Program cost control is an essential aspect of project management, and risk management plays a vital role in ensuring that program costs are effectively controlled. The process of identifying and assessing risks, and developing strategies to mitigate those risks, can help to minimize cost overruns and keep programs on track.
Series
Over the next few weeks, I shall share a series of posts entitled “What Great looks like – Cost Management in Program Management”
Tools and Techniques
To understand the role of risk management in program cost control, let’s start by looking at what program cost control entails.
Program cost control is the process of managing costs associated with a program throughout its lifecycle, from initial planning to final delivery. This includes estimating costs, monitoring expenses, and making adjustments as necessary to ensure that the program stays within budget.
Risk management, on the other hand, is the process of identifying, assessing, and managing risks that could impact a program’s costs. This includes identifying potential risks and evaluating their likelihood and potential impact, developing strategies to mitigate or avoid those risks, and monitoring and reassessing risks throughout the program lifecycle.
So, how does risk management contribute to effective program cost control? Let’s take a closer look at some of how risk management can help to control program costs:
Early identification of potential cost overruns:
By identifying potential risks early in the program lifecycle, project managers can take proactive measures to mitigate those risks and avoid cost overruns. For example, if a risk assessment identifies a potential delay in delivery due to a supplier issue, the project team can take steps to address the issue before it impacts the program schedule and budget.
Better cost estimation:
Risk management can also help to improve cost estimation by identifying potential risks and uncertainties that could impact program costs. By taking these risks into account when developing cost estimates, project managers can develop more accurate and realistic budgets.
Cost-effective risk mitigation strategies:
Developing strategies to mitigate risks can be costly, and it’s important to ensure that these strategies are cost-effective. By considering the potential costs and benefits of different risk mitigation strategies, project managers can develop strategies that minimize program costs while effectively managing risks.
Monitoring and reassessment:
Risk management is an ongoing process, and risks can change throughout the program lifecycle. By monitoring and reassessing risks on an ongoing basis, project managers can adjust their cost-control strategies as needed to ensure that the program stays within budget.
Not just necessary, Vital
In summary, effective risk management is essential for controlling program costs. By identifying potential risks, developing cost-effective mitigation strategies, and monitoring and reassessing risks throughout the program lifecycle, project managers can effectively control program costs and ensure successful program delivery.
Who are the Thought leaders
When it comes to the role of risk management in program cost control, there are many thought leaders and experts in the field:
David Hillson:
Hillson is a recognized expert in risk management and has written numerous articles and books on the subject. In his book, “Managing Risk in Projects,” he emphasizes the importance of identifying and assessing risks early on in the project lifecycle to ensure effective cost control.
Douglas Hubbard:
Hubbard is an author and consultant specializing in risk management and decision-making. In his book, “The Failure of Risk Management,” he argues that traditional risk management approaches are often ineffective and suggests a more quantitative approach to risk management that can better inform cost control strategies.
Rita Mulcahy:
Mulcahy was a pioneer in the field of project management and authored several books on the subject, including “Risk Management: Tricks of the Trade for Project Managers.” In her book, she provides practical tips and techniques for identifying and managing risks that can impact project costs.
Michael Porter:
Porter is a renowned economist and professor at Harvard Business School. In his book, “Competitive Advantage,” he argues that effective cost management is a key driver of competitive advantage for organizations. He suggests that companies should focus on identifying and managing risks that could impact their costs to remain competitive.
This really matters – Risk Management in Program Cost Control
I have to declare, I am very cynical when I meet someone and I hear them pronounce “I am a Project Manager”. Why? A fundamental skill set of a Project Manager or Program Manager is their ability to make exceptional decisions, ie possess an above-average ability to make decisions. Therefore a project or program manager must possess a robust understanding of great risk management.
Separating Great from Good
What separates great risk management from good risk management when it comes to cost control is often the depth and breadth of the risk management strategy. A great risk management plan will not only identify and assess risks but will also have a comprehensive mitigation strategy in place.
Additionally, great risk management will be integrated into the overall project plan and will be revisited regularly to ensure that new risks are identified and addressed.
Good but not Great
Good risk management, on the other hand, may only focus on identifying and assessing risks without a comprehensive mitigation strategy or integration into the overall project plan.
