Sam S.

asked • 02/06/17

Why is a risk plan developed prior to completing the estimate? Give examples of planning (or not planning) for risk in a budget and how that impacted the execu

Why is a risk plan developed prior to completing the estimate? Give examples of planning (or not planning) for risk in a budget and how that impacted the execution of the project. project cost management

Carrie G.

tutor
I am going to answer this question based on my time working at Dell for Global Online. In my position, I had three roles. One of them was as a project manager for Global Online (Dell.com), and another was acting as governance and oversight for all projects for all the lines of business under approx. $800,00 that would go on Dell.com. So I provided oversight for every project for Dell.com from resource allocation, feasibility, risk, and budget, and lead a core team that determined and prioritized which projects were or were not contributing to Dell's overall marketing strategy and fiscal goal for the year. This is not an example as much as an explanation as to why risk plans are so crucial. I don't have an example because I have literally never not accounted for dependencies and risks. However, I can also answer this question based on my time working in advertising where the impact is a little different, if you think that would be helpful? Just let me know :) Developing a risk plan is essential before completing the estimate because you are taking into account dependencies and potential issues that may impact the overall cost and scope of the project. It also helps the owner of the project by meeting with all discipline leads to determine possible risks. This helps the owner understand better what each team owns and does, which in turn, can be incredibly helpful in empowering the owner to educate other disciplines. The owner/PM is the hub of the wheel and should have a decent understanding of how each discipline impacts one another at all times so that he/she can understand what is happening in the project in terms of budget and resources, (kind of like always having a snapshot of the status of the project in mind) but also, be able to better anticipate risks during the course of the project that may have not yet been identified. By identifying dependencies and the possible risks that can impact a project (since we know that no project EVER goes according to plan and there are always unknowns) we can, at the very least, educate the team and project owners of potential issues that may come up, we are ensuring that all disciplines are on the same page. This also empowers them to stay on top of what is happening within their department and enables them to give the owner/PM a heads up if they start to see a potential issue. Although we may over budget based on the risk plan, we have given ourselves cushion. It allows us to finish under budget if managed correctly because even if some risks are averted, there are others that may not have been anticipated as I mentioned above. This also helps in more accurate resource allocation. It is much better to have your budget be a little higher than you might like than to have to go over budget unexpectedly, which will cause a domino effect regarding resource allocation and budgeting for other projects. Suddenly, the project is taking longer and other projects in the pipeline are now affected. They have a start date that they may not be able to keep because your project has some of the resources that they need. The same goes for the budget. There may have to be money pulled from other projects in order to fund yours. This can throw off quarterly projections for different departments, and it can leave resources and managers from other projects or departments in a stressful emotional space, especially if their project gets deprioritized because yours was not planned well. Marketing goals can get missed and essential programs (not projects) can suffer as well. I hope this we helpful. Please let me know if you have any further questions or need clarificaiton :)
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05/14/22

1 Expert Answer

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Bernard N. answered • 12/14/22

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PMI Certified PMP with 10 years teaching experience

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We want the cost budget estimates to be as realistic and reliable as much as possible.

So, it is important to consult the risk register to identify all the cost risks that can impact the cost estimates and make cost provision for their mitigation in the cost estimating process.

Some of the examples of cost estimates risks that you need to plan for are as follows, Poor Scope Definition, Unforeseen works, Inclement Weather Events, Social Upheavals, Additional Works, Work Suspensions, Delays etc

So, you need to provide a contingency fund in the cost estimates to be used to mitigate these identified cost risks in case they become issues.

If you don't plan for these cost estimates risks and make contingency provision for them you will end up with surprises and excessive cost overruns which will not go down well with the client.


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