All projects have risks in one way or the other. It is crucial that organizations plan for the risks in advance by anticipating them and having a contingency plan at bay should they occur. This is achievable through risk analysis. Risk analysis is a process that avails tools for identification, assessment and modeling risks in a way that reduces uncertainty from any project. Various organizations have lost millions of dollars in projects whose risks were not anticipated. A good example is Denver Airport, whose highly anticipated baggage system failed at the testing stage, making it to lose millions of dollars.
BAE automated systems is the company that built the computerized baggage handling system on behalf of Denver International Airport. The system was installed in the 1990s. It was the remaining part that would see the opening of the largest airport in the United States of America. Montealegre, and Keil (2000) noted the following about the anticipated baggage system:
Tearing like intelligent coal-mine cars along 21 miles of steel track, 4,000 independent “telecars” route and deliver luggage between the counters, gates and claim areas of 20 different airlines. A central nervous system of some 100 computers networked to one another and to 5,000 electric eyes, 400 radio receivers and 56 bar-code scanners orchestrates the safe and timely arrival of every valise and ski bag (p. 419).
The system that was meant to lessen fight delays, reduce luggage waiting time, and reduce the labor costs became the most expensive loss in American airline history (Montealegre & Keil, 2000). Mechanical and software problems like falling of bags from the telecarts, misrouting of the bags and jamming of bags at the conveyor belts dominated the testing stage. The system could not detect the pile of bags at any terminal points. These problems made the opening of the airport to delay by 16 months. The company incurred extra expenses of $1 million per day on top of the $186 million used for the system’s construction. The system did not work as designed, forcing the company to abandon it. It cost Denver Airport $560 million more than the anticipated costs.
The major reason for failure of the system lies in its complexity. The crucial decision makers of the project did not fully understand the complexity of the system. It is the most complex airport system that has ever been designed. System requirements changed with time as its construction proceeded. This is because the engineers came across issues that were not anticipated. Change in requirements implied an increase in the costs incurred. These extra costs made the management to abandon the project. It was reported that the management of the project failed to embrace advice from experts, making it to fail. Another cause for the failure of the system is lack of a recovery process that could deal with mechanical failure.
It is highly recommended that risk analysis should be carried out on any project before it even begins. For an IT project, a risk management framework that starts from planning and ends at evaluation should be employed (Marchewka, 2009). The first step is risk planning. The management should show commitment to the risk management process. They should avail resources that are instrumental for the whole planning process.
After this is done, they should identify all the possible risks exhaustively. The management should outline the causes and effects of each and every risk that is identified. The risks are then assessed after outlining causes and effects. The probability of occurrence of each risk is established. The management should then come up with strategies for the risks. Risk strategy has emphasis on the magnitude of the risk; if it can be ignored or avoided.
Risk monitoring and control should be done after formulating the risk strategy. In this step, the project management checks the environment for threats and opportunities that can trigger the risk. The final steps that the management should embark on are risk response and evaluation. Response gives the means for checking the environment for risks. Evaluation entails identifying the best possible solutions for the risks. The procedures to be taken should the risk occur are then documented. This technique is important because it exhaustively tackles each risk before it takes place.
References
Marchewka, J. T. (2009). Information technology project management: Providing measurable organizational value. New York: John Wiley & Sons Inc.
Montealegre, R. & Keil, M. (2000). De-escalating information technology projects: Lessons from the Denver International Airport. MIS Quarterly, 24(3), 417-447.