project Team review individual risks and treatments with the Risk Owner and select the most cost effective treatment strategy, a process which often involves the client.
  5. Risk identification, analysis, treatment, review and reporting continue throughout the entire project life-cycle.
  6. Effective utilization of corporate knowledge base of “Lessons Learned”.

Apart from the above, following points need to be taken care of:

  1. Accept and research the cultural challenges of international teams
  2. Deal with the practicalities of time zones
  3. Protect the home-based team
  4. Understand the challenge of split location
  5. Focus on communication
  6. Use the right tools

Risk-Governance-Dashboard

Conclusion

Very often the successful project execution calls for not only the project manager’s and his team’s technical competencies in effectively managing the above, but also the special leadership skill-sets to understand, integrate and manage the cultural diversity.

Most often it is not the technical strength of the project management team (which is accepted as given) but the soft leadership skills like understanding of cultural differences, effective communication skill and the extraordinary level of interpersonal skills which create TRUST and drive the project SUCCESS. This is even truer for an international project.

Leave a Reply